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filed: September 27, 1985.


Appeal from the Order of the Court of Common Pleas, Trial Division - Civil Section Philadelphia County, No. 1821 August Term, 1983.


Walter Weir, Jr., Philadelphia, for appellant.

Melvin R. Shuster, Philadelphia, for appellee.

Tamilia, Lipez and Shiomos,*fn* JJ.

Author: Lipez

[ 346 Pa. Super. Page 165]

This action was brought in both trespass and assumpsit to recover amounts paid by defendant bank on checks drawn on plaintiff's account to plaintiff's bookkeeper, who had forged plaintiff's signature and cashed the forged checks. After defendant bank filed its answer, both sides moved for summary judgment. The court below granted the defendant bank's motion for summary judgment as to plaintiff's trespass claim, which the court held was barred by the two-year statute of limitations. 42 Pa.C.S. § 5524(3). The court also held, however, that the count in assumpsit was not time-barred, because it was brought within the four-year statute of limitations of 42 Pa.C.S. § 5525(3) and (4). The court further held that the bank was strictly liable to plaintiff for checks paid on a forged signature, and therefore summary judgment was granted for the plaintiff on the assumpsit count. Defendant bank then took this appeal, in which it contends: (1) the two-year statute of limitations in 42 Pa.C.S. § 5524(3) bars plaintiff's claim in the assumpsit count as well as in the trespass count; (2) plaintiff's claim is also barred by section 4406 of the Uniform Commercial Code, 13 Pa.C.S. § 4406; and (3) the court below should not have granted summary judgment to the plaintiff, because questions of material fact remained to be tried. We disagree that plaintiff's claim was barred by either 42 Pa.C.S. § 5524(3) or 13 Pa.C.S. § 4406, but we agree that material questions of fact remained to be tried. Therefore we vacate the order granting summary judgment to the plaintiff, and remand for trial on the assumpsit count in plaintiff's complaint.

The basic facts of the case are simple. Plaintiff is a businessman who maintained a checking account for his business with the defendant bank. Plaintiff himself was the only one authorized to sign checks drawn on the account,

[ 346 Pa. Super. Page 166]

    but plaintiff's bookkeeper regularly transacted business at the bank on plaintiff's behalf. During the period from February, 1979 to July, 1981, the bank honored a number of checks, made out to "CASH," which were presented for payment by the bookkeeper and on which she had forged plaintiff's signature. Since the bookkeeper herself was the only person in plaintiff's office who received and reviewed the monthly statements and cancelled checks sent by the bank, plaintiff did not discover and report the fraud until July, 1981, when the bookkeeper was in the hospital. The bank refused to recredit plaintiff's account for the amounts paid to the bookkeeper on the forged checks, and in August, 1983, plaintiff brought this action to recover on the thirty-one of the forged checks which were cashed between September, 1980 and July, 1981.*fn1

In contrast to this simple fact pattern, some of the bank's arguments are fairly labyrinthine. To facilitate discussion, we shall address the issues in a different order from that of the bank's brief, beginning with the relatively simple issue of the statute of limitations. It is undisputed that the action was brought more than two years, but less than four years, after accrual of the cause of action on each check on which plaintiff has sued, so the only question is whether the two-year or four-year statute of limitations governs. Plaintiff has not appealed the lower court's determination that the trespass count of the complaint is barred by the two-year limitation of 42 Pa.C.S. § 5524(3),*fn2 so all that is before us is the bank's contention that the two-year limitation of section 5524(3) also applies to the assumpsit count.

[ 346 Pa. Super. Page 167]

The bank contends that the only four-year statute of limitations which might apply to plaintiff's case is section 5525(4) of the Judicial Code, which provides a four-year limitation for "An action upon a contract implied in law, except an action subject to another limitation specified in this subchapter." 42 Pa.C.S. § 5525(4). The bank further argues that the trespass count and assumpsit count of plaintiff's complaint are not distinct causes of action but only alternative theories of recovery, and therefore plaintiff is subject to the exception in section 5525(4) for "an action subject to another limitation specified in this subchapter," viz., the two-year limitation of 42 Pa.C.S. § 5524(3). The first flaw in the bank's argument is that plaintiff's action is clearly based on alleged breach of an express contract between himself as customer and the bank, rather than a contract implied in law. See Hardex-Steubenville Corporation, Inc. v. Western Pennsylvania National Bank, 446 Pa. 446, 449-50, 285 A.2d 874, 876 (1971), reh'g denied (1972). Therefore the applicable statute of limitations here is not section 5525(4), but section 5525(3), which provides a four-year limitation for "An action upon an express contract not founded upon a instrument in writing." 42 Pa.C.S. § 5525(3). Unlike section 5525(4), section 5525(3) contains no exception, so the four-year limitation clearly applies here.

Moreover, even if the applicable section were 5525(4), we would not find the exception in that section for "an action subject to another limitation" applicable to this case. Plaintiff's action is not subject to the two-year statute of limitations for trespass actions in section 5524(3), because plaintiff has no cause of action for trespass under Pennsylvania law. See Cumis Insurance Society, Inc. v. Girard Bank, 522 F.Supp. 414, 418-19, n. 11 (E.D.Pa. 1981), as amended (collecting cases). Thus the court below correctly concluded that the four-year statute of limitations applies to the assumpsit count of plaintiff's complaint, and refusal to

[ 346 Pa. Super. Page 168]

    dismiss that count was proper, because it was filed within four years.

The bank's next argument is based on section 4406 of the Uniform Commercial Code, which provides in pertinent part:

(a) General rule. -- When a bank sends to its customer a statement of account accompanied by items paid in good faith in support of the debit entries or holds the statement and items pursuant to a request or instructions of its customer or otherwise in a reasonable manner makes the statements and items available to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or any alteration of an item and must notify the bank promptly after discovery thereof.

(b) Effect of failure to report unauthorized signature or alteration. -- If the bank establishes that the customer failed with respect to an item to comply with the duties imposed on the customer by subsection (a) the customer is precluded from asserting against the bank:

(1) his unauthorized signature or any alteration of the item if the bank also establishes that it suffered a loss by reason of such failure; and

(2) an unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank after the first item and statement was available to the customer for a reasonable period not exceeding 14 calendar days and before the bank receives notification from the customer of any such unauthorized signature or alteration.

(c) Non-liability of bank affected by lack of ordinary care. -- The preclusion under subsection (b) does not apply if the customer establishes lack of ordinary care on the part of the bank in paying the item.

(d) Statutes of limitations applicable to customer. -- Without regard to care or lack of care of either the customer or the bank a customer who does not within one

[ 346 Pa. Super. Page 169]

    year from the time the statement and items are made available to the customer (subsection (a)) discover and report his unauthorized signature or any alteration on the face or back of the item or does not within three years from that time discover and report any unauthorized endorsement is precluded from asserting against the bank such unauthorized signature or endorsement or such alteration.

13 Pa.C.S. § 4406.

The bank contends that plaintiff failed to comply with his obligations under subsection (a) of section 4406, and therefore subsection (b)(2) precludes plaintiff's suit on all 31 checks, since all the forgeries were by the same wrongdoer, and all 31 of the checks were cashed more than 14 days after the first item or statement was made available to plaintiff and before the bank received notification from plaintiff of the forgeries. Plaintiff counters the bank's subsection (b)(2) defense by pointing to subsection (c), which provides that subsection (b)'s preclusion "does not apply if the customer establishes lack of ordinary care on the part of the bank in paying the item." 13 Pa.C.S. § 4406(c).

The bank answers plaintiff's subsection (c) counter-argument with a complex statutory construction argument, the linchpin of which is the bank's contention that the words "the item"*fn3 at the end of subsection (c) refer to the phrase "the first item" as used in subsection (b)(2). Based on this reading of "the item" to mean "the first item," the bank contends that subsection (c) is inapplicable for two reasons: (1) the record does not show lack of ordinary care by the bank with respect to the first item; and (2) since recovery on the first item is absolutely precluded by the one-year statute of limitations of subsection (d), the first item cannot

[ 346 Pa. Super. Page 170]

    be used as the basis for liability on any other item. We do not believe that these conclusions would necessarily follow, even if we agreed with the bank's contention that "the item" referred to in subsection (c) means "the first item," but since we disagree with this necessary premise of the bank's argument, we need not decide whether the bank's additional claims concerning the first item are correct.

We agree with plaintiff that "the item" in subsection (c) refers to any item for which the plaintiff is suing, rather than "the first item," which is mentioned in subsection (b)(2). This is demonstrated by the fact that subsection (c) refers to "the preclusion of subsection (b)" as a whole, rather than of subsection (b)(2) in particular. Neither subsection (b)(1) nor the introductory clause to subsection (b) refer at all to "the first item." Subsection (c) is clearly intended to render the "preclusion of subsection (b)" ineffective when the bank does not use ordinary care in paying "the item," regardless of whether the preclusion arises from subsection (b)(1) or (b)(2). The only sensible reading of "the item" in subsection (c) would therefore be that it refers to any item to which the bank is attempting to apply "the preclusion of subsection (b)."

The bank points out that a court in Ohio has held that "the item" in section 4406(c) refers to "the first item" George Whalley Company v. National City Bank of Cleveland, 55 Ohio App.2d 205, 380 N.E.2d 742 (1977). The bank claims that this Ohio case is an especially strong guide for interpreting Pennsylvania law, because in the official version of the Uniform Commercial Code, section 4406(c) ends with "the item(s)," while both Pennsylvania and Ohio have changed their version to read "the item." Since the case is from another jurisdiction, however, we are not bound by it. Its only value in this court is its reasoning, which we do not find persuasive. As previously stated, reading "the item" to mean "the first item" would mean that subsection (c) refers only to preclusion under subsection (b)(2), which is clearly contrary to the express reference

[ 346 Pa. Super. Page 171]

    in subsection (c) to preclusion under all of subsection (b). The legislature has unambiguously expressed its intent that "the item" in section 4406(c) means any item for which the plaintiff sues and to which the bank attempts to apply the preclusion of subsection (b).*fn4 We are required to interpret the statute according to its plain meaning. 1 Pa.C.S. § 1921(b). The bank has therefore not established a defense under section 4406 at this state of the proceedings.

This does not mean, however, that the plaintiff has eliminated any possibility of a defense under section 4406, as he was required to do in order to be entitled to summary judgment at this time. The opinion of the court below does not address the bank's final claim, that plaintiff was not entitled to summary judgment at this state because material questions of fact remained to be tried. The opinion bases its grant of summary judgment to the plaintiff on the assumpsit count solely on a statement in a federal court opinion (applying Pennsylvania law) to the effect that there is "strict liability under the Code as between a drawee bank and a drawer customer" when a check is paid on a forged drawer's signature. Cumis Insurance Society, Inc. v. Girard Bank, 522 F.Supp. 414, 419 (E.D.Pa. 1981).

While the Cumis opinion provides an excellent summary of Pennsylvania law in this area, it must be read in its entirety. Immediately after the reference to "strict liability" which was quoted by the court below, the Cumis opinion made the following additional observation: "Under the Code scheme, the drawee bank can escape liability if the

[ 346 Pa. Super. Page 172]

    drawer is: (1) precluded from denying the validity of the signature (13 Pa.C.S.A. § 3404(a)); (2) negligent in allowing the forgery or negligent in not discovering it (13 Pa.C.S. §§ 3406 and 4406); (3) deemed to have ratified the unauthorized signature (13 Pa.C.S. § 3404(b))." Cumis Insurance Society, Inc. v. Girard Bank, supra, 522 F.Supp. at 419-20 (citation and footnote omitted). Here the bank raised defenses under both section 3406 and 4406, and plaintiff did not meet the standard for summary judgment under Rule of Civil Procedure 1035 with respect to these defenses.

Summary judgment should be entered only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Pa.R.C.P. 1035. In deciding whether this is so, a court must view the evidence in the light most favorable to the non-moving party, and enter judgment only if the case is clear and free from doubt.

Berardi v. Johns-Manville Corporation, 334 Pa. Super. 36, 38, 482 A.2d 1067, 1068-69 (1984) (citations omitted).

Plaintiff contends he was entitled to summary judgment because the factual situation in his case is essentially the same as in Hardex-Steubenville Corporation, Inc. v. Western Pennsylvania National Bank, supra. We agree that the fact pattern of Hardex-Steubenville is essentially almost identical to the facts here, but because of the differing procedural postures of the two cases, the similarity of the fact pattern tends to support the bank's position, rather than plaintiff's. The Court in Hardex-Steubenville did not grant summary judgment to the plaintiff there, but reversed a jury verdict for the defendant and remanded for a new trial, because the trial judge had erroneously instructed the jury that if both parties were negligent, they would have to find for the bank. 446 Pa. at 452 & n. 5, 285 A.2d at 877-78 & n. 5. The new trial was granted because of this incorrect instruction regarding the jury's findings of

[ 346 Pa. Super. Page 173]

    negligence, but the questions of whether the bank or the plaintiff or both were in fact negligent were clearly to be left to the jury again in the retrial of the case. Plaintiff here would have us do precisely the opposite of Hardex-Steubenville, by permitting summary judgment, thus preventing the issue of the bank's negligence (or any other issue) from being presented to a trier of fact.

In claiming that we can read this record in the light most favorable to the bank and still find that it is clear and free from doubt that the bank has no defense, the plaintiff relies solely on a single paragraph of an affidavit filed by a senior security officer of the defendant bank. That paragraph states as follows:

7. [The bank's] tellers ordinarily check and compare the signature appearing on any check drawn against one of its customer's accounts when presented for cash at a teller's window with the signature on a customer's signature card. However, when an agent of the customer, such as [plaintiff's] bookkeeper, is authorized by the customer to negotiate checks this procedure is not repeated indefinitely. Once the tellers are advised by the customer that the agent has the authority to cash such checks, the teller does not continually check the signature card since the customer and the agent are well known at the branch. As pointed out above, [the bookkeeper] was well known to the tellers at the branch office where these checks were cashed and on several occasions had questioned [plaintiff] about [the bookkeeper's] authority and in each case was advised that she had the authority.

In effect, plaintiff is asking us to hold that it is negligence per se for the bank to fail to check the signature card and compare it with every check presented for cash by the plaintiff's admittedly authorized agent, regardless of the volume of checks involved or any other circumstances. The principal case which plaintiff relies, Hardex-Steubenville, supra, does not explicitly reject this claim, because it does

[ 346 Pa. Super. Page 174]

    not appear to have been raised in those precise terms, but a careful reading of Hardex-Steubenville does strongly indicate that rejection of plaintiff's argument would follow from the reasoning of Justice Pomeroy's opinion for the Court in that case. That opinion discussed the evidence of the bank's negligence as follows:

At trial the Customer introduced testimony tending to show that the Bank had been negligent in honoring the forged checks. The Bank introduced testimony to the contrary and showing that during the period involved it had sent to the customer regular monthly statements of its accounts, together with the Customer's cancelled checks for each month.

Hardex-Steubenville Corporation, Inc. v. Western Pennsylvania National Bank, supra, 446 Pa. at 449, 285 A.2d at 876. The only factor specifically identified in this discussion as bearing on the issue of the bank's negligence is the bank's evidence showing that statements and cancelled checks were sent monthly by the bank to the customer. In the case before us, the plaintiff concedes that the bank did this much, and more.*fn5

An even stronger indication that the Hardex-Steubenville opinion necessarily leads to rejection of plaintiff's argument is that the discussion of the undisputed facts in Hardex-Steubenville, 446 Pa. at 448, 285 A.2d at 875-76, clearly shows that the bank in that case had signature cards for the corporation's president, whose signature was being forged by the corporation's office manager, yet the bank never discovered the forgeries during the nearly three-year period that the forged checks were being cashed. If plaintiff's argument concerning the signature cards were correct, the issue of the bank's negligence should have been

[ 346 Pa. Super. Page 175]

    taken from the jury, but instead the Court remanded so that the issue could be submitted to the jury again at the retrial. Likewise, the record here presents a triable issue of material fact as to whether the bank was negligent so as to vitiate its section 4406 defense, and summary judgment should not have been granted.

Summary judgment was also incorrect because there is still an issue of material fact as to the bank's defense under section 3406 of the Uniform Commercial Code, which provides:

Any person who by his negligence substantially contributes to a material alteration of the instrument or to the making of an unauthorized signature is precluded from asserting the alteration or lack of authority against a holder in due course or against a drawee or other payor who pays the instrument in good faith and in accordance with the reasonable commercial standards of the business of the drawee or payor.

13 Pa.C.S. § 3406. Plaintiff does not even argue, much less present any evidence of record, that the bank failed to act in accordance with the reasonable commercial standards of its business.*fn6 Instead, plaintiff relies on the following statement in a case from Tennessee:

It is argued on behalf of the Bank that such examination of the signature card, which was not made in the instant case, is not practical under modern banking methods. Such may be true as a practical matter, but, if so, the Bank, because of that fact, cannot escape the consequences and must . . . be held guilty of negligence.

[ 346 Pa. Super. Page 176]

Jackson v. First National Bank of Memphis, Inc., 55 Tenn.App. 545, 403 S.W.2d 109, 113 (Tenn. 1966).

Even if we accepted the reasoning of the Jackson court, it could at most apply to the bank's section 4406 defense, which could be rendered ineffective under section 4406(c) if plaintiff established the bank's negligence. It would be a contradiction in terms, however, for us to accept the proposition that a bank could be deprived of a section 3406 defense because of conduct which is in accordance with reasonable commercial standards, since that is part of the definition of the section 3406 defense.

Finally, we must also reject the Jackson reasoning with respect to the section 4406 defense, although the point is not quite so clear-cut as under section 3406. Jackson is totally inconsistent with the Pennsylvania Supreme Court's strong implication in Hardex-Steubenville Corporation, Inc. v. Western Pennsylvania National Bank, supra, that failure to compare the signature cards with the checks cashed by a customer's agent, who is authorized to cash checks but not to sign them, does not by itself constitute negligence under section 4406.*fn7 Since there are several questions of material fact remaining to be tried, the order granting summary judgment to the plaintiff on the assumpsit count of his complaint cannot stand.

Order vacated, and case remanded for trial.


*fn* Judge Thomas N. Shiomos, Senior Judge, of the Court of Common Pleas of Philadelphia County, Pennsylvania, is sitting by designation.

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