Ark. Code Ann. § 4-3-420 (2026)
Conversion of instrument
- The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by (i) the issuer or acceptor of the instrument or (ii) a payee or indorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a co-payee.
- In an action under subsection (a), the measure of liability is presumed to be the amount payable on the instrument, but recovery may not exceed the amount of the plaintiff's interest in the instrument.
- A representative, other than a depositary bank, who has in good faith dealt with an instrument or its proceeds on behalf of one who was not the person entitled to enforce the instrument is not liable in conversion to that person beyond the amount of any proceeds that it has not paid out.
History. Acts 1991, No. 572, § 5.
Research References
ALR.
Drawer's right of recovery against depositary bank that accepts check with missing indorsement or in violation of restrictive covenant. 104 A.L.R.5th 459.
Ark. L. Rev.
Comment, Liabilities for Forged Indorsements, 35 Ark. L. Rev. 157.
Case Notes
Damages.
The drawee bank was not liable to the drawer for honoring checks on which payees' endorsements had been forged, where the money actually reached the parties intended by the drawer of the check. Starkey Constr., Inc. v. Elcon, Inc., 248 Ark. 958, 457 S.W.2d 509 (1970) (decision under prior law).
Where a bank honored checks payable jointly to a partnership and its creditor upon the endorsement of only one of the partners, the bank's liability to the creditor under subsection (b) of this section was the creditor's actual loss as reduced by later payments from the partnership rather than the full amount of the checks; evidence of the partnership's subsequent payments was legally sufficient to rebut the presumption that the bank's liability was the face value of the checks. Am. State Bank v. Union Planters Bank, N.A., 332 F.3d 533 (8th Cir. 2003).
Forged Endorsements.
There is a common law exception to this section, when the proceeds of the forged instrument are paid to the person whom the drawer intended to receive them and, consequently, where a husband forged his wife's signature on an insurance check that was payable to her and presented the check to their bank, the bank was not liable to the wife for having honored the check because the proceeds from the check were deposited in an account on which the wife was a co-signor, the money was available to her at all times and the money reached her although not in the manner she expected. Clemens v. First Nat'l Bank, 286 Ark. 290, 692 S.W.2d 222 (1985) (decision under prior law).
Depositor was liable for conversion when the depositor had the depositor's signature signed to a check as an endorsement, which had previously forged endorsements, because (1) the check's intended beneficiary gave value for the check, as the beneficiary was the beneficiary of an insurance policy, the proceeds of which gave rise to the check, even though the check was not in the beneficiary's name, (2) the check's payee denied authorizing the depositor to endorse the check, and (3) the check was negotiated in the depositor's name. Butler v. Finley, 2015 Ark. App. 48, 454 S.W.3d 766 (2015).
Joint Instrument.
Where check was given to one joint payee by the other joint payee, no conversion occurred, even though second payee refused to give any funds to the first payee. A.C.E., Inc. v. Inland Mtg. Co., 333 Ark. 232, 969 S.W.2d 176 (1998).
Reasonable Commercial Standards.
The question of the corporation's negligence in permitting the embezzling bookkeeper's forgeries to go undiscovered was irrelevant until the bank established it acted according to reasonable commercial standards. First Bank & Trust v. Vaccari, 288 Ark. 233, 703 S.W.2d 867 (1986) (decision under prior law).
The burden of proof is on the bank to show it acted in a commercially reasonable manner. First Bank & Trust v. Vaccari, 288 Ark. 233, 703 S.W.2d 867 (1986) (decision under prior law).
It was a jury question whether it was commercially unreasonable for a bank to accept for deposit in an individual account a check made payable to a corporation without first ascertaining, or at least making an inquiry, as to the authority of the depositor/endorser. First Bank & Trust v. Vaccari, 288 Ark. 233, 703 S.W.2d 867 (1986) (decision under prior law).
Bank's practice of paying cash to corporation's bookkeeper when she deposited company checks marked “For Deposit Only” was not commercially reasonable. J.W. Reynolds Lumber Co. v. Smackover State Bank, 310 Ark. 342, 836 S.W.2d 853 (1992).