## Facts

- An impostor, posing as Ronald E. Wilder, applied by phone to a consumer finance company for a $20,000 loan; the company ran credit on the real Wilder, received tax returns by fax, and approved an $18,000 loan.
- The impostor appeared in person, presented a driver’s license with his photo but Wilder’s identifying information, and signed loan documents; the company issued an $18,000 check payable to “Ronald E. Wilder.”
- The company did not contact the personal references listed on the loan application.
- The impostor took the check to a licensed check-cashing business, presented the same identification and loan documents, and the cashier compared the check to other checks previously cashed from the same drawer and consulted the business’s compliance officer.
- The check-cashing business did not obtain a thumbprint as required by its internal procedures and did not call the drawer to verify the check.
- The check-cashing business cashed the check and paid the impostor the proceeds minus a fee.
- The real Wilder later executed an affidavit of forgery; the drawer issued a stop-payment order, and the check was dishonored when presented through banking channels.
- The check-cashing business suffered the loss and sued the drawer for the face amount, asserting holder-in-due-course status and reliance on Maryland’s enactment of U.C.C. § 3-404 (impostor rule).

## Issues

1. Under Md. Code, Com. Law § 3-404, when an impostor induces issuance of a check payable to the impersonated person and negotiates it at a check-cashing business, does the loss fall on the drawer or the check-cashing business?
2. Did the check-cashing business take the instrument as a holder in due course and exercise “ordinary care” under reasonable commercial standards for its business, despite failing to take a thumbprint and not verifying the check with the drawer?

## Decision

- The Court of Appeals of Maryland reversed and remanded with instructions to enter judgment for the check-cashing business for the face amount of the check.
- The court held the drawer liable under § 3-404 in this impostor transaction.
- The court held the check-cashing business was a holder in due course.
- The court held the check-cashing business exercised ordinary care under commercially reasonable standards; the failure to obtain a thumbprint did not, by itself, establish lack of ordinary care.

## Legal Principles

- Under Md. Code, Com. Law § 3-404 (impostor rule), loss from an impostor-induced issuance is generally allocated to the drawer when the drawer’s conduct enabled issuance to the impostor, subject to statutory limits involving ordinary care.
- “Ordinary care” is measured by reasonable commercial standards prevailing in the relevant business and locality, not by a requirement to take every possible precaution.
- A holder in due course takes an instrument for value, in good faith, and without notice of a claim, defense, or defect, and may enforce the instrument free of many defenses.
- Internal policy deviations are not dispositive of ordinary care if the overall conduct aligns with prevailing commercial practice.

## Conclusion

The court placed the loss from an impostor’s fraud on the drawer that issued the check, concluding the check-cashing business acted as a holder in due course and met the U.C.C. ordinary-care standard despite not following every internal verification step.


State Sec. Check Cashing, Inc. v. Am. Gen. Fin. Servs. (DE), 409 Md. 81, 972 A.2d 882 (Md. 2009)