National Bank & Trust Co. of Central Pennsylvania v. Commonwealth
| Decision Date | 31 May 1973 |
| Citation | 305 A.2d 769,9 Pa.Cmwlth. 358 |
| Parties | NATIONAL BANK & TRUST COMPANY OF CENTRAL PENNSYLVANIA, Appellant, v. COMMONWEALTH of Pennsylvania, Appellee. |
| Court | Pennsylvania Commonwealth Court |
Argued Dec. 5, 1972.
Richard H. Wix, Metzger, Wickersham, Knauss & Erb, Harrisburg, for appellant.
Metzger Hafer, Keefer, Thomas & Wood, William E. Miller, Jr., Heath L. Allen, Harrisburg, for appellee.
Before BOWMAN, President Judge, and CRUMLISH, Jr. KRAMER, WILKINSON, MENCER, ROGERS and BLATT, JJ.
We are asked to determine the propriety of the action of the Court of Common Pleas of Dauphin County in (1) granting appellee a new trial; and (2) refusing to grant appellant bank's motion for a compulsory nonsuit on the facts in this case.
The genesis of this controversy was the institution by the Commonwealth of an action in assumpsit to recover $21,138.07 with appropriate interest from National Bank & Trust Company (collecting-bank) which sum represents an amount allegedly paid out improperly by the collecting-bank on checks whose endorsements had been forged.
The Department of Transportation (formerly the Department of Highways) in the usual course of its business delivers checks drawn on several banks throughout the Commonwealth from Harrisburg to its various district and county offices throughout the state for distribution to named payees. Some checks are periodically returned for a variety of reasons such as the death of a payee, or an error in amount, or issuance to individuals on leave without pay.
In 1963 and 1964, an individual who was employed by the Department as a Supervisor of the Payroll, intercepted one hundred and thirty-six (136) of the returned checks totalling $21,138.07 and forged the endorsements of the named payees. He presented the checks drawn on twenty different banks to the appellant and received either cash or a credit on his account. [1] Appellant then presented the checks to the various drawee banks for collection and received the stated amounts. The drawee banks then debited the accounts of the Commonwealth.
The Commonwealth obtained assignments from the several drawee banks of all the rights of the drawee banks against the appellant. Subsequently, the Commonwealth brought this action both in its own right and on the basis of its assigned rights seeking to recover the sums paid out together with interest thereon.
Appellant collecting-bank filed preliminary objections to the complaint. These were overruled [2] and the matter was sent to trial. The case was submitted to a jury for determination and it returned a verdict in favor of the collecting-bank. The Commonwealth motioned for judgment Non obstante veredicto (n.o.v.) and for a new trial. The collecting-bank also filed a motion for judgment n.o.v. in order to preserve the legal positions it asserted on preliminary objections.
Reviewing the proceedings, the Court of Common Pleas of Dauphin County, by Judge Lipsitt, granted the motion for new trial. The Court was of the opinion that its charge to the jury on the issue of the negligence of the Commonwealth was erroneous in that it directed the jury's inquiry into the area of ordinary or conventional negligence when, in fact, it felt a higher degree of negligence must be found before recovery on the complaint was precluded. The collecting-bank appeals that decision to this Court. We hold that the decision must be affirmed.
National Central does not deny that ordinarily a collecting-bank must bear the loss occasioned by the forgery of a payee's endorsement. As a defense to the claim asserted by the Commonwealth here, the collecting-bank relies on § 3--406 of the Uniform Commercial Code [3] 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 drawee's or payor's business.' The collecting-bank contends that the system of conducting business by the Commonwealth was negligent in that it allowed this situation to develop and therefore it is precluded from recovering under the provisions of § 3--406.
The degree of negligence which must be proved in order to deny recovery under § 3--406 is the issue. The charge to the jury was, as the trial court judge concedes, somewhat confusing. The jury was directed to understand the law to be that the negligence required in order to preclude recovery was such that directly and proximately affected the conduct of the bank. Other explanations and directions in the charge, however, instructed the jury to make a determination of ordinary negligence. In review, the court below concluded that this was error asserting that § 3--406 speaks of negligence which 'substantially contributes' to the making of an unauthorized signature. We agree.
It is clear that under pre-code law, the negligence which would deny a drawer's recovery was such that directly and proximately affects the conduct of the bank in the performance of its duties. Land Title Bank & Trust Company v. Cheltenham National Bank, 362 Pa. 30, 66 A.2d 768 (1949).
Thompson Maple Products, Inc. v. Citizens National Bank, 211 Pa.Super. 42, 234 A.2d 32 (1967), recognized that the Code effected a change in the standard of negligence required. There the court, in considering the negligence required under the Code said: 211 Pa.Super. at 47, 234 A.2d at 34. The court thus lightened the burden on a defending collecting-bank in showing negligence by the drawer but it did not, as the appellant urges upon us here, reduce the standard to ordinary negligence.
As noted, the Code requires negligence which substantially contributes to the making of an unauthorized signature and the official comment to that section clearly indicates that no attempt is made define negligence which will contribute to an alteration. This question is left to the court or jury to determine in consideration of the circumstances in each particular case. We conclude that a finding of more than ordinary negligence is necessary under the language of § 3--406 before that section operates to preclude recovery on a forged endorsement. The jury here should have been instructed in terms of negligence which substantially contributes to the making of an unauthorized signature and that, in fact, was not done.[4]
Thompson, supra, does not contravene this conclusion but, indeed, supports it. The fact situation there invloved the delivery of logs by independent shippers to a manufacturing concern. The manufacturer permitted the haulers to deliver both the original and the duplicate of a scaling slip which showed the number of logs which had been delivered to the company office when it would have been prudent to retain at least one slip. This easily afforded the haulers the opportunity to alter the instruments to show that money due exceeded the value of the load delivered. Moreover, the company, without giving specific authorization, regularly entrusted payment checks for goods received to the shippers. The court in Thompson concluded that neither practice in isolation was sufficient to show negligence under § 3--406, but considering them jointly, the standard was met. The court said that the conduct was analogous to giving blank checks to a potential forgerer. We consider that the court called for a higher standard than ordinary negligence. [5]
Since the court below did not commit an error of law, this Court will not disturb its order granting a new trial. The grant of a new trial lies within the inherent power of the trial court, and upon review, this Court will not interfere with the exercise thereof unless there has been a clear abuse of discretion or an error of law which necessarily controlled the result. Smalich v. Westfall, 440 Pa. 409, 269 A.2d 476 (1970). There can be no question that a new trial was proper when the jury determination was founded upon an incorrect instruction of the law.
Appellant's next contention is that the lower court erred in refusing to grant its motion for a compulsory non-suit. Resolution of this issue necessitates the consideration of the question of what relief is available to a drawer of a check against an intermediate bank which honors the check on a forged endorsement and collects the stated amount from the drawee bank. Must the drawer institute an action against the drawee...
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