In March 2008, Faux Themes Inc., a corporation in the construction business, opened a checking account with Chino National Bank. Brian Peters, the president of the company, and Marilyn Charlnoes, its treasurer, were authorized signers on the account. Until April 2009, the average monthly balance in the account ranged from $3,000 to $5,000, and the deposits in any one month never exceeded $10,000. In March 2009, Peters received an email supposedly from Husaine Norman, a citizen of Malaysia. Norman said that certain third parties in the United States and Canada owed him money; however, they were insisting that “they cannot transfer the funds to any bank account outside the American continent due to their new company policy.” 

He asked Peters to “assist me in receiving the funds and forward to me.” He offered to pay Peters 12 percent of the money, and Peters agreed after negotiating an increase of his fee to 15 percent. On April 30, 2009, Faux received a check for $178,000; Peters had Charlnoes deposit it. On May 8, 2009, the bank confirmed the check had cleared. Charlnoes then had the bank wire $80,000 to a bank in Hong Kong. Also on May 8, Faux received a second check for $373,988.90, which was deposited, and on May 12, Charlnoes had the bank wire another $71,000 to the same bank in Hong Kong. 

On May 15, the bank confirmed that the second check had cleared, and Charlnoes had the bank wire $317,000 to a bank in China. On May 21, Faux received a third check for $257,000 which was deposited at the bank. On May 22, 2009, the bank was notified that the name of the first check had been altered to change the name of the payee to Faux. On May 28, the bank was notified that the second and third checks had been similarly altered. Because all three checks were dishonored, the account was overdrawn in the amount of $458,782.60. 

When the bank got back the original checks, it found that they had been altered with an acid that was originally used by architects to remove ink from blueprints. They had no facial irregularities—no discoloration, smidges, misalignments, or disturbances of the backgrounds or watermarks. The alterations were in fonts and type sizes that were consistent with the other printing on the check. Pursuant to bank policy concerning checks over $10,000, a bank officer had reviewed the checks for irregularities and to see whether the amounts were consistent with the customer—and had initialed the deposit slips to show the procedures had been followed. 

Before initialing, he also had determined that the amounts of the checks were consistent with deposits made to the accounts of related entities. This is consistent with industry practice nationally. The bank sued Peters to recover the cost of the overdraft. Peters did not dispute that he was personally responsible for any overdrafts, but contended that the bank had not followed suitable procedures in taking the checks for deposit and, therefore, its own actions substantially contributed to the losses so that it should not be entitled to charge the items back to Faux’s account. On these facts, is the bank entitled to charge the items back to Faux’s account?