Opinion ID: 344807
Heading Depth: 1
Heading Rank: 4

Heading: Perini's Forged Check Claims

Text: 118 We have explained our understanding why this case should receive the treatment that the Code, echoing Lord Mansfield, would give a forged check case. Perini maintains that the district court's treatment of its suits against Habersham and Fulton was erroneous even under that assumption. 30 Its arguments are two-fold: first, the company claims that the final payment rule is inapplicable to suits brought by a drawer; second, Perini urges that the incomplete indorsements preclude Habersham and Fulton from clothing themselves in the final payment rule. After a brief description of the nature of Perini's forged check claims against Habersham and Fulton, we shall explain why we find unavailing the company's dual arguments. 119 Nothing in the Code provides Perini an action against the collecting banks on the basis of the forged drawer's signature. The UCC, however, displaces common law causes of action only to the extent they are inconsistent with the provisions of the Code. See § 1-103. Perini brought negligence and restitutionary causes of action against Habersham and Fulton in connection with the banks' handling of the forged checks. Those actions would allow Perini to recover without demonstrating, as it must under the district court's disposition, that Habersham acted in bad faith or had notice of defenses to the checks. The actions, however, are barred if the banks are entitled to the protections of the final payment rule. See § 3-418, Comment 4; White and Summers, supra, at 521-22. We conclude that rule does apply to Perini's claims as ostensible drawer, regardless of the incomplete indorsements. 120
121 Perini maintains that the final payment rule protects holders in due course and persons who have relied on the payment in good faith only against the subsequent claims of a drawee or other payor. Perini's argument lacks authority and is completely contrary to the finality policy incorporated in the rule. 122 The only cases cited by appellant in which a drawer has been permitted to sue directly a depositary or collecting bank involved forged or incomplete indorsements, not forged checks. See Prudential Insurance Company of America v. Marine National Exchange Bank, 315 F.Supp. 520 (E.D.Wis.1970); Insurance Co. of North America v. Atlas Supply Co., 121 Ga.App. 1, 172 S.E.2d 632 (1970). The final payment rule expressly provides that it is subject to warranty claims occasioned by such indorsements. These cases provide no basis for permitting a drawer's forged check suit against a depositary or collecting bank. 123 No authoritative basis could be supplied for such a suit, for it would completely undermine the finality policy incorporated in § 3-418. That provision allows one who meets its prerequisites to transfer a check secure in the knowledge that payment by the drawee ends the transaction with respect to claims that the drawer's signature is forged. See § 3-418, Comment 1. To allow the drawer, who as a regular customer of the drawee might be tempted to shift the loss away from that bank, the option of reopening the transaction would frustrate the expectations created by the Code. If Habersham and Fulton meet the final payment rule's prerequisites, they are entitled to assert its protection against Perini. 124
125 The rights of Habersham and Fulton to the sanctuary of Price v. Neal rest on whether those banks may claim holder in due course status. Specifically, we need address only the question whether the incomplete indorsements prevented the banks from becoming holders. Habersham's good faith and lack of notice of defenses to the check, the other relevant requisites to holder in due course status, remain properly set for further proceedings under the orders of the court below. We agree with that court that Perini has failed to raise any issue as to Fulton's good faith and lack of notice. 31 126 The Code defines holder as a person who is in possession of an instrument drawn, issued, or indorsed to him or to his order or to bearer or in blank. § 1-201(20). Perini's contention is that Quisenberry's failure to indorse in a representative capacity precluded Habersham from claiming the checks were indorsed to it. In this concatenation of circumstances that appears to have outstripped the imaginations of those who would call themselves learned in the ways of negotiable instruments, we conclude that holder need not be construed so narrowly. If a depositary or collecting bank in this situation can satisfy the other requirements of § 3-418, allowing it over the holder hurdle is consistent with the Code's separate treatment of forged check and indorsement losses, the ample customer protections provided by that bifurcated scheme, and the drafters' recognition of the fact that banks today frequently do not return checks missing or bearing incomplete indorsements. 127 First, we note that application of the § 4-205 stamp guaranteeing the absence of indorsements sufficed to make Habersham and Fulton holders of the checks bearing those stamps. The court in Bowling Green, Inc. v. State Street Bank & Trust Co., 425 F.2d 81 (1st Cir. 1970), recognized that missing indorsements may be supplied by such stamps. See also White and Summers, supra, at 459. The stamps should equally operate to remedy the omission of representative capacity. 32 128 We also find that, in the highly unusual circumstances presented, the banks may be properly treated as holders of those checks that Habersham failed to stamp. As in Bowling Green, supra, where the depositary bank was accorded holder status despite the complete absence of either indorsement or § 4-205 stamp, we have some doubt whether the bank's status should turn on proof of whether a clerk employed the appropriate stamp. 425 F.2d at 84. 129 The instant case involves checks that anyone could effectively indorse. This is so because the named payees were either fictitious or not intended to receive payment. See § 3-405(1)(b). Thus while in some sense Quisenberry was not necessarily in possession of checks drawn to him, he or anyone else in possession of the checks did have the capacity to negotiate them. In effect these are checks on which anyone could occupy the position of payee. Where there has been absolutely no indication that the payee contracting companies existed and that Quisenberry was not their authorized agent, his failure to indorse in a representative capacity does not require us to find that Habersham dealt with someone other than the payee. 130 Under § 3-302(2), a payee may be treated as a holder, despite his taking the instrument directly from the obligor. The shelter provision of § 3-201 conveys to the transferee of an instrument all rights held in the instrument by the transferor, regardless of any lack of indorsement. Given checks which anyone could effectively indorse, the insistence of Habersham on some indorsement, though incomplete, and the fact that Habersham credited accounts of the named payees, the dubious status of holder of forged checks may be bestowed upon Habersham and Fulton through payee Quisenberry. 131 True it is that holder in due course status is not to be lightly implied. Moreover, the drafters of the fictitious payee provision, § 3-405(1)(b), did suggest in making anyone's indorsement effective that takers of such checks require what purports to be a regular chain of indorsements. § 3-405, Comment 1. Perhaps a different result would obtain had Quisenberry supplied no indorsement or had Habersham failed to credit accounts held in the names of the contracting companies. By crediting a check with an incomplete indorsement to the account of the named payee, however, a depositary bank generally restricts its liability to claims of the true payee. The hole opened by § 3-405(1)(b) to achieving holder status on forged checks is not so narrow that it will shift a forged check loss to a depositary bank which credits the named payee's account and meets the other requirements of holding in due course. Accordingly, Habersham was a holder of these forged checks and by its indorsements transferred that status to Fulton. 132 Concluding that Habersham and Fulton were holders will not enable banks to treat indorsements any less carefully. A depositary bank of course cannot disregard indorsements on the assumption that checks will prove forged. If we may take any position with confidence in this bog of conundrums it is that such riddles do not occur daily. 133 Our conferral of holder status rather serves the finality policy which the drafters' recognized as the only valid modern basis for the rule of Price v. Neal. It does so by refusing to turn an impropriety which itself provides no predicate for unauthorized indorsement liability into a device for shifting forged check liability back to collecting parties who may be holders in due course in every respect save that improper indorsement. The Code has given us the bifurcated remedy scheme of Price v. Neal. Treating Habersham and Fulton as holders is the conclusion most consistent with that scheme and its modern policy basis. Accordingly, we affirm the summary judgment in favor of Fulton on the restitutionary and common law negligence claims. We affirm also the conclusion of the district courts that Habersham's position as a holder in due course is to rest on the questions of good faith and notice. 33