Court Opinion

ID: 9715365
Source: CourtListenerOpinion
Date Created: 2023-08-26 06:01:38.706159+00
Date Added: 2024-06-11T18:23:33.985988
License: Public Domain

PRESIDING JUSTICE JIGANTI, dissenting: I disagree with the conclusion of the majority that a bank fails to use “ordinary care” under section 4 — 406(3) of the Uniform Commercial Code (Ill. Rev. Stat. 1985, ch. 26, par. 4—406(3)), as a matter of law, when it automatically pays checks under $1,000 without verifying the signatures. I believe that a determination of whether the bank acted with ordinary care is a question of fact. The majority’s holding rests on the premise that a bank has a statutory duty to pay only those items with authorized signatures. Because of this duty, the majority reasons, a bank does not exercise ordinary care when it uses a procedure which will never detect a forged signature on a check under a certain amount. This rationale is consistent with the decision in Medford Irrigation District v. Western Bank (1984), 66 Or. App. 589, 676 P.2d 329, upon which the majority relies. However, the majority, like the court in Medford, fails to address the real issue: what is meant by ordinary care as it applies to section 4—406(3). Article 4 of the UCC, which governs the liability arising from the processing of checks, imposes on all banks an obligation to use good faith and ordinary care. (Ill. Ann. Stat., ch. 26, par. 4—103, Uniform Commercial Code Comment, at 440 (Smith-Hurd 1963).) There is no specific definition of ordinary care in section 4 — 406(3) and “[n]o attempt is made in [Article 4] to define in toto what constitutes ordinary care or lack of it.” (Ill. Ann. Stat., ch. 26, par. 4 — 103, Uniform Commercial Code Comment, at 440 (Smith-Hurd 1963).) The failure to give a specific definition reflects the intention of the drafters of the Code to provide for flexibility in determining what constitutes ordinary care as well as a recognition that express provisions might prove obsolete. See Ill. Ann. Stat., ch. 26, par. 4 — 103, Uniform Commercial Code Comment, at 437, 441 (Smith-Hurd 1963). However, section 4 — 103(3) of the UCC, which was virtually ignored by the majority, does give some guidance as to certain standards of ordinary care. (Ill. Ann. Stat., ch. 26, par. 4—103, Uniform Commercial Code Comment, at 437 (Smith-Hurd 1963).) Section 4— 103(3) states in relevant part that “action or non-action consistent with *** general banking usage *** prima facie constitutes the exercise of ordinary care.” (Ill. Rev. Stat. 1985, ch. 26, par. 4—103(3).) The term “general banking usage” is not specifically defined in the UCC. However, comment 4 to section 4 — 103(3) of the UCC states that the term “should be taken to mean a general usage common to banks in the area concerned. *** A usage followed generally throughout a state, a substantial portion of a state, a metropolitan area or the like would certainly be sufficient.” Ill. Ann. Stat., ch. 26, par. 4—103, Uniform Commercial Code Comment, at 441 (Smith-Hurd 1963). Thus, a bank exercises ordinary care when it pays a check in good faith and in accordance with “the reasonable commercial standards of the banking industry.” (Vending Chattanooga, Inc. v. American National Bank & Trust Co. (Tenn. 1987), 730 S.W.2d 624, 628.) Application of this rule would depend on the facts in each case and what the facts show to be a reasonable commercial standard of the banking industry. (Chattanooga, 730 S.W.2d at 628.) The question of whether a bank exercised ordinary care has routinely been held to present a triable issue of fact for the jury to decide. Five Towns College v. Citibank, N.A. (1985), 108 A.D.2d 420, 429, 489 N.Y.S.2d 338, 344; see also 7 R. Anderson, Uniform Commercial Code §4—406:12 (3d ed. 1985). Not only is the majority’s strict liability approach inconsistent with the concept of flexibility which the drafters provided for in article 4, but such an approach ignores the impact that computers have in handling tremendous volumes of checks. Rules governing check processing should take into account the necessity of processing a large volume of checks efficiently and at a low cost and should not be so restrictive that they hinder the free flow of the almost unanimous number of good checks. (Note, Computerized Check Processing & a Bank’s Duty to Use Ordinary Care, 65 Tex. L. Rev. 1173, 1199 n.183 (1987), citing Leary, Check Handling Under Article U of the Uniform Commercial Code, 49 Marq. L. Rev. 331, 334 (1965).) Because the standard of ordinary care applies in the tort sense (see Ill. Ann. Stat., ch. 26, par. 4—103, Uniform Commercial Code Comment, at 440 (Smith-Hurd 1963)), consideration of the savings and efficiency provided by computerized check processing is appropriate. Note, Computerized Check Processing & a Bank’s Duty to Use Ordinary Care, 65 Tex. L. Rev. 1173, 1198 (1987). The majority fears that the term “general banking usage” magically insulates banks from the duty of ordinary care. Keeping in mind the position taken by the majority which confines its focus to the bank’s duty to pay checks with authorized signatures, without taking into consideration the utility of a procedure which allows banks to process a large volume of checks or the allocation of responsibility between customer and bank provided for in section 4— 406, such a reaction is not surprising. Although I recognize that banks cannot be allowed to set their own uncontrolled standard as to what constitutes ordinary care, there is nothing magical about allowing the trier of fact to determine whether the method employed by a bank is inconsistent with local standards or is so careless as to show a lack of ordinary care on all banks.