automatically. Mr. Lichtenstein admitted that he signed over these funds into her account in two separate transactions without her knowledge or authorization, but with a Kidder Peabody signature guarantee. Pl.'s Ex. 10, 11, and 12. A note written to Mr. Chewning, Pl.'s Ex. 12, forged by Mr. Lichtenstein, states that Mrs. Lichtenstein wanted the second batch of Windsor Fund stocks transferred into her Premium Account. Both Lichtensteins testified that Mr. Lichtenstein had forged this note. A Kidder Peabody signature guarantee is stamped on this document.
Other securities transactions occurred without Mrs. Lichtenstein's knowledge or approval. First, on November 25, 1985 Allegheny County Hospital Development Authority for McGee Women's Hospital Bonds were purchased for her account. These bonds were then sold on May 3, 1986 which netted roughly $ 1,400 profit. Second, her 1500 shares of Sun Energy Partners stock, which had previously been purchased per her request, was sold at a loss of $ 6,700 on April 25, 1986 without her consent. Third, some 55,000 shares of Putnam stock was sold without yielding a profit on March 31, 1986 without her knowledge.
Each of these transfers occurred with the help of a Kidder Peabody signature guarantee and were reported in her monthly statement, Mrs. Lichtenstein was completely unaware of all of them until she confronted her husband in July of 1987.
Mrs. Lichtenstein contends that had a proper signature guarantee policy been enforced, her ex-husband's forgeries of her checks and stock transfers would never have happened. Kidder Peabody does not have specific requirements or conditions for an employee to guarantee a signature, nor is it necessary for the employee to see the person face to face. See Janet Nola Dep. Feb. 15, 1991, p. 6. To ensure authenticity, Kidder Peabody relies on the broker/registered representative's representation, and most customers signatures are automatically guaranteed. Nola Dep. at 6, 7. Mr. William M. DiLodovico, Vice President and Branch Operations Manager at Kidder Peabody, testified that such verification policy is in accordance with commercial standards. Mr. DiLodovico is a non-expert whose experience is limited to Kidder Peabody. Boyd Murray also testified that the defendant's signature guarantee policy conformed to reasonable standards.
Mrs. Lichtenstein first learned of the problems with her account on July 24, 1987, when she and her parents confronted Mr. Lichtenstein about his forgeries, and he admitted that all the money which she had invested at Kidder Peabody was gone. She argues that up to that point, Kidder Peabody had not notified her of any problems with her account. Each transition was reflected in her monthly statement.
Obviously, at this point, Mrs. Lichtenstein no longer trusted her husband; she divorced him. She has since been employed as a medical assistant in order to support her children.
Mr. Chewning terminated his employment at Kidder Peabody on November 5, 1987 because his former employer, Paine Webber, offered him more attractive employment terms. Kidder Peabody's investigation into Mr. Chewning's handling of Mrs. Lichtenstein's account concluded that Mr. Chewning acted appropriately.
Mr. Chewning testified that he received no Kidder Peabody training and was aware of no operations or procedural manuals.
II. CONCLUSIONS OF LAW
Mrs. Lichtenstein charges defendant Kidder Peabody with conversion as to the Windsor Fund shares (Count I), constructive fraud (Count II), negligence (Count III), breach of express and implied contract (Count IV), and breach of fiduciary duty (Count V).
A. BREACH OF CONTRACT
Articles Three and Four of the Pennsylvania Commercial Code (hereinafter "the Code") govern the duties and liabilities of the parties in cases involving bank deposits and collections. 13 Pa. C.S.A. §§ 3101 - 3805, 4101 - 4504 (1980). Payment on a forged drawer's signature violates the duty of the bank to charge its customers' accounts for only properly payable items. Hardex-Steubenville Corp. v. Western Pennsylvania Nat. Bank, 446 Pa. 446, 285 A.2d 874, 876 (Pa. 1971). "Under the Code a bank breaches its agreement with a customer when it pays the holder of a forged check. It is this breach which constitutes the customer's cause of action against a bank to recover the sums paid out on checks bearing forged signatures." Id. "[A] bank's duty to its customer rests upon an implied contract to honor a depositor's checks which bear genuine signatures. Hence, in honoring a forged check the bank is deemed to have used its own money not the depositor's, and is liable on the contract of deposit to recredit the customer's account." Cumis Ins. Soc., Inc. v. Girard Bank, 522 F. Supp. 414, 418 (1981).
The relevant Code provisions read as follows:
§ 4406. Duty of customer to discover and report unauthorized signature or alteration.
(a) General rule. When a bank sends to its customer a statement of accounting 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 statement 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 on an item and must notify the bank promptly after discovery thereof.