## Facts

- A thief stole blank checks that a credit union had provided to its checking-account customer.
- Over roughly 40 days, the thief forged the customer’s signature on 14 checks totaling $2,350.
- The thief cashed the forged checks at a different bank where the thief maintained accounts.
- On some days, the thief cashed multiple forged checks.
- The thief’s accounts at the cashing bank never had sufficient funds to cover the checks being cashed.
- The cashing bank processed the checks through the Federal Reserve System to the drawee/payor credit union, which paid them.
- The customer discovered the forgeries upon receiving a statement and promptly notified the drawee/payor credit union.
- The drawee/payor credit union demanded reimbursement from the presenting/depositary bank; the presenting/depositary bank refused.

## Issues

1. Whether the presenting/depositary bank was liable to the drawee/payor bank under UCC presentment warranties for payment of checks bearing forged drawer signatures.
2. Whether transfer warranties provided the drawee/payor bank a claim against the presenting/depositary bank for the forged drawer signatures.
3. Whether the drawee/payor bank could recover despite the UCC mistaken-payment/final-payment rule by showing the presenting/depositary bank did not take the instruments in good faith.
4. Whether summary judgment was proper given disputes concerning good faith and surrounding circumstances.

## Decision

- The appellate court reversed summary judgment for the drawee/payor bank and remanded.
- Presentment warranties did not make the presenting bank strictly liable for forged drawer signatures on this record:
  - The warranty concerning unauthorized or missing endorsements did not apply to forged drawer signatures.
  - The alteration warranty did not apply because the items were not altered.
  - The knowledge-of-forgery warranty did not apply absent proof the presenting bank had actual knowledge of the forged drawer signatures at presentment.
- The drawee/payor bank’s transfer-warranty theory did not provide recovery against the presenting bank in these circumstances.
- Whether the presenting/depositary bank took the items in good faith (relevant to the mistaken-payment/final-payment bar) presented a factual question not resolvable on summary judgment; insufficient funds in the thief’s accounts did not establish bad faith as a matter of law.

## Legal Principles

- Presentment warranties under UCC Article 4 do not generally include a warranty of the authenticity of the drawer’s signature; liability for forged drawer signatures requires satisfaction of the specific statutory warranty elements (e.g., alteration, unauthorized endorsement, or actual knowledge where required).
- Transfer warranties do not automatically run to a drawee/payor bank as a basis to shift loss for forged drawer signatures absent a statutory fit.
- Under UCC § 3-418(c), a payor bank’s mistaken-payment recovery is limited against a party that took the instrument in good faith and for value.
- Good faith for purposes of UCC § 3-418(c) is typically fact dependent; lack of diligence or suspicious circumstances may be relevant, but cannot be decided as a matter of law without an adequate record.
- Summary judgment is improper when material facts remain disputed and the outcome turns on fact-intensive determinations such as good faith.

## Conclusion

The court held that the drawee/payor bank could not obtain summary judgment based on presentment or transfer warranties for forged drawer signatures, and that the payor bank’s attempt to avoid the final-payment/mistaken-payment bar depended on unresolved factual questions about the presenting bank’s good faith, requiring remand for further proceedings.


Decibel Credit Union v. Pueblo Bank & Trust Co., 996 P.2d 784 (Colo. Ct. App. 2000)