Contracting Around Finality: Transforming Price v. Neal from Dictate to Default
40 Pages Posted: 1 Jul 2015
Date Written: 2004
"Arguably the most important and problematic area within the entire field of negotiable instruments law is the law relating to forgery, especially the allocation of losses that result from forgery." Forgery is central to negotiable instrument law because a signature typically authenticates the orders and promises to pay on which the entire system is based. Unfortunately, forgery continues to cause substantial losses to American banks and the national economy. "Despite the significance of this problem, many of the legal doctrines governing forgery loss allocation remain quite problematic, even after nearly three centuries of development." To combat the problem of negotiable instrument fraud, this Article argues that the time-honored doctrine of finality, as embodied in the case of Price v. Neal and § 3-418(c) of the Revised Uniform Commercial Code (RUCC) should be transformed from a rigid, per se dictate into a default rule. This transformation would constitute a significant change in Anglo-American commercial paper law. The goal of this transformation is to allow presenters of negotiable drafts and payor banks to better allocate the losses of forgery to the party who is most willing to bear that burden. This ability to allocate losses, in turn, is designed to reduce the costs of forgery and improve the efficiency of the American commercial paper system.
Keywords: Forgery, Negotiable Instrument Law, Signature, Doctrine of Finality
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