Opinion ID: 2052009
Heading Depth: 1
Heading Rank: 4

Heading: Whether Waukon Auto's Allegedly Negligent Business Practices Provided an Affirmative Defense.

Text: The Bank asserts the district court erred in concluding that Waukon Auto's allegedly negligent business practices did not provide an affirmative defense under Iowa Code section 554.3406. Once again, we disagree. Section 554.3406 provides: Any person whose negligence substantially contributes . . . to the making of an unauthorized signature is precluded from asserting . . . lack of authority against a holder in due course or against a drawee or other payor who pays the instrument in good faith and in accordance with reasonable commercial standards of the drawee's or payor's business. (Emphasis added.) In considering the Bank's affirmative defense, the district court noted that under section 554.3406, negligence precludes recovery only against a holder in due course or payor who acts in a commercially reasonable manner. Because the Bank was neither, the court concluded that Waukon Auto's recovery was not precluded by its allegedly negligent employee supervision and bookkeeping practices. As we have already explained, the district court was correct in finding that the Bank was not a holder in due course and did not act in a commercially reasonable manner. Hence, like the district court, we think section 554.3406 simply does not apply here.