Court Opinion

ID: 9725421
Source: CourtListenerOpinion
Date Created: 2023-08-26 11:47:07.276858+00
Date Added: 2024-06-11T13:12:09.978252
License: Public Domain

JUSTICE CALVO, dissenting: Because I conclude defendant’s failure to review checks drawn for under $1,000 constituted a lack of ordinary care as a matter of law, I respectfully dissent. In my view, the appellate court properly affirmed the trial court’s order granting plaintiff’s motion for summary judgment. Accordingly, I would affirm the appellate court. Applying the summary judgment principles of Purtill v. Hess (1986), 111 Ill. 2d 229, the requirements of the Uniform Commercial Code (Code) (Ill. Rev. Stat. 1983, ch. 26, par. 1 — 101 et seq.), and the rationale and decision of the Oregon court in Medford Irrigation District v. Western Bank (1984), 66 Or. App. 589, 676 P.2d 329, I conclude no issue of material fact existed as to whether defendant exercised ordinary care. Defendant did not manually verify signatures on checks written for under $1,000, and had no system for verifying signatures on checks under that amount. Defendant’s automatic payment of all checks drawn for less than $1,000, without manual verification of the signatures on those checks, conclusively established defendant’s failure to exercise ordinary care under the Code. Complete absence of review accompanied by an absence of a system for review, in my view, constitutes, as a matter of law, lack of ordinary care. As the majority indicates, banks are generally liable for paying forged checks. (See Ill. Rev. Stat. 1983, ch. 26, par. 3 — 401(1) (“No person is liable on an instrument unless his signature appears thereon”); Ill. Rev. Stat. 1983, ch. 26, par. 3 — 404(1) (“Any unauthorized signature is wholly inoperative as that of the person whose name is signed”); Ill. Rev. Stat. 1983, ch. 26, par. 1— 201(43) (an unauthorized signature includes a forgery); Illl. Rev. Stat. 1983, ch. 26, par. 4 — 401(1) (a bank may charge against a customer’s account only those items which are “properly payable”).) Nevertheless, if a bank pays a forged check and later establishes its customer’s negligence in examining the bank statements, and failing to detect and notify the bank of forgeries, the customer cannot assert the bank’s liability. (Ill. Rev. Stat. 1983, ch. 26, pars. 4 — 406(1), (2).) The bank’s defense is inapplicable, however, if the customer establishes the bank’s failure to exercise “ordinary care” in paying the forged check. Ill. Rev. Stat. 1983, ch. 26, par. 4 — 406(3). The Code does not define “ordinary care.” (111. Ann. Stat., ch. 26, par. 4 — 103, Uniform Commercial Code Comment, at 440 (Smith-Hurd 1963).) Instead, for purposes of the Code, ordinary care is “used with its normal tort meaning and not in any special sense relating to bank collections.” (111. Ann. Stat., ch. 26, par. 4 — 103, Uniform Commercial Code Comment, at 440 (SmithHurd 1963).) Under section 4 — 103(3) of the Code, however, action or inaction by a bank which is consistent with general banking usage “prima facie constitutes the exercise of ordinary care.” (111. Rev. Stat. 1983, ch. 26, par. 4 — 103(3).) Nevertheless, customers can: “prescribe other standards and where there may be no direct supervision or control of clearing houses or banking usages by official supervisory authorities, the confirmation of ordinary care by compliance with these standards is prima facie only, thus conferring on the courts the ultimate power to determine ordinary care in any case where it should appear desirable to do so. The prima facie rule does, however, impose on the party contesting the standards to establish that they are unreasonable, arbitrary or unfair.” (Ill. Ann. Stat., ch. 26, par. 4 — 103, Uniform Commercial Code Comment, at 441 (Smith-Hurd 1963).) Consequently, while proof of compliance with general banking usage can provide the bank with prima facie evidence of ordinary care, a customer can rebut this evidence with proof that the bank’s standards are unreasonable, arbitrary or unfair. Defendant asserts it provided prima facie evidence of ordinary care through Visconti’s affidavit. Defendant also contends plaintiff provided no proof whatsoever that defendant’s procedures or standards were unreasonable, arbitrary or unfair. The majority holds that the trier of fact should determine whether defendant’s automatic payment of checks drawn for less than $1,000 is consistent with general banking usage, and thus constitutes prima facie evidence of ordinary care. I agree with plaintiff’s contention that defendant’s complete lack of procedures to detect forgeries is unreasonable in and of itself and therefore proves the absence of ordinary care, even if defendant established its prima facie case. Plaintiff’s proof consisted of defendant’s admitted lack of procedures; this proof revealed a lack of ordinary care. Even if defendant “established conformity with local standards,” defendant “is not automatically exonerated.” (Hanover Insurance Cos. v. Brotherhood State Bank (D. Kan. 1979), 482 F. Supp. 501, 506.) The industry standard may be considered as evidence of compliance with ordinary care, but such evidence is not conclusive. “ ‘Even an entire industry, by adopting such careless methods to save time, effort or money, cannot be permitted to set its own uncontrolled standard.’ ” (Hanover, 482 F. Supp. at 506, quoting W. Prosser, Law of Torts 167 (4th ed. 1971).) In Perley v. Glastonbury Bank & Trust Co. (1976), 170 Conn. 691, 702-03, 368 A.2d 149,155, the court held: “An officer of one of the defendant banks testified that it was customary bank procedure to accept *** a check as presented without authenticating the endorsements and to rely on its ability to charge the account of the payee if the endorsements proved invalid. Such procedure may well be common among banks, but the defendants failed to show that such conduct is reasonable. An examination of signature cards to determine the genuineness of endorsements may not be entirely practical under modern banking methods, but we do not feel that that necessarily relieves banks of the risk of loss from payment on forged checks. [Citation.] The law places the risk of loss from forged endorsements on the drawee bank unless it can affirmatively prove the drawer’s negligence and its own due care. Such a legal presumption accords with the practical realities of commercial banking transactions since the banks are in a better position than private parties *** to secure means of insurance against losses by forgeries.” (See also American Machine Tool Distributors Association v. National Permanent Federal Savings & Loan Association (D.C. 1983), 464 A.2d 907, 915; First National Bank v. Hovey (1980), 10 Mass. App. Ct. 715, 723, 412 N.E.2d 889, 894-95.) “Mere technological innovations, an increased workload and a desire to save time, money and effort do not relieve the bank of its responsibility to exercise ordinary care.” (Hanover, 482 F. Supp. at 509.) We should not permit an industry to set standards which thereby insulate it from liability. . Defendant claims it does not lack procedures to discover forgeries; rather, it has one such procedure. That procedure involves sending bank statements and can-celled checks to customers monthly. In this way, customers, who are in the best position to do so, can detect forgeries once they review the statements. Defendant’s argument has absolutely no merit. Customers already have a duty to examine their bank statements under sections 4 — 406(1) and 4 — 406(2). Defendant cannot abdicate its duty of ordinary care under section 4 — 406(3) to plaintiff. Defendant is, in effect, relying on its customers’ duty of review to fulfill its own duty of ordinary care. I cannot sanction such a result. The result I reach in no way lessens a customer’s responsibility to promptly examine bank statements. I simply conclude that a bank cannot use its customers’ duty to discharge its own duty of care. While in some circumstances, the decision as to what amounts to ordinary care may be an issue of fact, the situation before this court does not present such an instance. The affidavits and admissions before the circuit court indicated defendant’s system of clearing checks precluded any review of the checks and forgeries here in question. Defendant’s affidavit revealed that out of 8,000 to 11,000 checks processed per day, an average of 650 to 750 of the checks are written for more than $1,000. Defendant’s automatic check-sorting equipment separates these 650 to 750 checks from the other checks for manual review. Thus, defendant verifies the signatures on about 7% of the checks processed. Defendant does not verify the signatures on approximately 93% of all checks. Automatic preclusion from review of 93% of all checks processed based solely on the amount of the check does not present a genuine issue as to any material fact. Ordinary care is to be used with its “normal tort meaning.” (Ill. Ann. Stat., ch. 26, par. 4 — 103, Uniform Commercial Code Comment, at 440 (Smith-Hurd 1963).) Defendant points out that issues of negligence are usually questions of fact. (See Berg v. New York Central R.R. Co. (1945), 391 Ill. 52, 63.) Even under tort law, however, negligence may be a question of law if the acts constituting negligence “ ‘are of such a character that all reasonable men would concur in pronouncing them so.’ ” (Berg, 391 Ill. at 63, quoting Chicago, Burlington & Quincy R.R. Co. v. Pollock (1902), 195 Ill. 156, 163.) I conclude all reasonable persons would agree that defendant’s lack of procedures constituted negligence. As a matter of law, an absence of any review amounts to a lack of ordinary care. My decision does not mean defendant would have to manually review the signatures on all of the checks which cross defendant’s threshold prior to payment. Nevertheless, every check crossing defendant’s threshold should be subject to some probability of examination. For example, the court in Rhode Island Hospital Trust National Bank v. Zapata Corp. (1st Cir. 1988), 848 F.2d 291, 294, found the bank exercised ordinary care when the bank (1) examined signatures on every check for more than $1,000; (2) examined signatures on checks between $100 and $1,000, if the bank had reason to suspect a problem (e.g., if a check was drawn on an account with insufficient funds); and (3) examined signatures on a randomly chosen 1% of all other checks between $100 and $1,000. In Rhode Island, though the bank did not review every check, the bank’s system subjected virtually every check to the potential for sight review prior to payment. I cannot say the procedure in Rhode Island would conclusively constitute ordinary care. The facts of Rhode Island played a significant role in that decision and I cannot at this time determine whether the $100 threshold or the 1% level would be appropriate. Nevertheless, Rhode Island provides an example of a system of review. In addition, the Rhode Island court intimated the practices in Medford were “more obviously unreasonable” than the practices of the bank before it. Rhode Island, 848 F.2d at 295-96. The Oregon Court of Appeals in Medford, in determining the issue before it as one of law and not of fact, noted: “The reasonableness of commercial banking standards must be analyzed in the context of a bank’s duty in relation to the depositor’s account. Although a procedure may be common throughout the banking industry, it is not, by that fact alone, a reasonable procedure. Implied in the relationship between a bank and its checking account depositors is a contractual undertaking on the part of the bank that it will only discharge its obligation to a depositor on an authorized signature. *** *** We do not hold that a bank must adopt a particular procedure, such as ‘sight review,’ in order to comply with the statutory mandate. We do hold that the procedure used must reasonably relate to the detection of unauthorized signatures in order to be considered an exercise of ordinary care or reasonable commercial banking standards. [The bank’s] approach is automatically to pay all checks under $5,000 without any procedure to detect unauthorized signatures on those items. While that approach, based on considerations of cost and efficiency, may be a prudent business decision and followed by most banks, it does not meet the bank’s responsibility under the statutes. * * * We conclude that, because [the bank] failed to exercise ordinary care or to follow reasonable commercial banking practices, it is foreclosed from asserting plaintiff’s negligence and is liable for paying the face amount of the forged checks. There is no issue of fact as to [the bank’s] liability or the amount.” (Emphasis added.) (Medford, 66 Or. App. at 592-97, 676 P.2d at 332-34.) As in Medford, defendant in the case at bar admitted it has no procedure for reviewing the signatures on checks drawn for under a certain dollar amount. Such automatic nonreview violates the statutory duty of care owed the bank customer. I agree with the Medford court that “the procedure used must reasonably relate to the detection of unauthorized signatures in order to be considered an exercise of ordinary care.” Medford, 66 Or. App. at 593, 676 P.2d at 332. Defendant asserts Medford is distinguishable because the threshold amount was $5,000 and thus greater than the $1,000 threshold amount in the case at bar. I do not find this distinction significant, especially because defendant only reviewed approximately 7% of the checks it processed using the lower threshold. Even with the lower threshold, defendant still did not exercise ordinary care. I find the cases the majority cites for support distinguishable on their facts. As I stated earlier, some instances may occur where the issue of ordinary care is a question of fact; such is not the case here. Medford is more factually similar to the case at bar than the cases cited by defendant and the majority, and I find the court’s reasoning in Medford persuasive. Defendant asserts the appellate court’s holding is contrary to the policy behind section 4 — 406 because sight review of checks does not necessarily detect forgeries. Defendant also contends that the Code does not require banks to know the genuineness of a customer’s signature on a check. Moreover, defendant points out banks have no statutory duty to perform any specific review procedure, including sight review. First, I am not requiring a bank to guaranty the signatures on all of the checks it sight reviews. In other words, if a bank institutes sight review, it is not automatically liable for any forgeries it may fail to detect. The Code only requires banks to exercise ordinary care; that is, to exercise the degree of care which would “reasonably relate to the detection of unauthorized signatures.” Medford, 66 Or. App. at 593, 76 P.2d at 332. Second, the Code only allows banks to pay checks with authorized (nonforged) signatures (Ill. Rev. Stat. 1983, ch. 26, pars. 3 — 404, 1 — 201(43)) and checks which are “properly payable” (Ill. Rev. Stat. 1983, ch. 26, par. 4 — 401(1)). Moreover, defendant required plaintiff to sign and have on file signature cards. Consequently, while the Code does not expressly require banks to sight review checks, banks are required to know their customers’ signatures. (See W.P. Harlin Construction Co. v. Continental Bank & Trust Co. (1970), 23 Utah 2d 422, 427, 464 P.2d 585, 588; Maddox v. First Westroads Bank (1977), 199 Neb. 81, 87, 256 N.W.2d 647, 652 (the court affirmed entry of summary judgment for plaintiffs, holding the bank liable for savings account withdrawal slips containing forged signatures based on the same rules applicable to banks with respect to forged checks).) How banks choose to fulfill their duty is up to them as long as they exercise ordinary care. As I have indicated, defendant did not exercise such care. In summary, it is of little consequence that four other banks in the area use the same procedures as defendant. We should not permit an industry to establish a standard which relieves it of its duty of care to a large segment of its customers. Defendant has no procedure to review the signatures on checks drawn for less than $1,000, even though it has a duty to plaintiff. Where a duty is owed and none is given, the only reasonable conclusion is the one reached by the circuit and appellate courts. JUSTICE CLARK joins in this dissent.