Court Opinion

ID: 9681651
Source: CourtListenerOpinion
Date Created: 2023-08-24 07:53:52.483045+00
Date Added: 2024-06-11T18:17:35.028608
License: Public Domain

John A. Fogleman, Justice, dissenting in part. I must dissent in part, because I feel that the decision as to the liability of First State Bank to Starkey Construction, Inc. (hereinafter referred to as- Starkey), and consequently that of First National Bank to First State Bank, is contrary to the provisions of the UCC. Although the majority recite the applicable provisions at length, along with appropriate committee comments, it seems to me that the opinion then seeks to justify bypassing the governing section by resort to decisions predating the code. I recognize that pre-existing principles af law and equity are to supplement the code, where they are not displaced by its particular provisions. Ark. -Stat. Ann. § 85-1-10S (Add. 1961). We must always, however, keep in mind that basic purposes of the code were to simplify, clarify and modernize the law governing commercial practices, and to make uniform the law among the various jurisdictions. § 85-1-102. When we resort to precode law to circumvent an effect of the code that may seem harsh at first blush, we tend to subvert its salutary purposes. As I read the UCC, I find that the .first point of appellant Starkey has merit. Under Ark. Stat. Ann. § 85-3-419(l)(c) (Add. 1961) the forged checks were converted by First State Bank. First State Bank’s liability is set out in subsection (2) of that section, i. e., “The measure of the drawee’s liability is the face amount of the instrument.” Comment 4 to § 85-3-419 provides as follows: “In the case of the drawee, however, the presumption1 is replaced by a rule of absolute liability.” First State Bank was not entitled to urge as a defense that the various joint payees had received the proceeds of the forged instruments; hence, Starkey should have been awarded judgment against First State Bank for $93,337.89, the sum of the face amounts of the forged instruments. First State Bank should have been awarded judgment against First National Bank in the same amount under First National’s guarantee of endorsements. It is not controverted that there was a general assignment of Eicon’s rights under the contract by Eicon to First National. The question then arises whether First National could enforce Eicon’s rights under the contract, having been forced to assume its liability. First National could enforce Eicon’s rights under the contract and would be entitled to judgment against Starkey as to those checks which bore forged endorsements but were ratified by the payees whose endorsements were forged. The unauthorized endorse-merits were ratified by persons or companies whose names had been forged whenever these payees accepted payments due them from the proceeds of the checks. For purposes of this action, under Ark. Stat. Ann. § 85-3-404 (Add. 1961) and Comments, the endorsements would be treated as valid and the instruments enforceable. To the extent that Eicon did not perform the contract or to the extent that the- forged endorsements were not ratified, First National would not be entitled to recover since its rights as assignee are subject to the terms of the contract between Eicon and Starkey. Ark. Stat. Ann. § 85-9-318(l)(a) (Add. 1961). The effect of a recovery by Graybar or other payees against Starkey for unpaid proceeds would be to reduce any recovery by First National Bank. Starkey actually recognizes First National Bank’s rights in this regard by stating in its brief that this bank would be entitled to whatever amount remained out of the $93,337.89, after Starkey’s payment of Eicon’s unpaid material bills, the cost of completion of the job and the claim of Graybar. They calculate this amount at $76,767.31, less any judgment in favor of Graybar. Of course, if all of the suppliers named as payees had been paid, and there was no recoverable loss to Starkey by reason of Eicon’s default, First National would probably be entitled to the face amount of the checks, which would offset any recovery by Starkey. I would reverse the decree on Point I.  (Footnote mine.) The committee here speaks of the presumption, as to other parties, that the measure of liability is presumed to be the face amount of the instrument. It adds that as to all except the drawee evidence is admissible to show that the instrument is worth less, or is without value. The idea that this section is intended to replace existing law is clearly expressed by the committee’s designation of the pertinent subsection as new, indicating a change from the provisions of the Uniform Negotiable Instrument Law. The purpose of the drafters to put the burden of forged endorsements on the bank and to eliminate the necessity for the drawer of a check to make just such proof as required by the majority opinion seems to me to be beyond doubt.