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Owner
Held Liable on Forged Joint Check
May 15, 2000
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ConstructionWebLinks.com
A city agency hired a general contractor to build a city hockey
rink. The general contractor hired a subcontractor, who in
turn contracted with a material supplier to supply and install
the hockey rink. Following its regular practice, the owner
issued a joint check payable to the subcontractor and material
supplier, and delivered the check to the subcontractor. The
subcontractor forged the material supplier's signature and
cashed the check without paying the material supplier. Crystaplex
Plastics, Ltd. v. Redevelopment Agency of the City of Barstow,
2000 Daily Journal D.A.R. 1001 (Cal.App. 2000).
Despite the absence of a direct contractual relationship,
the material supplier sued the owner directly pursuant to
Commercial Code Section 3309. Section 3309 allows a payee
to enforce a check against the drafter even if the payee no
longer has possession of the check (e.g. lost, destroyed,
stolen) as long as the payee "(1) was in possession of the
instrument and entitled to enforce it when loss of possession
occurred, (2) the loss of possession was not the result of
a [lawful transfer or seizure], and (3) the person cannot
reasonably obtain possession of the instrument . . . ." The
owner argued that the section only allows a payee to recover
on a check that it has lost or that has been destroyed or
stolen but not upon a cashed joint payee check with a forged
endorsement. The trial court sustained the owner's demurrer.
The appellate court reversed. It viewed the critical issue
as whether the material supplier could invoke §3309 without
an allegation that at some point in time it had actual possession
of the check. The court adopted a constructive possession
theory: "delivery of the instrument to one of the joint payees
is delivery to all of them." Thus, the material supplier had
pleaded all elements necessary to enforce the instrument against
the owner as if it had been lost or stolen. The owner, in
turn, "may proceed to recover its loss from the subcontractor
who apparently forged the endorsement on the check, or against
the bank that honored the forged check."
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