State Street Bank & Trust Co. v. Strawser

In consideration of a $350,000 loan, Chester and Connie Strawser (defendants) issued an adjustable-rate note in favor of Homestead Savings Association (Homestead). The note required payment in monthly installments, with a final due date of any remaining balance on January 1, 1997. Paragraph 7(c) of the note provided that, in the event of a default by the Strawsers, the holder of the note was entitled to notify the Strawsers that the holder would accelerate the payment obligation and require immediate payment of the entire balance if the Strawsers did not satisfy the overdue payments by a specified date. Homestead assigned its rights in the note to State Street Bank & Trust Company (State Street) (plaintiff). State Street sent a notice of default to the Strawsers, requiring their overdue payments to be made within 30 days. The notice indicated that State Street would otherwise invoke paragraph 7(c) of the note and demand full, immediate payment of the remaining balance. The Strawsers did not respond to the notice. State Street brought suit against the Strawsers, seeking payment of the remaining balance on the note. State Street then filed a motion for summary judgment, claiming status as a holder in due course entitled to enforce the note free of the Strawsers’ potential defenses. The Strawsers argued that State Street was not a holder in due course, because State Street had known of the Strawsers’ potential defense to payment under § 3305(a) of the Pennsylvania Commercial Code (Code). Specifically, the Strawsers asserted that State Street was on notice, through a letter sent by the Strawsers to Homestead, that the note might be unenforceable due to Homestead’s violation of state law.