## Facts

- First National Mortgage Company (FNMC) made a loan to Helen Nastor secured by a deed of trust.
- FNMC issued a check payable to “Helen Nastor” and entrusted the check to Nastor’s son, Rudy, for delivery.
- An impostor posing as Nastor endorsed the check in Nastor’s name, presented it to Comerica Bank-California (the drawee/payor), and Comerica paid it.
- FNMC later made a second loan purportedly to Nastor; the loan documents were executed by Rudy using a forged power of attorney.
- Proceeds from the second loan were used in part to pay off the first loan; remaining proceeds were disbursed by check payable to Rudy.
- No payments were made on the second loan; FNMC began foreclosure and Nastor denied validity of the deeds of trust due to the forged power of attorney.
- Title Insurance Company of Minnesota paid FNMC’s title insurance claim and, as FNMC’s subrogee, sued Comerica for negligence.
- Title alleged Comerica negligently paid the first check on an impostor endorsement and that, had Comerica refused payment or notified FNMC, FNMC would not have made the second loan.

## Issues

1. Whether California Uniform Commercial Code § 3404(a) (impostor rule) makes an impostor’s endorsement effective so as to defeat a negligence claim against the drawee bank for paying the check.
2. Whether a drawee bank owes a common-law duty of care in negligence to a noncustomer (or its subrogee) regarding routine payment of checks.

## Decision

- The Court of Appeal affirmed the judgment sustaining Comerica’s demurrer without leave to amend and dismissing the action.
- The court held § 3404(a) applied, making the impostor’s endorsement effective as the payee’s endorsement and allocating the loss away from the drawee bank.
- The court held Comerica owed no negligence duty to Title or FNMC as noncustomers concerning Comerica’s decision to honor the check.
- The court rejected using common-law negligence to shift losses in a manner inconsistent with the UCC’s allocation rules.

## Legal Principles

- Under Cal. U. Com. Code § 3404(a), when an impostor induces issuance of an instrument by impersonating the payee or falsely claiming authority, an endorsement in the payee’s name is effective as the payee’s endorsement.
- The impostor rule allocates loss to the issuer/drawer (or the party that dealt with or entrusted the instrument in the transaction that enabled the fraud), rather than the drawee/payor bank that honored the check.
- Absent a direct relationship or special circumstances, a bank generally owes no duty of care in negligence to noncustomers regarding routine check payment decisions.
- Where the UCC provides a comprehensive loss-allocation scheme for a check transaction, a negligence theory cannot be used to reallocate losses contrary to that statutory framework.

## Conclusion

The court affirmed dismissal because the impostor rule treated the endorsement as effective, placing the loss on the issuer side of the transaction, and because the drawee bank had no tort duty to a noncustomer subrogee for paying the check in the ordinary course.


Title Ins. Co. of Minn. v. Comerica Bank-Cal., 32 Cal. Rptr. 2d 735 (Cal. Ct. App. 1994)