Present: All the Justices 

GINA CHIN & ASSOCIATES, INC. 

v. Record No. 971463 OPINION BY JUSTICE ELIZABETH B. LACY 

 June 5, 1998 

FIRST UNION BANK 

FROM THE CIRCUIT COURT OF ARLINGTON COUNTY 

Benjamin N.A. Kendrick, Judge 

 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 –

 1

 First Union also argued on brief and in oral argument 

that Chin cannot maintain a cause of action against it for 

conversion. First Union is correct, see § 8.3A-420; however, 

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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." §§ 8.3A404(d), -405(b). 

The revisions to §§ 8.3A-404 and –405 changed the 

previous law by allowing "the person bearing the loss" to seek 

 

Chin is not asserting a cause of action for conversion in this 

appeal. 

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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 exercise ordinary care in the drawing and handling of 

instruments and that the failure to exercise that duty will 

result in liability to the person sustaining the loss. 

Nothing in the statutory language indicates that, where the 

signature of the drawer is forged, the drawer cannot qualify 

as a "person bearing the loss" or that the drawer is otherwise 

precluded from seeking recovery from a depositary bank under 

these sections. In the absence of any specific exclusion, we 

conclude that the sections are applicable in double forgery 

situations. 

This conclusion is consistent with Comment 2 of the 

Official Comments to § 8.3A-404, which states that subsection 

(b) "also applies to forged check cases." Another commentary 

also concludes that § 8.3A-404 applies to double forgery 

situations. Remarking that under the previous law, double 

forgery cases were treated solely as forged drawer's signature 

cases, allowing the depositary bank to avoid liability, the 

 2

 The person whose intent determines to whom an instrument 

is payable includes a person who forges the drawer's 

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commentary concludes that the result under the revised section 

"differs sharply." 

In fictitious payee double forgeries under the 

Revision, some of the ultimate loss will end up on 

the shoulders of the company that hired the 

dishonest bookkeeper and failed to supervise the 

miscreant. The rest will be shouldered by the 

depositary bank for [its] negligence . . . . 

Barkley Clark & Barbara Clark, The Law of Bank Deposits, 

Collections and Credit Cards ¶ 12.07[3][b] (rev. ed. 1995).

Accordingly, we hold that Chin was not precluded from 

asserting a cause of action against First Union pursuant to 

§§ 8.3A-404 or -405. In light of this conclusion, we next 

examine Chin's motion for judgment to determine whether it is 

sufficient to state a cause of action under these sections. 

Chin seeks recovery for a loss sustained as a result of 

the negligent actions of First Union. Chin alleged that its 

employee, Lehman, forged both its signature and the 

indorsement of the payees on a number of checks and, with the 

cooperation of an employee of First Union, deposited the 

checks into Lehman's account at First Union. The motion for 

judgment specifically alleged that the acceptance of the 

forged checks by First Union for payment "was negligent and 

was in contravention of established banking customs and 

standards" and "was due to the negligent failure of First 

 

signature. See § 8.3A-110(a). 

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Union Bank to supervise its employee." The pleading further 

asserts that this negligence caused Chin to suffer a loss of 

over $270,000. 

These allegations are sufficient to state a cause of 

action against First Union pursuant to §§ 8.3A-404 and –405. 

Accordingly, the trial court erred in sustaining First Union's 

demurrer. The judgment of the trial court is reversed and the 

case is remanded for further proceedings. 

Reversed and remanded.

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