Okla. Stat. tit. 12A § 3-406

Current through Laws 2024, c. 453.

Section 3-406 - Negligence Contributing to Forged Signature or Alteration of Instrument

(a) A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.

(b) Under subsection (a) of this section, if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss.

(c) Under subsection (a) of this section, the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subsection (b) of this section, the burden of proving failure to exercise ordinary care is on the person precluded.

Okla. Stat. tit. 12A, § 3-406

Laws 1961, p. 111, § 3-406; Amended by Laws 1991, SB 25, c. 117, § 69, eff. 1/1/1992.

Oklahoma Code Comment

1. Section 3-406 continues the comparative fault standard addressed in Sections 3-404 and 3-405, and the Oklahoma and Official Comments to those Sections should be consulted for a full understanding of that standard.

2. Subsection (a) of this Section retains the preclusion rule of pre-revision Section 3-406 . Further, a financial institution's negligence will not prevent it from asserting the preclusion, and, pursuant to subsection (b), the loss will be allocated under the comparative negligence standard added as part of the 1992 revisions. This Section continues the "substantially contributes" test of pre-revision Section 3-406, and Official Comment 2 makes it clear that the test is less stringent than a "direct and proximate cause" test.

The preclusion defenses under Sections 3-404 and 3-405, as well as this Section and Section 4-406, are also available to a person making presentment warranties under Section 3-417 or Section 4-208, when the payor bank asserts a claim against that person based on an unauthorized indorsement or alteration. The warrantor may prove an indorsement is effective under Sections 3-404 or 3-405, or that the drawer is precluded by this Section or Section 4-406 from asserting an unauthorized signature or alteration. See sub sections 3-417(c) and 4-208(c) and Official Comment 6 to Section 3-417.

3. Under sub section 4-406(e), the comparative negligence standard will apply to the customer's duty to examine bank statements and discover and report unauthorized signatures or alterations.

4. The 1992 revisions to Article 3 deleted that part of pre-revision sub section 3-404(1) that created a preclusion and seemed to overlap this Section. That part of pre-revision sub section 3-404(1) dealing with ratification is now part of sub section 3-403(a).