## Facts

- Elden Guerrette died in September 1995, leaving a life insurance policy naming his adult children (Daniel, Joel, and Claire Guerrette) as beneficiaries.
- The insurer issued three checks, each for $40,759.35, payable separately to each beneficiary and drawn on the insurer’s account at an out-of-state bank.
- The insurer’s agent and a confederate induced the beneficiaries to endorse the checks in blank and transfer them for a purported investment in a corporation the wrongdoers controlled.
- The confederate deposited the three checks into his account at Maine Family Federal Credit Union, and the Credit Union made the funds immediately available.
- After learning of the scheme, the beneficiaries contacted the insurer; the insurer ordered stop payment.
- The drawee bank dishonored the checks and returned them to the Credit Union after the confederate had withdrawn most of the funds, leaving the Credit Union unable to recoup the loss.

## Issues

1. Whether the Credit Union qualified as a holder in due course under the revised U.C.C. “good faith” definition requiring both honesty in fact and observance of reasonable commercial standards of fair dealing.
2. Whether the drawer-insurer could avoid liability on the dishonored checks by asserting the beneficiaries’ fraud-based defenses arising from the wrongdoers’ inducement.

## Decision

- The court affirmed the finding that the Credit Union was not a holder in due course because it failed the revised “good faith” standard’s objective component.
- The court vacated the judgment insofar as it relieved the drawer-insurer of liability to the Credit Union.
- The court held the drawer could not assert the beneficiaries’ fraud defense as a defense to the drawer’s own obligation on the instruments.
- The case was remanded for entry of judgment consistent with the drawer’s continuing liability on the checks.

## Legal Principles

- Under the revised U.C.C. standard, “good faith” requires both (1) honesty in fact and (2) observance of reasonable commercial standards of fair dealing; failure to follow reasonable banking practices can defeat holder-in-due-course status.
- A party that is not a holder in due course takes an instrument subject to defenses, but only defenses that are legally available against the defendant whose liability is being enforced.
- A drawer may not avoid its own liability on a check by borrowing another party’s personal defense (such as a payee/indorser’s fraud defense) when that defense is not a defense to the drawer’s obligation on the instrument.

## Conclusion

The court upheld the determination that the depositary Credit Union was not a holder in due course under the amended “good faith” standard, but ruled that the drawer-insurer remained liable on the dishonored checks because it could not invoke the beneficiaries’ fraud defense to defeat payment.


Maine Family Fed. Credit Union v. Sun Life Assurance Co. of Can., 727 A.2d 335 (Me. 1999)