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Hibernia National Bank v. Commerce Bank

368 N.J. Super. 144, 845 a.2d 664 (App. Div. 2004); April 2, 2004:

CHECKS; IMPOSTERS; UCC—An individual, not the payee of a check that is deposited into his or her own account (and not the true payee’s account), is not an imposter under the UCC and the depository bank, being in the best position of all the banks involved to avoid the loss, is liable for the check.

An individual wrongly deposited, into his bank account, a check written for another entity. He was able to do this by creating an account with a name similar to the company that was expecting to receive the check. He did not, however, attempt to impersonate the actual company, nor did he endorse the check with the other company’s name. The company expecting the check notified the bank of the company that had sent the check that they had not received it, so the bank recredited the sending company’s account and sought recoupment from the bank that had wrongly allowed the deposit of the check. That bank denied the request, leading to this suit. The lower court granted summary judgment in favor of the requesting bank, rejecting the other bank’s contention that the “imposter” exception provided under N.J.S.A. 12A:3-404 entitled it to summary judgment. That exception states that if an imposter induces a bank to deposit a check into the imposter’s account while acting as the actual recipient, or induces the creater of the check to issue it, the imposter’s indorsement is effective as the indorsement of the payee bank who, in good faith, pays the deposit.

To decide if this was an available defense, the lower court began by recognizing the UCC rule that a drawee bank can shift its loss on a forged check upstream to the depository bank. The reason for this is because review of endorsements should take place at the depository bank because it is most likely to have the information available to verify such endorsements, and is in the best position to prevent fraudulent endorsements. Here, the individual that deposited the check did not hold himself to be the recipient company, nor did he endorse the check with the company’s name. The lower court held that a cursory examination of the check would have disclosed that it was made payable to a different entity than the one that deposited it, and therefore held that the depositing bank should recoup from the other bank.

The Appellate Division affirmed the lower court’s decision that the “imposter” exception did not apply because the depository bank did not provide evidence that the imposter induced the issuer to issue the check, nor did he impersonate the rightful recipient of the check. Therefore, the outcome of the dispute fell within the general rule that the depository bank is in the best position of any of the banks that handled the check to guard against forged or unauthorized endorsements.

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