Dupont, Thomas

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Negotiable Instruments—Forged Indorsements—Statute of Limitations.—Edgerly v. Schuyler.

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Boston College Law ReviewVolume 1 | Issue 2 Article 394-1-1960Negotiable Instruments—ForgedIndorsements—Statute of Limitations.—Edgerly v.Schuyler.Thomas DupontFollow this and additional works at: http://lawdigitalcommons.bc.edu/bclrPart of the Commercial Law CommonsThis Casenotes is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has been acceptedfor inclusion in Boston College Law Review by an authorized administrator of Digital Commons @ Boston College Law School. For more information,please contact nick.szydlowski@bc.edu.Recommended CitationThomas Dupont, Negotiable Instruments—Forged Indorsements—Statute of Limitations.—Edgerly v.Schuyler., 1 B.C.L. Rev. 302 (1960), http://lawdigitalcommons.bc.edu/bclr/vol1/iss2/39BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWThe ultimate resolution of this controversy now rests with the United StatesSupreme Court which has granted certiorari to the decision of the NinthCircuit in the Bank of America casell and the principal case, having beenappealed, has been placed on the summary calendar of that same court. 12Several areas of conflicting federal-state interests which will have to beresolved by the court in deciding these two cases are: (1) To what extent isthe federal government to be governed by state law when it loans money incompetition with local agencies and individuals? (2) To what extent has thefederal government submitted itself to state law by Sec. 2410 of Title 28U.S.C.? (3) Does the federal statute requiring joinder of, and a period ofredemption for the United States imperil the efficacy of state judicial fore-closure sales and consequently imperil extension of credit by privateagencies? 13It is submitted that Section 2410 can not be interpreted other than topre-empt state law and to require that the federal government be allowed itsstatutory 12 month redemption period. Such an interpretation would giveadequate notice to those who would foreclose on property of which thegovernment has a lien. If the antecedent lien be perfected it will be satisfiedfrom the sale prior to the claims of the government. 14 For these reasons itwould appear that the Supreme Court should affirm the decision of the NinthCircuit in United States v. Bank of America and reverse the holding of theinstant decision.EDWARD A. ROSTERNegotiable Instruments—Forged Indorsements—Statute of Limitations.—Edgerly v. Scintyler. 1—The plaintiffs drew a check payable to a namedpayee. The drawee bank paid the check despite a forged indorsement. andupon discovery of the forgery refused to credit plaintiffs' account since thedrawer depositors had failed to give notice of the forgery 2 or to commence11 361 U.S. 811 (1959).12 Appeal Docketed, No. 565, Kan. Sup. Ct., Dec. 15, 1959. Placed on SummaryCalendar, Feb. 23, 1960, 28 U.S.L. Week 3245.13 See MacLachlan, Improving the Laws of Federal Liens and Priorities, 1 B.C.Corn. & Ind. L. Rev. 73 (1959).14 It has been held that the United States must in its redemption tender an amountsufficient to pay off all antecedent liens or suffer its redemptive offer to be adjudgedinsufficient. United States v. Brosnan, 264 F.2d 762 (3d Cir. 1959), First NationalBank & Trust Co. v. McGarrie, 22 N.J. 539, 126 A.2d 880 (1956).1 113 So. 2d 737 (Fla. 1959).2 § 659.37, Fla. Stat., provides as follows: "No bank or trust company, whichhas paid and charged to the account of a depositor any money on a forgedor raised check issued in the name of said depositor, shall be liable to said depositorfor the amount paid thereon, unless said depositor shall notify the bank or trustcompany that the check so paid is forged or raised . . . within one year after thereturn to said depositor of the voucher representing such payment . . ." 41 Statesand District of Columbia have similar statutes.302CASE NOTESsuit within the period prescribed by the statute of limitations. 3 The CircuitCourt for Dade County entered summary judgment for the defendant-bankand plaintiffs appealed. HELD: The Third District Court of Appeal ofFlorida reversed and remanded. The notice provisions of the Florida statutedealing with forged or raised checks are inapplicable to forged indorsementsand the statute of limitations does not commence to run until the depositordiscovers the forgery.In holding the notice statute inapplicable, the court relied on the hold-ing of a number of cases. These cases state that the term "forged check" islimited to forgery of the maker's signature for the obvious reason that thedrawer knows his own signature, but rarely knows the signature of thepayee and consequently is in no position to tell whether the indorsementupon the check is genuine or not. 4 The same result has been reached injurisdictions which do not have a statute because at common law the drawerhad no duty to examine the returned vouchers for forged indorsements.°The second and, perhaps, more controversial issue of the case was thequestion when the statute of limitations began to run. The Florida courtheld that the action was brought within the statute of limitations because thestatute did not begin to run until the discovery of the forgery by the de-positors or until the depositors would have discovered the forgery if they hadexercised ordinary business care. The majority of courts have taken a con-trary view to this case and hold that the statute of limitations commences torun as of the date the bank renders a statement showing the charging of theamount of the check to the depositor's account.° This view is based on theproposition that the relation existing between the bank and the depositor isthat of debtor and creditor and that no cause of action arises in behalf of thedepositor until demand has been made upon the bank for the amount of thedeposit. The act of the bank in rendering a statement is a denial of lia-bility to the extent of the amount of the check and so the necessity of ademand is dispensed with. The same rule is applied in cases involvingforgery of the drawer's signature.In rejecting this line of authority, the Florida court relied on the de-3 § 95.11, Fla. Stat,, provides as follows: "Actions other than those for therecovery of real property can only be commenced as follows: . 	 . (5) within threeyears.—.	 • an action upon a contract, obligation or liability not founded upon aninstrument of writing . . . ."4 McCornack v. Central State Bank, 203 Iowa 833, 211 N.W. 542 (1926) ; UnitedMotor Car Co. v. Mortgage & Security Co., 13 La. App. 385, 128 So. 307 (1930) ;Murphy v. Metropolitan Nat'l Bank, 191 Mass. 159, 77 N.E. 693 (1906) ; Board ofEducation of Jefferson v. Nat'l Union Bank, 121 N.J.L. 177, 1 A.2d 383 (1938) ;Kleinman v. Chase Nat'l Bank, 124 Misc. 173, 207 N.Y. Supp. 191 (Sp. Ct. 1924) ;see also cases cited in Annot., 50 A.L.R.2d 1126 (1956).5 Jordan Marsh Company v. Nat'l Shawmut Bank, 201 Mass. 397, 87 N.E. 740(1909) ; Shipman v. Bank of State of New York, 126 N.Y. 318, 27 N.E. 371 (1891).6 Union Tool Co. v. Farmers' & Merchants' Nat'l Bank, 192 Cal. 40, 218 Pac.424 (1923) ; Masonic Benefit Ass'n v. First State Bank, 99 Miss. 610, 55 So. 408(1911) ; Bruce v. First Nat'l Bank, 180 Wash. 614, 41 P.2d 779 (1935) ; Peppas v.Marshall & Ilsley Bank, 2 Wis. 2d 144, 86 N.W.2d 27 (1957).303BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWcision in City of New York v. Fidelity Trust Co.,7 holding that the statuteof limitations does not begin to run against the depositor until he has made aformal demand on the bank for the money. The reasoning of the court wasthat if the statute were to run from the date of the forgery or from the datethe bank rendered a statement showing the amount of the check charged tothe depositor's account, it might result in the claim being barred before thedepositor knows of the forgery.The rule set forth by the Florida court which deviates only in conclu-sion from that of New York appears to be the better rule because under theNew York view the depositor might withhold demand and perpetuate hiscause of action for an indefinite period. This deficiency of the New Yorkrule could be avoided by requiring a timely demand by the depositor.While it is true that the drawer may not know of an invasion of hislegal rights until the forged indorsement is actually discovered, it seemsharsh to hold the drawee bank to strict accountability to the depositor wherethe forged indorsement is not discovered in the course of the drawer's busi-ness. Many years might elapse before the bank is called to account and itwould seem that the bank could be forced to reimburse the drawer althoughthe drawer's own liability to the payee had been blocked by the statute oflimitations affecting actions on debt. Moreover, the result here makes theapplication of the statute a question for the trier of fact in each case, therebyintroducing marked uncertainty into commercial transactions which it wouldseem require a high degree of stability especially in view of the tremendousvolume of checks handled by modern banks. Finally, the purpose of thestatute—to cause actions to be commenced within a definite time in order tofacilitate proof of substantive fact questions—is not well served by thedecision.The UCC resolves this problem by precluding an action against thebank unless the drawer discovers and reports the forged indorsement withinthree years from the time the statement and vouchers are made available tothe drawer.8 This rule was established because it was felt that in the greatpreponderance of cases the drawer will discover the forged indorsementwithin three years and if in an exceptional case be does not, the balance infavor of a mechanical termination of liability of the bank outweighs anypossible injustice to the drawer. In a state which has adopted the UCCboth issues of this case would be decided in favor of the drawee bank.THOMAS DUPONTNegotiable Instrument—Forged Signature—Recovery by Drawee Bank.—Riggs Nat'l Bank. of Washington, D.C. v. Dade Fed. Say. and LoanAssin. 1—The defendant bank received a check in the amount of $20,0007 243 App. Div. 46, 276 N.Y. Supp. 341 (1st Dep't 1934) ; see also Bank of BritishNorth America v. Merchants' Nat'l Bank, 91 N.Y. 106 (1883).8 UCC § 4-406(4).1 268 F.2d 951 (5th Cir. 1959).304

Negotiable Instruments—Forged Indorsements—Statute of Limitations.—Edgerly v. Schuyler.

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