Okla. Stat. tit. 12A § 3-404

Current through Laws 2024, c. 378.

Section 3-404 - Impostors; Fictitious Payees

(a) If an impostor, by use of the mails or otherwise, induces the issuer of an instrument to issue the instrument to the impostor, or to a person acting in concert with the impostor, by impersonating the payee of the instrument or a person authorized to act for the payee, an indorsement of the instrument by any person in the name of the payee is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.

(b) If (i) a person whose intent determines to whom an instrument is payable (subsection (a) or (b) of Section 3-110 of this title) does not intend the person identified as payee to have any interest in the instrument, or (ii) the person identified as payee of an instrument is a fictitious person, the following rules apply until the instrument is negotiated by special indorsement:

(1) Any person in possession of the instrument is its holder; and

(2) An indorsement by any person in the name of the payee stated in the instrument is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.

(c) Under subsection (a) or (b) of this section, an indorsement is made in the name of a payee if (i) it is made in a name substantially similar to that of the payee or (ii) the instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to that of the payee.

(d) With respect to an instrument to which subsection (a) or (b) of this section applies, if a person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from payment of the instrument, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.

Okla. Stat. tit. 12A, § 3-404

Laws 1961, p. 110, § 3-404; Amended by Laws 1991, SB 25, c. 117, § 67, eff. 1/1/1992.

Oklahoma Code Comment

1. This Section and Sections 3-405 , 3-406 and 4-406 provide a new standard of comparative fault in Oklahoma negotiable instruments law. The comparative fault standard replaces the per se rule of pre-revision Section 3-405 and the "last clear chance" rule of pre-revision Sections 3-406 and 4-406 , thereby rejecting the result in cases like First National Bank of McAlester v. Mann, 410 P.2d 74 (Okla. 1965), and the analysis in cases like American National Insurance Co. v. Fidelity Bank, N.A. 691 F.2d 464 (10th Cir. 1982). The new standard imposes liability on someone who "fails to exercise ordinary care" in paying an instrument or taking it for value or collection when such failure "substantially contributes to loss resulting from payment of the instrument." On that issue, see W.R Grimshaw Co. v. First National Bank & Trust Co., 563 P.2d 117 (Okla. 1977), which was decided under prerevision Oklahoma law but remains applicable under the new standard. After passing this threshold level, the person whose failure to exercise ordinary care contributed to the loss will, to that extent, share in the loss with the person who would otherwise bear it; namely, someone who deals with an impostor, faithless employee or fictitious payee, or whose negligence contributes to a forgery or alteration.

Whether a person fails to exercise ordinary care and whether that failure "substantially contributes" to the resulting loss will be questions of fact to be decided by the trier of fact. See UCC § 3-405, Official Comment 4. In addition, this comparative standard of ordinary care requires the observance of "reasonable commercial standards, prevailing in the area in which the person is located, with respect to the business in which the person is engaged." UCC §3-103(a)(7).

The duty of ordinary care imposed on collecting and drawee banks by subsection (d) should not be interpreted too broadly. Generally, a bank will not violate its duty of ordinary care if it fails to verify the authenticity of an indorsement prior to that of its immediate presenter. Rather, ordinary care should be satisfied by determining the existence of a complete chain of indorsements (although whether ordinary care is satisfied under particular circumstances will be a question of fact for the trier of fact). This is because the bank will have no reasonable means to authenticate prior indorsements, and imposing a stricter rule will destroy the commercial viability of the check as a negotiable instrument.

2. Notably, as in present law, this Section places the risk of indorsements by impostors on drawers; however, an indorsement is sufficient if made in a name substantially similar to the name of the payee in the check, and no indorsement is needed at all if the check is deposited in an account bearing a substantially similar name. In this regard, Section 3-404 adopts the view of Western Casualty & Surety Co. v. Citizens Bank of Las Cruces, 676 F.2d 1344 (lOth Cir. 1982). This Section covers cases under pre-revision sub section 3-405(1)(b) , where the person signing the check has no intent for the payee to have an interest in the check and also forges the payee's indorsement. Thus, this Section adopts the result in Perini Corp. v. First National Bank of Habersham County, Georgia, 553 F.2d 398 (5th Cir. 1977), in providing that corporations which authorize their banks to pay checks signed by a check-writing machine will bear the loss when those checks are stoke and indorsed by the thief in the name of either a real or fictitious payee (the so called "double forgery"). But see Official Comment 3 to this Section.

3. As noted in Official Comment I this Section changes the rule when an imposter impersonates the payee's agent, rather than the payee. Such cases are covered under this Section. Under the pre-revision provision, cf. Covington v. Penn Square National Bank, 545 P.2d 824 (Okla. Ct. App. 1975), which seems to have reached this conclusion even under prior law.

4. A case similar to those that arise under this Section involves a check procured by a dishonest employee or other culprit, made payable to the bank as payee and directed to be deposited to the culprit's account. Cases hold that the bank accepts the check at its own risk. See, e.g., Federal Ins. Co. v. First Nat'l Bank of Boston, 633 F.2d 978 (Ist Cir. 1980). The 1992 revisions to UCC Article 3 should not change these results. See UCC § 3-307(b)(4).

5. The Official UCC Comments to Sections 3-404, 3-405 and 3-406 discuss detailed examples which illustrate the operation of these Sections. The reader is urged to refer to those Official Comments and to the Oklahoma Comments to Sections 3-405 and 3-406 .