O.C.G.A. § 11-3-406 (2019)

Annotations

JUDICIAL DECISIONS ANALYSIS GENERAL CONSIDERATION COMMERCIAL REASONABLENESS General Consideration Editor’s notes. - In light of the similarity of the statutory provisions, decisions under former Code 1933, § 109A-3406 and former Code Section 11-3-406 are included in the annotations for this Code section. Modification of doctrine of estoppel by negligence. - Legislature modified doctrine of estoppel by negligence in commercial paper context by enacting this section. Trust Co. of Ga. Bank v. Port Term. & Warehousing Co., 153 Ga. App. 735, 266 S.E.2d 254, 1980 Ga. App. LEXIS 1962 (1980) (decided under former Code 1933, § 109A-3-406). Former Code 1933, §§ 109A-3-404(1) and 109A-3-406 must be read together. Trust Co. of Ga. Bank v. Port Term. & Warehousing Co., 153 Ga. App. 735, 266 S.E.2d 254, 1980 Ga. App. LEXIS 1962 (1980) (decided under former Code 1933, § 109A-3-406). Applicable to estop signer from asserting forgery. - When a payor seeks to estop or preclude another from asserting that the payor’s signature on an instrument was forged under former Code 1933, § 109A-3-404(1) and the basis for asserting this estoppel or preclusion was the neglect of one whose “signature” appeared, this section controlled. Trust Co. of Ga. Bank v. Port Term. & Warehousing Co., 153 Ga. App. 735, 266 S.E.2d 254, 1980 Ga. App. LEXIS 1962 (1980) (decided under former Code 1933, § 109A-3-406). Complaining party’s negligence will not bar otherwise available recovery against a party, including drawee, who is also negligent. Perini Corp. v. First Nat’l Bank, 553 F.2d 398, 1977 U.S. App. LEXIS 13115 (5th Cir. 1977) (decided under former Code 1933, § 109A-3-406). Failure to prevent further forgeries after notice. - This section extends to

cases where party has notice that forgeries of the party’s signature has occurred and is negligent in failing to prevent further forgeries by same person. Trust Co. of Ga. Bank v. Port Term. & Warehousing Co., 153 Ga. App. 735, 266 S.E.2d 254, 1980 Ga. App. LEXIS 1962 (1980) (decided under former Code 1933, § 109A-3-406). Ratification of attorney’s signature. - If a bank customer, by the customer’s own conduct, ratified attorney’s unauthorized signature on a check, the customer was precluded from recovering on a claim for conversion against the bank which accepted for deposit to the attorney’s escrow account a check payable to the customer bearing an allegedly forged endorsement. Hendrix v. First Bank, 195 Ga. App. 510, 394 S.E.2d 134, 1990 Ga. App. LEXIS 550 (1990) (decided under former Code Section 11-3-406). Commercial Reasonableness Requirements for payor asserting estoppel. - When one who has paid an instrument asserts that another is estopped by negligence from denying that unauthorized signature on it operates as one’s own, payor personally must have paid in good faith and in accordance with reasonable commercial standards of one’s business. Trust Co. of Ga. Bank v. Port Term. & Warehousing Co., 153 Ga. App. 735, 266 S.E.2d 254, 1980 Ga. App. LEXIS 1962 (1980) (decided under former Code Section 11-3-406). Fact question remained whether a bank violated the reasonable commercial standards of fair dealing when it violated known commercial banking practices by accepting checks made payable to a law firm into a thief ’s personal account, where the bank also serviced the firm’s business accounts and therefore knew that the firm

Commercial Reasonableness (Cont’d) normally placed a restrictive endorsement stamp on checks made payable to it, as the bank was on heightened notice of the irregularity of the endorsements and therefore could be held to have dealt with the firm unfairly by not making inquiry into the legitimacy of those endorsements. Gerber & Gerber, P.C. v. Regions Bank, 266 Ga. App. 8, 596 S.E.2d 174, 2004 Ga. App. LEXIS 206 (2004). Questions of fact. - Reasonable commercial standards and whether they were met under circumstances are initially questions of fact. Trust Co. of Ga. Bank v. Port Term. & Warehousing Co., 153 Ga. App. 735, 266 S.E.2d 254, 1980 Ga. App. LEXIS 1962 (1980) (decided under former Code 1933, § 109A-3-406). The appropriate inquiry is whether a reasonable man in accordance with reasonable commercial standards would be put on notice of some impropriety appearing either from form of the instrument and its endorsements or from knowledge of facts outside the instrument itself. Trust Co. of Ga. Bank v. Port Term. & Warehousing Co., 153 Ga. App. 735, 266 S.E.2d 254, 1980 Ga. App. LEXIS 1962 (1980) (decided under former Code 1933, § 109A-3-406).

Failure to inquire into validity of endorsements does not preclude bank from asserting defense of commercial reasonableness as a matter of law. Trust Co. of Ga. Bank v. Port Term. & Warehousing Co., 153 Ga. App. 735, 266 S.E.2d 254, 1980 Ga. App. LEXIS 1962 (1980) (decided under former Code 1933, § 109A-3-406). Bank accepting check with “a patently irregular endorsement” does not comply with reasonable commercial standards, and fact that depositor of check is a customer of the bank does not absolve bank of its duty to inquire. National Bank v. Refrigerated Transp. Co., 147 Ga. App. 240, 248 S.E.2d 496, 1978 Ga. App. LEXIS 2635 (1978) (decided under former Code 1933, § 109A-3-406). Bank’s conduct in opening accounts which had not been authorized by its customer and then accepting checks written on the accounts on the single signature of the customer’s employee, thereby facilitating the employee’s embezzlement scheme, was not in accordance with reasonable commercial standards. Apcoa, Inc. v. Fidelity Nat’l Bank, 906 F.2d 610, 1990 U.S. App. LEXIS 12062 (11th Cir. 1990) (decided under former Code Section 11-3-406).

RESEARCH REFERENCES Am. Jur. 2d. 4 Am. Jur. 2d, Alteration of Instruments, § 63. 10 Am. Jur. 2d, Banks, § 747. 11 Am. Jur. 2d, Bills and Notes, §§ 120, 121. 11 Am. Jur. 2d, Banks and Financial Institutions, §§ 913, 918. 12 Am. Jur., 2d, Bills and Notes, §§ 553, 604, 605. Am. Jur. Proof of Facts. Commercial Paper - Negligence Contributing to Alteration or Unauthorized Signature Under UCC § 3-406, 14 POF2d 693. C.J.S. 3A C.J.S., Alteration of Instruments, § 17. 10 C.J.S., Bills and Notes, §§ 190, 191. U.L.A. Uniform Commercial Code (U.L.A.) § 3406. ALR. Liability of party to commercial paper

so drawn as to be easily alterable as to amount, 22 A.L.R. 1139; 36 A.L.R. 327; 39 A.L.R. 1380. Misnomer or abbreviation of name of intended payee as affecting liability where check is paid or purchased upon forged indorsement, 29 A.L.R. 368. Alteration of note before delivery to payee as affecting parties who do not personally consent, 44 A.L.R. 1244. Alteration of instrument by agent as binding on principal, 51 A.L.R. 1229. Construction of savings bank by-law expressly assented to by depositor, relieving bank from liability for payment to unauthorized person, 52 A.L.R. 760. Who must bear loss as between drawer induced by fraud of employee or agent to issue check payable to nonexisting person or a person having no interest in the proceeds thereof, and one who cashes or pays it on the forged indorsement by such

employee or agent of the name of such ostensible payee, 99 A.L.R. 439. Deception as to character of paper signed as defense as against bona fide holder of negotiable paper, 160 A.L.R. 1295. When depositor-drawer of check is “precluded,” under Negotiable Instruments Law, § 23, from setting up forgery of indorsement or want of authority against drawee bank, 39 A.L.R.2d 641. Rights and liabilities of drawee bank, as

to persons other than drawer, with respect to uncertified paid check which was altered, 75 A.L.R.2d 611. Commercial paper: what amounts to “negligence contributing to alteration or unauthorized signature” under UCC § 3406, 67 A.L.R.3d 144. Liability of bank for diversion to benefit of presenter or third party of proceeds of check drawn to bank’s order by drawer not indebted to bank, 69 A.L.R.4th 778.