July 15, 2024
Procedural Posture

Plaintiff company, the drawer of checks, appealed from the Superior Court of Los Angeles County (California) which issued a judgment of dismissal entered after the trial court sustained the general demurrers of defendant bank, after plaintiff sought recovery under theories of negligence and breach of warranty.

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Overview

Plaintiff company was a drawer of a number of checks for a substantial amount of money that were negotiated by defendant collecting bank by and through the actions of a forger. Plaintiff sued under theories of breach of warranty and negligence in an effort to recoup its loss. The action was dismissed by the lower court and plaintiff appealed. On review, the court noted that the checks in issue were for a substantial amount, payable to individual payees at another bank, with inadequate indicia on the face of the checks regarding the authorization of an employee to negotiate the instruments. However, under the circumstances, it was held that the risk to plaintiff drawer was sufficiently foreseeable to impose a duty on defendant bank, the collecting bank, not to ignore the danger signals inherent in the forged negotiations. Therefore, defendant bank proceeded at its peril when it failed to take reasonable steps to investigate the authority to negotiate the checks. The dismissal was improper and the case was reversed.

Outcome

The judgment was reversed because the risk to plaintiff drawer was sufficiently foreseeable to impose a duty on defendant bank not to ignore the danger signals inherent in the forged negotiations, and defendant bank proceeded at its peril when it failed to take reasonable steps to investigate the forger’s authority.