Opinion ID: 344807
Heading Depth: 3
Heading Rank: 2

Heading: Forged Checks

Text: 36 As opposed to diverting an intended payment to someone other than the intended recipient, forged checks present the problem of depleting the ostensible drawer's funds when he had intended no payment. The Code's treatment of forged checks, however, begins in the same place as its treatment of forged indorsements. The forgery does not operate as the ostensible drawer's signature. See § 3-404(1). Payment consequently is not to the ostensible drawer's order and violates the drawee bank's strict duty to charge its customer's account only for properly payable items. See § 4-401(1). 37 The Code's analysis of forged check liability not only begins with the drawee, however; it also generally ends there. The drawee's payment of a forged check is final in favor of a holder in due course or one who has relied on the payment in good faith. § 3-418. This final payment rule codifies and attempts to clarify the rule of Price v. Neal, 3 Burr. 1354 (K.B.1762), under which a drawee who accepts or pays an instrument on which the signature of the drawer is forged is bound on his acceptance and cannot recover back his payment. § 3-418, Comment 1. Prior parties in the collection chain who meet the prerequisites set out in § 3-418 will be immunized by its final payment rule from any liability for negligence in dealing with the forged check. 38 The above scheme allocating forgery losses among the various parties to the check collection process operates without regard to fault. The drawee's duty to charge its customer's account only for properly payable items and the warranty of title given by prior parties in the chain of transfer impose standards of strict liability. 39 Fault does occupy a secondary role in the UCC treatment of forgery losses. One whose negligence substantially contributes to the making of an unauthorized signature cannot assert the invalidity of that signature against a holder in due course or a drawee who without negligence pays the check. § 3-406. Thus the drawee can pass the loss back to a drawer or forward to a prior party in the collection chain whose negligence substantially contributed to a forgery. The complaining party's negligence will not, however, bar otherwise available recovery against a party, including a drawee, who is also negligent. Id. Additionally, while nothing in the Code precludes a bank and its customer from modifying the forgery loss rules by contract, the bank cannot enforce an agreement permitting it to act in violation of reasonable commercial standards. § 4-103(1). 40