ARTICLE: Common Law Negligence and Check Fraud Loss Allocation: Has Common Law Supplemented or Supplanted the U.C.C.? Skip over navigation
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Copyright (c) 1990 Ohio State Law Journal
Ohio State Law Journal

ARTICLE: Common Law Negligence and Check Fraud Loss Allocation: Has Common Law Supplemented or Supplanted the U.C.C.?

Summer, 1990

51 Ohio St. L.J. 605





Articles 3 and 4 of the Uniform Commercial Code ("U.C.C.") govern the obligations of parties involved in checking transactions: banks, drawers of checks, and recipients of checks. 1 Accordingly, these Articles contain a number of rules which allocate loss in cases involving check fraud. Typical examples of check fraud include the payment of a check over the forged signature of the check's drawer, payment of a check over the forged indorsement of the check's payee, and fraudulent alteration of a check by increasing the amount payable.

Other types of check fraud exist, however, and the U.C.C. does not clearly allocate loss in all cases. 2 In these cases, some courts choose to allocate loss in accordance with common law negligence principles. These courts use common law principles to "supplement" the U.C.C. by virtue of the authority provided by U.C.C. section 1-103. 3

Some of the cases allocating loss under common law negligence principles have been criticized as supplanting rather than supplementing the U.C.C. 4 Instead of filling gaps, courts improperly decide cases under common law principles in order to avoid the result mandated by the U.C.C. which generally favors banks. Arguably, the common law negligence cases undermine the U.C.C. policies of providing certain and uniform rules for the resolution of commercial disputes. 5 The loss allocation scheme designed by the U.C.C. drafters is discarded in favor of a more equitable scheme favoring bank customers. 6

The relationship between common law negligence and the U.C.C. ...
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