GRAS is a Michigan corporation engaged in the business of buying and selling cars. Between 1997 and 2000, Katrina Stewart was employed as a manager by GRAS. During that period, Stewart wrote checks, without authority, on GRAS’s corporate account payable to MBNA and sent them to MBNA for payment of her husband’s MBNA credit card account. MBNA accepted the checks and credited the proceeds to Stewart’s husband’s credit card debt.

MBNA accepted and processed the GRAS checks in its normal manner through electronic processing. When MBNA receives a check for a credit card payment, the envelope containing the check and the payment slip is opened by machine and the check and the payment slip are electronically processed and credited to the cardholder’s account balance. MBNA does not normally review checks for Chapter 30 Liability of the Parties Under Negotiable Instruments 683 credit card payments. After crediting a payment check to the cardholder’s account, MBNA transfers it to the bank on which it is written for collection.

Pursuant to its standard practice, MBNA did not review the checks it received from Stewart. GRAS did not have a customer relationship with MBNA during the relevant time period.

GRAS sought a refund of the amounts Stewart embezzled via the MBNA application of the checks to Stewart’s husband’s credit card account. MBNA said it was a holder in due course. Was MBNA a holder in due course? Was MBNA subject to GRAS’s defense of unauthorized instruments? [Grand Rapids Auto Sales, Inc. v MBNA America Bank, 227 F Supp 2d 721 (WD Mich)]

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