Gina Chin & Assoc. v. First Union Bank

• Decision Date: 05 June 1998
• Docket Number: Record No. 971463.
• Citation: 500 S.E.2d 516,256 Va. 59
• Court: Virginia Supreme Court
• Parties: GINA CHIN & ASSOCIATES, INC. v. FIRST UNION BANK.

500 S.E.2d 516

256 Va. 59

GINA CHIN & ASSOCIATES, INC. v. FIRST UNION BANK.

Record No. 971463.

Supreme Court of Virginia.

June 5, 1998.

Simon M. Osnos, Falls Church, for appellant.

Daniel S. Fiore, for appellee.

Present: All the Justices.

LACY, Justice.

Gina Chin & Associates, Inc. (Chin) filed a motion for judgment against First Union Bank alleging that First Union was negligent when it accepted checks drawn on Chin's accounts bearing both forged signatures of the drawer and forged indorsements of the payees. The trial court sustained First Union's demurrer and entered summary judgment. We awarded Chin an appeal, and we will reverse the judgment of the trial court because we conclude that Chin's motion for judgment pled a cause of action pursuant to §§ 8.3A-404 and -405 of the Uniform Commercial Code, Code §§ 8.1-101 through 8.11-108 (the UCC).

In reviewing a case decided on a demurrer, we accept as true the facts alleged in the motion for judgment and all reasonable inferences to be drawn therefrom. Adkins v. Dixon, 253 Va. 275, 277, 482 S.E.2d 797, 799 (1997). Chin, a food wholesaler, maintained checking accounts at Signet Bank and Citizens Bank of Washington, D.C. (the drawee banks). During 1994 and 1995, an employee of Chin, Amie Cheryl Lehman, forged the signature of one of Chin's officers on a number of checks that were payable to Chin's suppliers. Lehman then forged the payees' indorsements and, with the assistance of a First Union teller, deposited the checks in an account which she held at First Union. The drawee banks then paid the checks and debited a total amount of $270,488.72 from Chin's accounts.

First Union asserts that, under the UCC, it is amenable to suit only by the drawee banks based on a breach of warranty of title theory. § 8.4-207.1.¹ Chin's sole cause of action, according to First Union, is against the drawee banks for improperly charging Chin's accounts for the amount of the forged checks. See §§ 8.4-401, -406. Under First Union's interpretation of §§ 8.3A-404 and -405, Chin does not have a cause of action against it pursuant to those sections because they only apply to instances involving a forged indorsement of the payee and not to the circumstances where both the payee's indorsement and the signature of the drawer were forged.

While First Union correctly states that the UCC provides a drawer with a cause of action against a drawee bank that charges a drawer's account based on checks containing a forged signature of the drawer, its conclusion that §§ 8.3A-404 and -405 cannot be utilized by a drawer against the depositary bank in a double forgery situation is erroneous.

Sections 8.3A-404 and -405 were part of the 1992 revisions to the UCC. Revised § 8.3A-404(b) provides that where the payee on a check is fictitious or not the person intended to have an interest in the check by the person determining to whom the check is payable, a forged payee's indorsement on the check is nevertheless effective for one who takes the check in good faith.² Similarly, where an employee vested with the responsibility for processing, signing, or indorsing the employer's check makes a fraudulent indorsement of such check, revised § 8.3A-405 continues the prior provision's rule that the indorsement is effective if taken or paid in good faith. However, both revised sections provide that if the person taking the check fails to exercise ordinary care, "the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss." §§ 8.3A-404(d), -405(b).

The revisions to §§ 8.3A-404 and -405 changed the previous law by allowing "the person bearing the loss" to seek recovery for a loss caused by the negligence of any person paying the instrument or taking it for value based on comparative negligence principles. The concept of comparative negligence introduced in the revised sections reflects a determination that all participants in the process have a duty to...