Roy Supply, Inc. v. Wells Fargo Bank, C017141
| Decision Date | 26 October 1995 |
| Docket Number | No. C017141,C017141 |
| Citation | 39 Cal.App.4th 1051,46 Cal.Rptr.2d 309 |
| Court | California Court of Appeals Court of Appeals |
| Parties | , 27 UCC Rep.Serv.2d 1363, 95 Cal. Daily Op. Serv. 8401, 95 Daily Journal D.A.R. 14,450 ROY SUPPLY, INC., et al., Plaintiffs and Appellants, v. WELLS FARGO BANK, N.A., Defendant and Respondent. |
Moyer, Buechner & Towne, Mark E. Buechner and Bruce A. Scheidt, Sacramento, for Plaintiffs and Appellants.
Coblentz, Cahen, McCabe & Bryer, Jonathan R. Bass and Susan K. Jamison, San Francisco, for Defendant and Respondent.
In this case we consider whether corporate depositors may pursue causes of action against their bank for the negligent payment of forged checks when they failed to discover and report the forgeries to the bank in a timely manner. We hold that the statutory provisions of the California Uniform Commercial Code 1 preclude the depositors from asserting the forged checks against the bank and this preclusion is fatal to their claims for the negligent payment of forged checks not timely reported to the bank.
Plaintiffs Roy Supply, Inc. (Roy Supply), R.M.R. Drywall, Inc. (Drywall), and Edward Roy (Roy), appeal from a judgment of dismissal entered after the trial court sustained without leave to amend the demurrer of defendant Wells Fargo Bank, N.A. (the Bank). Although we conclude that the trial court properly sustained the Bank's demurrer, we shall reverse the judgment of dismissal as to the corporate plaintiffs and remand with directions that they be given leave to amend their complaint on the question of timeliness.
Also at issue on appeal is the question whether the trial court properly ruled that plaintiff Roy does not have an individual cause of action in negligence against the Bank for cashing the forged checks. Because the forged checks were drawn on the corporate plaintiffs' checking accounts, and because the Bank had no commercial relationship with Roy involving those accounts, we shall hold that the Bank did not owe a duty of care to Roy personally and consequently the demurrer was properly sustained without leave to amend as to Roy's individual cause of action.
The underlying action involves the commercial checking accounts of plaintiffs Roy Supply and Drywall with the Bank. The corporate plaintiffs authorized their checking accounts to be debited for checks drawn in accordance with signature cards submitted to the Bank. These signature cards authorized withdrawals from the accounts only by order of checks or drafts bearing the signatures of both Edward Roy and Twila June Moore. 2 At all relevant times, Roy was president, chief executive officer and a shareholder of the corporate plaintiffs. Moore was the secretary and treasurer of the corporate plaintiffs.
Over a period spanning several years, the Bank honored over $3 million in checks drawn against the corporate plaintiffs' accounts which had been drawn by Moore in an irregular manner. On most of these checks Roy's signature had been forged by Moore. On the remaining checks, Roy's signature was missing altogether.
Plaintiffs filed a nine-count complaint in March 1992. In a first amended complaint filed in April 1993, plaintiffs eliminated claims based on checks which they conceded were time-barred or which served legitimate corporate purposes, thereby reducing the Bank's potential liability to slightly over $2 million.
Three of the counts in the amended complaint are based on a negligence theory. These three counts are the subject of this appeal.
The fifth and sixth counts allege the Bank negligently maintained its records and negligently operated, managed and controlled its check processing operations so as to allow checks drawn with a forged signature to be charged against the corporate plaintiffs' accounts.
The ninth count sought damages suffered by Roy as president of the corporate plaintiffs. It was there alleged that as a proximate result of the Bank's negligence, the corporate plaintiffs lacked sufficient funds to pay state and federal taxes for the tax years 1988 through 1991 (federal tax years) and 1989 through 1991 (state tax years), and Roy was personally required to satisfy the federal and state tax liability of the corporate plaintiffs. As a result, Roy was injured in his "health, strength, activity and marital relations, sustaining injury to his nervous system and person, all of which injuries have caused ... Roy great mental, physical and nervous pain and suffering."
The Bank successfully demurred to the fifth and sixth counts to the extent they related to the corporate plaintiffs' claim of negligence as to checks drawn with a forged signature. The Bank argued, and the trial court agreed, that the corporate plaintiffs' common law negligence remedy was supplanted by the remedies available in the California Uniform Commercial Code. 3
The Bank also successfully demurred to Roy's individual cause of action for negligence, as set forth in the ninth count, ruling it was legally insufficient because the Bank did not owe a duty of care to Roy individually as he was not a customer of the Bank.
Thereafter, the parties settled the remaining claims not affected by the demurrer.
In October 1993, the trial court dismissed the first amended complaint, effectively terminating the entire action. Plaintiffs appeal from the judgment of dismissal.
In the fifth and sixth causes of action, as relevant here, the corporate plaintiffs seek recovery for the negligent payment of forged checks. In sustaining the demurrer the trial court held, as a matter of law, that the corporate plaintiffs' negligence claim was "precluded by the Commercial [C]ode as displaced by the warranty rights created thereby." The plaintiffs contend on appeal that the Code does not foreclose their right to pursue a common law negligence cause of action for payment of forged checks and that the three-year statute of limitations applicable to negligent injury to personal property (Code Civ.Proc., § 338, subd. (c)), is the controlling limitation in that respect. To this argument the Bank responds that sections 1103 and 4406, subdivision (4), support the trial court's conclusion that a common law negligence action is foreclosed by the Code. As we shall explain, the Code, in sections 1103 and 4406, subdivision (4), precludes a customer from asserting a forgery against the bank unless the customer discovers and notifies the bank of the forgery within one year of receiving a statement of account showing payment of the forged check.
Section 1103 provides: "Unless displaced by the particular provisions of this code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions." This provision has been described by commentators as (1 White & Summers, Uniform Commercial Code (3d ed. 1988) Introduction, § 5, p. 19.) As the comment to the Commercial Code makes clear, section 1103 "restates with greater detail the principle that the general law applies when a case is not covered by statute." (Cal.Code com., 23A West's Ann.Cal.U.Com.Code, § 1103 (1964 ed.) p. 20.)
We agree with the Bank that "particular provisions" of the Code are applicable here and that, for the most part, they preclude recovery for negligent payment of forged Our discussion of these provisions requires that we first set forth a few basic definitions. A "check" is a draft drawn on a bank and payable on demand. (§§ 3104, subd. (2)(b), 4104, subd. (3).) 6 A "presentment" is a demand for acceptance or payment of the check made upon the person or entity responsible for payment. (§§ 3504, subd. (1), 4104, subd. (3).) The bank upon which the check is drawn and by which it is payable is referred to as the drawee or "payor bank." (§ 4105, subd. (b).) When a maker or drawer issues a check in favor of a payee, that person will generally submit the check to a bank which may or may not be the payor bank. Regardless whether it is also the payor bank, the first bank to which a check is submitted for collection is called the "depositary bank." (§ 4105, subd. (a).) If the depositary bank is not also the payor bank, it will present the check to the payor bank either directly or through one or more "intermediary banks," defined as any bank to which the check is transferred in the course of collection except the depositary bank and the payor bank. (§ 4105, subd. (c).) In this process any bank handling the check for collection, including the depositary bank but excluding the payor bank, is referred to as a "collecting bank." (§ 4105, subd. (d).)
checks in the circumstances of this case. Divisions 3 and 4 of the Code contain detailed statutory provisions governing the relationship between banks and customers with respect to checks. 4 In particular, division 4 (§ 4101 et seq.) is entitled "Bank Deposits and Collections" and "provides uniform rules governing the (1) collection by banks of [39 Cal.App.4th 1059] checks and other instruments for the payment of money and (2) relationship of banks with their depositors in connection with the collection and payment of items." (Introductory com., 23B West's Ann.Cal.U.Com.Code, Div. 4 (1964 ed.) p. 513.) We turn to those rules governing forged checks. 5
In the check collection process the duties and liabilities of a bank depend upon its definitional status, with particular distinctions drawn between payor banks and collecting banks. A...
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