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

Heading: The Code Policy: Incompletely Greasing the Commercial Wheels

Text: 41 In sum, the Code, while allowing for some modification on the basis of fault or agreement, sets up a system of strict liability rules allocating loss according to the type of forgery. The system uneasily rests on two policy bases. First, it incorporates an at least partially outmoded notion of the relative positions of drawee banks and prior parties in the collection chain with respect to detecting different types of forgeries. Second, it incompletely serves the notion that commerce will be facilitated by bringing to the swiftest practicable conclusion the processing of a check transaction. 42 As mentioned, the separate treatment given forged checks and forged indorsements harkens back to the eighteenth century decision of the King's Bench in Price v. Neal. That decision left forged check liability on the drawee on the view that, as against other parties in the line of transfer, the drawee stood in the best position to recognize the signature of the drawer, its customer. The corollary principle for forged indorsements is that the person who takes the check from the forger frequently, as here, the depositary bank is in the best position to detect the bogus indorsement. 43 Reaffirming Price v. Neal in the final payment rule of § 3-418, the Code drafters recognized that the case's appraisal of relative opportunity to scrutinize drawer signatures was somewhat unrealistic in a nation where banks may handle some 60 million checks daily. 9 The contemporary pace of commerce has eroded the five senses used by bankers in the face-to-face era of Price versus Neal; little remains save the sensory activity of punching keys. While the drafters thus concluded that Price v. Neal had been drained of all its personality, they nevertheless insisted that its conclusion survives. The drafters noted that modern groundwork for the final payment rule could be found in the 44 less fictional rationalization . . . that it is highly desirable to end the transaction on an instrument when it is paid rather than reopen and upset a series of commercial transactions at a later date when the forgery is discovered. 45 § 3-418, Comment 1. In recognition of the frenetic commerce of our time, the thrust of the UCC here and elsewhere is for speed and facility at some expense to exact checks and balances. 46 Leaving forged check liability on the drawee may serve well this finality policy. That policy, however, does not itself justify separate treatment for forged checks and indorsements. The concern that commercial transactions be swiftly brought to rest applies with equal force to both varieties of wrongdoing. See White and Summers, supra, at 522-23; Comment, Allocation of Losses From Check Forgeries Under the Law of Negotiable Instruments and the Uniform Commercial Code, 62 Yale L.J. 417, 459-60 (1953). 47 While finality viewed alone calls for equal treatment of forged checks and forged indorsements, one might still maintain that forged indorsements merit separate rules. The modern demands of commerce have as the drafters recognized, deprived drawees of any superior opportunity to detect forged drawer's signatures. Only a concern for finality therefore justifies placing forged check losses on drawee banks. 48 Such simple expedients as requiring identification, however, may still permit transferees of checks to provide a significant protection against forged indorsements that drawees cannot. To insure such protective measures are taken, it may be sensible to override the finality policy and to place forged indorsement losses on the depositary bank or other party who takes from the forger. It should be immediately noted, however, that whatever force this approach has in the usual forged indorsement case is diminished where, as here, the suspect indorsement appears on a check that is itself forged. Someone forging a check will likely draw the check to a payee whose identity he can readily assume, such as himself or a fictitious person. In such circumstances the party who first takes the check may well have no particular opportunity to detect any impropriety in the indorsement. 49 In any case, we need not resolve whether the Code's rule of strict liability for those who take a forged indorsement check from the forger may be fully justified by the opportunity such parties have to thwart the criminal enterprise. It suffices to note that the Code bases its separate treatment of forged checks and forged indorsements on a finality policy that itself calls for no such distinction. Of course we have no mandate to ignore the codified distinction. The significance for this court today of the clash between the drafters' rule and the drafters' policy lies elsewhere. 50 Put simply, when we consider the arguments that these forged checks also contain unauthorized indorsements, we must keep in mind the Code's commitment to finality. We cannot call forged indorsements by any other name in order to serve our own interpretations of the balance between the UCC finality policy and relative opportunity to flush out forged indorsements. On the other hand, as we assess whether the highly unusual circumstances before us call for the label of forged check or forged indorsement, or how to operate if we are in the ill-defined and rarely encountered region in which both labels are applicable, we need not prostrate ourselves blindly before the formalisms of title on an assumption that depositary banks should be held accountable in every instance of improper indorsement. Without a uniform commercial blueprint for every possible fraud and forgery, our calling is to interstitial interpretation. In its pursuit we must recognize two considerations the UCC's concern for finality and the probability that depositary banks, whatever their position in the usual forged indorsement case, have no unique opportunity to detect improper indorsements on checks that are themselves forged.