Opinion ID: 344807
Heading Depth: 4
Heading Rank: 2

Heading: The presence of forged drawer signatures.

Text: 103 Nevertheless, we need not announce that, as a matter of law, liability for handling missing or incomplete indorsements shall extend no further than necessary to provide for claims of the true payee. Rather, we hold only that such a limitation of liability is appropriate when the missing or incomplete indorsement is on a forged check. The ostensible drawer's loss in such a situation can generally, as here, be related to the defective indorsement in only the most speculative fashion. No sound basis exists for extending liability for handling the indorsement beyond the unlikely event of a claim of superior right to payment under the instrument. 23 104 Our holding receives support from the double forgery cases in which courts have grappled with claims that forged checks also bear forged or improper indorsements on which liability might be predicated. Prior to the Code, the majority of jurisdictions treated double forgery cases as if they involved forged drawer's signatures alone. See Comment, supra, 62 Yale L.J. at 455. Thus the loss rested with the drawee, who had to recredit the account of the ostensible drawer but could not recover from prior collecting banks under the rule of Price v. Neal. 24 105 Discussing the application of Price v. Neal in the double forgery context, the Supreme Court in United States v. Chase National Bank, 252 U.S. 485, 496, 40 S.Ct. 361, 363, 64 L.Ed. 675 (1920), suggested the theory limiting indorsement liability that we recognize today: 106 The forged indorsement puts (the drawee) in no worse position than he would occupy if that were genuine. He cannot be called upon to pay again and the collecting bank has not received the proceeds of an instrument to which another held a better title. 107 The Court treated the dispute as a forged check case, and, applying Price v. Neal, left the loss on the drawee. 108 Commentators have suggested with remorse that the Code warranties of title overturned this analysis and required treating double forgery cases under the rules of forged indorsement liability. See Comment, supra, 62 Yale L.J. at 455. 25 At least one recent case, however, suggests that the title warranty does not mandate shifting the loss to collecting banks in a double forgery case. 109 In Aetna Life and Casualty Co. v. Hampton State Bank, 497 S.W.2d 80 (Tex.Civ.App.1973, writ ref'd n. r. e.), the court had to determine whether a forged indorsement rendered a depositary bank liable in circumstances similar to the case at bar. Someone had stolen company checks and forged the drawer's signature. He made the checks payable to a fictitious Pizza Inn # 32 and indorsed them in that manner. The depositary bank credited an account he had opened in the name of Pizza Inn # 32. 110 The court rejected the argument that the forged indorsement deprived the depositary bank of title and gave rise to warranty liability: 111 A warranty of title is nothing more than an assurance that no one has better title to the check than the warrantor, and therefore, that no one is in a position to claim title as against the warrantee, as the payee or other owner of a genuine check could do if his endorsement were forged. 112 On payment of the check to Hampton, Northwest's loss could not be said to have resulted from any breach of Hampton's warranty of title because no person whose name appeared to be endorsed on the check has asserted any claim of title based on lack of a genuine endorsement. Northwest's loss was rather the result of paying out its money on a check to which its own depositor's name was forged. 113 497 S.W.2d at 84 (citations omitted). The loss in the instant case is equally the result of the drawees' paying checks to which Perini's name was forged, rather than any claim of title raised by Southern Contracting Co. or Quisenberry Contracting Co. That Perini's facsimile signature resolution precludes it from placing the forged check loss on the drawees does not make it any the less a forged check loss. 114 It is true that the indorsements in Aetna were in the name of the named payee. The case thus fell squarely under § 3-405(1)(b), the fictitious payee provision we earlier encountered. 26 Quisenberry's failure to indorse in the name of the contracting companies does remove the case from the coverage of that provision. 115 Nonetheless we find that the Aetna court's definition of title warranty and characterization of a double forgery loss extends persuasively to the case at bar. Others have explained why no warranty liability should arise even in the true double forgery situation not covered by § 3-405(1)(b): 116 Since the drawer whose signature is forged is not meeting an obligation to the payee and the payee is not entitled to payment in the first place, the drawee bank could not be compelled to pay again. Thus, the drawee bank's loss (here Perini's loss as the estopped drawer) results not from making payment to the wrong person because of a forged indorsement, but from making any payment at all on the basis of a forged drawer's signature. 117 O'Malley, The Code and Double Forgeries, 19 Syracuse L.Rev. 36, 43-44 (1967). 27 The appellee banks did pass along and pay checks with a discrepancy between payee and indorsement. They credited the proceeds, however, to accounts in the names of the designated payees. In such a situation courts dealing with valid checks generally limit indorsement-related liability to the claims of the true payee. We find such a limitation particularly appropriate where the defective indorsement occurs on a forged check, in which case no true payee can demand payment. Accordingly, we hold that the indorser's failure to sign a forged check in a representative capacity provides no basis for imposition of improper payment, warranty, or conversion liability. 28 On this basis we affirm the judgment in favor of appellees on these claims, as well as the claims of common law conversion and breach of an implied deposit contract. 29