Check Fraud and the Common Law: At the Intersection of Negligence and the Uniform Commercial Code

Abstract

Common law negligence claims persist in check fraud cases despite the Uniform Commercial Code’s loss allocation provisions in Articles 3 and 4. Absent an explicit preemption provision, courts disagree as to whether, when, and to what extent the Code preempts these common law claims. As a result, the courts’ varying analytical approaches to common law negligence claims often create seemingly conflicting results. This Note reviews the current loss allocation rules in check fraud scenarios and examines recent preemption case law. It argues in favor of the comprehensive rights and remedies analysis used by the majority of courts to determine the circumstances under which common law negligence claims should be allowed under the Code. It also makes recommendations for future Code revisions based on the recent case law. Finally, this Note suggests that the loss allocation scheme as presently constituted provides a latent benefit to the payment system by encouraging customers to move toward electronic payment.