## Facts

- Chester L. Strawser and Connie M. Strawser borrowed $350,000 from Homestead Savings Association (Homestead) and, on December 19, 1986, executed an adjustable-rate promissory note in Homestead’s favor.
- The note required monthly installment payments, with any remaining balance due on January 1, 1997.
- The note defined default to include failure to make timely monthly payments and (by reference to a related commitment letter) failure to perform specified covenants after notice and an opportunity to cure.
- The note’s acceleration clause provided that upon default the note holder could send written notice stating that if the overdue amount was not paid by a specified date, the holder could require immediate payment of the unpaid principal and accrued interest.
- The loan was secured by a mortgage on multiple parcels of real property and additional collateral under a security agreement.
- On March 22, 1993, Homestead assigned the note and mortgage to State Street Bank & Trust Company (State Street).
- After the Strawsers became delinquent, State Street sent a written notice of default on October 17, 1994, stating that the Strawsers had 30 days to cure by paying the past-due principal and interest and warning that State Street would accelerate the debt if they did not.
- The Strawsers did not cure within the stated period, and State Street accelerated the obligation and sued the Strawsers to recover the full unpaid balance (plus interest and contractually authorized charges).
- State Street moved for summary judgment, asserting it was a holder in due course (HDC) of the note and therefore entitled to enforce it free of the Strawsers’ defenses.
- The Strawsers opposed summary judgment, arguing State Street was not an HDC because it allegedly had notice of a potential defense: they claimed Homestead violated Pennsylvania law and that a letter their attorney sent to Homestead put State Street on notice that the note might be unenforceable.

## Issues

1. Whether State Street qualified as a holder in due course under Pennsylvania’s Commercial Code, including whether it took the note without “notice” of the Strawsers’ alleged defenses.
2. Whether, given the undisputed default and the acceleration notice, State Street was entitled to summary judgment for the accelerated balance as a matter of law.

## Decision

- The court granted State Street’s motion for summary judgment.
- The court held that State Street was a holder in due course of the note and could enforce it free of the Strawsers’ asserted defenses.
- The court found no record evidence that State Street had actual knowledge of, received notification of, or had reason to know of the alleged defense based on the Strawsers’ attorney letter or any alleged statutory violation by Homestead.
- Because the Strawsers failed to produce evidence creating a genuine dispute on the “notice” element, their challenge to State Street’s HDC status failed.
- With HDC status established and the default and acceleration shown, State Street was entitled to judgment for the amount due under the accelerated note.

## Legal Principles

- Under the Pennsylvania Commercial Code (U.C.C. Article 3), a holder in due course is one who takes a negotiable instrument for value, in good faith, and without notice of claims or defenses; an HDC may enforce the instrument free of most borrower defenses (i.e., personal defenses).
- For HDC purposes, “notice” includes (1) actual knowledge, (2) receipt of notice or notification, or (3) reason to know from the facts and circumstances known at the relevant time.
- A borrower resisting enforcement by an alleged HDC must come forward with competent evidence showing a genuine factual dispute as to a material element such as notice; unsupported assertions or speculation do not defeat summary judgment.
- When default and compliance with contractual acceleration-notice requirements are shown and no triable issue exists as to defenses enforceable against the plaintiff, summary judgment for the accelerated balance is proper under Fed. R. Civ. P. 56.

## Conclusion

State Street, as assignee of the Strawsers’ adjustable-rate note, proved default, provided the contractually required notice of default and intent to accelerate, and established holder-in-due-course status because the record did not show it had notice of the Strawsers’ alleged defenses; the court therefore entered summary judgment for State Street for the accelerated amount due.


State Street Bank & Trust Co. v. Strawser, 908 F. Supp. 249 (1995)