East Gadsden Bank v. First City Nat. Bank of Gadsden

• Decision Date: 11 July 1973
• Citation: 281 So. 2d 431,50 Ala. App. 576
• Parties: , 67 A.L.R.3d 135, 13 UCC Rep.Serv. 275 EAST GADSDEN BANK, East Gadsden, Alabama, a corporation, v. FIRST CITY NATIONAL BANK OF GADSDEN. Civ. 157.
• Court: Alabama Court of Civil Appeals

Page 431

281 So.2d 431

50 Ala.App. 576, 67 A.L.R.3d 135, 13 UCC Rep.Serv. 275

EAST GADSDEN BANK, East Gadsden, Alabama, a corporation, v.FIRST CITY NATIONAL BANK OF GADSDEN.

Civ. 157.

Court of Civil Appeals of Alabama.

July 11, 1973.

Rehearing Denied Aug. 8, 1973.

Inzer, Suttle, Inzer & Pruett, Gadsden, for appellant.

Rains, Rains & McCurley, Gadsden, for appellee.

WRIGHT, Presiding Judge.

Plaintiff, First City National Bank of Gadsden, Alabama, brought suit against defendant, East Gadsden Bank to recover the sum of $3,627.00 paid by plaintiff to defendant.The complaint was in several counts, the gravamen of each being that plaintiff was the payor bank of a check drawn upon it by one of its depositors.That the defendant received the check as a collecting bank through one of its depositors who was a joint payee thereon; that the endorsement of the second payee was forged; that defendant accepted the check with the forged endorsement, forwarding it through banking channels with its legend of prior endorsements guaranteed to plaintiff; that the plaintiff relying on the defendant's guarantee of prior endorsements, paid the amount of the check to defendant; learning of the forged endorsement from its depositor, plaintiff credited the depositor's account with the amount of the check, notified defendant of the forgery and requested repayment.Defendant refused payment and suit resulted.The cause of action arises under Title 7A, § 4-207,Uniform Commercial Code.

To the complaint, defendant filed several pleas, including pleas 4 and 5.Demurrer was sustained by the court to pleas 4 and 5.Jury demand was withdrawn by defendant and the cause submitted to the court upon written stipulation of the parties.Judgment thereon was entered by the court in favor of plaintiff for the amount sued for, together with interest and costs of the court.From the judgment and the sustaining of the demurrer to pleas 4 and 5, defendant East Gadsden Bank, hereinafter referred to as appellant, appeals.

We have been presented with excellent written briefs and oral argument by both appellant and defendant.This case presents for consideration the first interpretation in this state of the 'imposter rule' as codified by § 3--405 of the Alabama Commercial Code.Appellant's plea 4 presents this defense.

It is the first contention of appellant that the imposter rule is an available defense to the action of appellee.In order to consider this contention it is necessary to outline the situation as stipulated, from which the case arose.

Plaintiff's depositor and drawee of the check involved is Family Savings Federal Credit Union.Family Savings is a credit union composed of employees of Goodyear Tire and Rubber Company of Gadsden, Alabama.One James Mathis was a member of the Credit Union.In January of 1970 Mathis applied to Family Savings for a loan to purchase an automobile.He furnished with his application a buyer's order on the form of Pierson Chevrolet, Inc., signed by him and purportedly signed by an authorized officer of Pierson.This order indicated that he was purchasing an automobile from Pierson for a price of $3627.00.The signature of Pierson was a forgery.

Based upon his membership and the purchase order, Family Savings issued its check drawn upon First City National Bank payable to Mathis and Pierson Chevrolet, Inc. Mathis, a depositor of East Gadsden Bank, presented there the check with his endorsement and the purported endorsement of Pierson.The endorsement of Pierson was a forgery.Appellant purchased or accepted the check, giving Mathis in return $1,000.00 in cash and crediting his account with $2,627.00.The check was placed in usual banking channels by appellant with the accompanying warranties of §§ 3-417and4-207 of the Commercial Code.Appellee paid the check to appellant and charged the account of Family Savings.Family Savings subsequently notified appellee of the forged endorsement of Pierson's name and demanded credit to its account.Appellee credited the account and demanded payment from appellant.Appellant refused and defends on the basis of the imposter rule.

The imposter rule is found in Title 7A, § 3-405 of the Code of Alabama, recompiled 1958, and as pertinent is as follows:

'(1) An endorsement by any person in the name of a named payee is effective if

'(a) An imposter by use of the mails or otherwise has inducted the maker or drawer to issue the instrument to him or his confederate in the name of the payee; . . .'

The 'imposter rule' is not an innovation of the 'law merchant' by the adoption of the Uniform Commercial Code.It has been the basis of case law for many years and a recognized exception to the rule that a forged or unauthorized signature is wholly inoperative to transfer any interest in the instrument to which it is affixed.Alabama recognized the rule in the case of Alabama Dry Dock & Shipbuilding Co. v. Ward, 32 Ala.App. 535, 27 So.2d 710;Rosin v. Lawrence Byars Used Car Post, 30 Ala.App. 576, 10 So.2d 48.

The cases from various jurisdictions which have resulted in the application of the 'imposter rule' or 'imposter doctrine' have usually involved ordinary commercial checks in which an imposter has assumed the identity of the payee.In such cases the primary liability for the loss has generally been placed upon the drawer or endorser who, being first deceived by the imposter, delivered the check to the imposter.Such result has been based upon one of two theories.The original theory used was that in delivering the check to the imposter in the belief that he was the person named as payee, the drawer intended that the imposter obtain payment thereon, and the drawee or collecting bank in paying or cashing it, upon the imposter's endorsement in the name of the payee, was merely effectuating the intent of the drawer or endorser.Another theory has been that of negligence or estoppel.This theory is based upon the maxim that as between two innocent persons the one whose act was the cause of the loss should bear the consequences.Often the courts have so relied upon and discussed these theories and others, that it is difficult to determine which theory was adopted.

In any theory however, there must have been an imposter or impersonation which caused the drawing the delivery of the check in the name of the person impersonated.

We think § 3--405(1)(a) of the Commercial Code largely removes the distinctions between the types of fraud committed by the imposter and makes clear that 'imposter' refers to impersonation.Such impersonation is of an identity, either real or fictitious, with which the drawer believes he is dealing.It is stated in the official comment to § 3--405 as follows:

"Imposter' refers to impersonation and does not extend to a false representation that the party is the authorized agent of the payee.The maker or drawer who takes the precaution of making the instrument payable to the principal is entitled to have his endorsement.'

We adopt this comment as the proper intent of the statute.

There is no contention that the drawer in this case dealt with Mathis as an impersonator of Pierson Chevrolet, Inc. or that Mathis represented himself as the agent of Pierson.It was the intent of the drawer to deal both with Mathis and Pierson and it so issued the check.

Appellant presents the proposition that Mathis by presenting the forged buyers order allegedly signed by Pierson was effecting an impersonation of status.In other words, he was representing that he was purchasing an automobile from Pierson and bolstered such representation by the forged purchase order.By forging the signature of Pierson, he was impersonating Pierson, and as a result of such impersonation obtained the check with Pierson as a payee.This proposition is interesting and is to some degree supported by the decision of the Court in the case of Fidelity & Deposit Co. of Maryland v. Manufacturers Hanover Trust Co., 7 UCC 1142(N.Y.Civ.Ct.1970).However, we do not agree with the conclusion of the Court in that case in its second aspect as exemplified by its algebraic equation.

In this case Mathis merely misrepresented to the drawer that he was purchasing an automobile and secured a loan through such misrepresentation.He strengthened his misrepresentation by a forged purchase order but he never led the drawer to believe that he had any authority to negotiate the check on behalf of Pierson, and the drawer never intended that Mathis should do so.Had there been no forged purchase order and the drawer had issued its check upon the oral representation alone of Mathis, there could be little argument that the drawer would be entitled to the endorsement of Pierson.Thus, as we see it, this is not a case for the application of the 'imposter rule' but is a matter of misrepresentation implemented by forgery of the purchase order.There was no intent, fictional or otherwise, by the drawer that Mathis should supply the endorsement of Pierson Chevrolet, Inc.The drawer was entitled to such endorsement and the responsibility was upon the collecting bank, East Gadsden Bank, to exercise reasonable commercial standards in accepting it for payment.Title 7A § 4-207(1), B'ham Trust National Bank v. Central Bank & Trust Co., 49 Ala.App. 630, 275 So.2d 148;Society National Bank of Cleveland v. Capital Nat. Bank, 30 Ohio App.2d 1, 281 N.E.2d 563.

The second contention of appellee is that demurrer was improperly sustained to its plea 5.Plea 5 pleads the provisions of § 3-406 of the Commercial Code.That is, that the drawer in this case, by its negligence substantially contributed to the making of the unauthorized signature of Pierson Chevrolet, Inc., on the check, and thus is precluded from asserting the forgery against the payor bank, who paid in good faith and in accordance with...