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Bank Not Liable for Cashing Forged Checks Due to Contract Avoiding UCC Rule
Description Appeals court upheld a lower court decision that a bank would not be held liable for cashing millions of dollars worth of forged checks against a business account. The bank customer had signed a contract that held that because the business used a machine to sign its checks, the bank would not be liable so long as it used ordinary care in the processing of its checks.
Topic Negotiable Instruments/Commercial Paper
Key Words Forged Checks; Risk of Loss
C A S E   S U M M A R Y
Facts Florida Power and Light (FPL) had 27 forged checks for $4.4 million written and cashed against its account at NationsBank. Arkwright Mutual Insurance reimbursed FPL for its losses and then sued NationsBank, which could not recover the funds from those who forged the checks. Arkwright contended that the bank also failed to use ordinary care. The bank contended that its contract with FPL shifted the risk of loss by forgery to FPL because FPL used a facsimile signature machine. The district court agreed and held for the bank. Arkwright appealed.
Decision Affirmed in part. "Ordinarily. a drawee bank is absolutely liable to its customer for payment of a forged check." However, Florida's version of the UCC allows a bank and its customers to contract around the default rules of the UCC. A contract that instructs a bank to accept, honor, and pay all checks "bearing or purporting to bear" facsimile signatures of a customer's authorized representative shifts the risk of loss by forgery to the customer and is enforceable. The district court failed to determine if the bank used ordinary care when it processed the checks, so that issue is remanded for reconsideration; if the court determines that the bank did use ordinary care, then the bank is not liable to Arkwright.
Citation Arkwright Mutual Insurance Co. v. Nationsbank, N.A., (South), 212 F.3d 1224 (11th Cir., 2000)

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