Opinion
NOT TO BE PUBLISHED
San Francisco City and County Super. Ct. No. CGC-07-468003
Reardon, J.
Over the course of six and a half years, appellant Edward Litke’s bookkeeper embezzled close to $380,000 by forging makers’ signatures on checks drawn against various accounts that Litke maintained at City National Bank. The trial court entered summary judgment against Litke on his action against the bank, correctly concluding he could not overcome multiple bars to the suit erected by the California Uniform Commercial Code, the applicable statute of limitations and the contract between Litke and CNB. Accordingly, we affirm the judgment.
Respondents are City National Corporation and City National Bank (collectively, CNB).
I. BACKGROUND
A. The Forgeries
Litke operated sole proprietorships in the names of 2090 Broadway Associates, Cabrillo Operations, Dolores Operations, Eureka Point Operations and Market Street Operations, and since 1990, held multiple accounts with CNB under these names. Litke’s bookkeeper at the time was Dahn Nguyen. He received the monthly bank statements for the accounts, maintained and reconciled the check register and maintained the accounts receivable. Nguyen forged makers’ signatures on approximately 180 checks drawn against these accounts from May 2000 through October 2006. All totaled, Nguyen embezzled approximately $377,785. He deposited each forged check in his Bank of America account. Nguyen’s bank then presented the checks for payment to CNB through normal check-clearing processes. Because Nguyen negotiated the forged checks through his own bank, CNB processed them through its automated systems; none were paid by a CNB teller.
On October 26, 2006, CNB contacted Litke about a suspicious check written on the Dolores Operations’ account. The check, in the amount of $9,909.74, was an unusually large item for the account and thus triggered CNB’s automatic check review and fraud detection filters. Litke confirmed that the check had been forged by Nguyen and so notified CNB. Thereafter, Litke discovered many more forged checks.
At each month’s end, CNB would prepare bank statements on Litke’s accounts. Early the next month it would mail the statements to Litke along with all cancelled checks paid for that reporting period. The first seven forged checks, totaling $21,063.46, were reflected on the June 30, 2000 bank statements which CNB sent to Litke in early July 2000. In July 2000, Nguyen forged one check which appeared on Litke’s July statements. CNB paid the next forged check on August 28, 2000. The last forged checks were paid on September 20, 2006.
B. The Accounts
Each of Litke’s accounts was subject to an account agreement (hereafter, the signature card), which identified the authorized signators. For each account, Litke or Margherita Litke could sign checks with just their signature. Others, including Janice Martino and Judy Frazier, were also authorized to sign checks, but two signatures were required if signed by someone other than Litke or Margherita. Frazier was deleted as an authorized signator on March 8, 2006.
As provided in the signature cards, each account was to be governed by the terms, conditions and fee schedule provided the customer upon opening the account. These terms and conditions were set forth in the account agreement and disclosures (Disclosures).
The Disclosures related the account holder’s duty to examine each bank statement and promptly notify the bank of any unauthorized or forged transactions within 30 days of receipt. Further, if the customer failed to notify CNB of the transaction within the 30-day period, the customer would have to bear the loss entirely or share it with the bank, depending on whether the bank failed to exercise ordinary care and such failure substantially contributed to the loss. Moreover, the bank might not be responsible for subsequent forgeries by the same wrongdoer if notice was not given within the 30 days. The Disclosures also stated that the customer was obligated to sue CNB on a forged or unauthorized item within one year of when CNB made the statement available to the customer. As well, they explained that CNB might not physically examine all items presented for payment against the customer’s account but might process checks mechanically, relying on encoded figures on the bottom strip of the check. Finally, the Disclosures reminded the customer of the risks of check fraud, especially internal fraud, and the importance of dividing financial responsibilities to minimize that risk.
C. Litigation
Litke filed suit against CNB and Nguyen in October 2007. Pursuant to a tolling agreement, the effective date of the complaint was July 24, 2007. CNB moved successfully for summary judgment. Among other materials, CNB provided the declaration of its senior vice-president, Christopher Vaca. Vaca averred that he was familiar with the fraud detection filters of other peer banks in California, and “CNB’s thresholds for out-sorting checks for review are lower than other banks and CNB reviews a larger percentage of checks than other peer banks. CNB employs reasonable, robust systems to combat check fraud.” Vaca explained that “checks which are out-sorted for review based on the dollar amount and/or a fraud filter are reviewed by an Item Review Representative (‘Reviewer’). Each check out-sorted for review is reviewed for the quality of the maker’s signature, among other elements.” When the fraud detection filters outsorted the Dolores Operations’ check in October 2006, the reviewer questioned the maker’s signatures because the check appeared to be signed by Frazier, but her authorization had been revoked.
Opposing the motion for summary judgment, Litke maintained that CNB was equitably estopped from asserting the statute of limitations and that triable issues of material fact existed as to whether the bank was negligent. Litke submitted his own declaration, attesting that he was 83 years old and never read, in their entirety, CNB’s “lengthy ‘boilerplate’ agreements, which are written in a small font size of approximately seven point.” Instead, he relied on the language of the signature cards “and the bank’s representations that it would verify the signatures on checks that were paid against my accounts.” He was “assured and believed that checks would not be paid against my account unless and until the bank first confirmed that the checks contained the requisite authorized signatures.” Further, Litke stated that at no time prior to October 2006 and well into 2007 “did anyone at the bank advise me that there existed a statute of limitations. To the contrary, the bank explicitly told me that they were taking care of the matter and led me to believe that the additional checks would be credited and taken care of just as the October 2006 check was.” CNB representative Aida Lui repeatedly assured him that CNB would take care of the matter.
In May 2007, CNB notified Litke that it would not honor his request for reimbursement for the forgeries because “the earliest forgeries were paid more than one year ago and your claim on the later forgeries is barred by your failure to timely discover the earliest forgeries....”
The trial court concluded that at law and under contract, Litke’s suit was time-barred, his estoppel argument failed and CNB was not negligent in handling his accounts. This appeal followed the grant of summary judgment in CNB’s favor. In conducting our de novo review to determine whether triable issues of material fact exist, we view the evidence in the light most favorable to the losing party to resolve any evidentiary doubts or ambiguities in his or her favor. (O’Riordan v. Federal Kemper Life Assurance Co. (2005) 36 Cal.4th 281, 284.)
II. DISCUSSION
A. Governing Law
If a bank provides its customer with an account statement showing payment of account items, it must either return the items so paid or furnish a description “sufficient to allow the customer reasonably to identify the items paid.” (Cal. U. Com. Code, § 4406, subd. (a).) Information is “sufficient” if “the item is described by item number, amount, and date of payment.” (Ibid.) The customer has corresponding duties triggered by receipt of the returned items or a safe harbor-compliant account statement. The duties are twofold: The customer must (1) “exercise reasonable promptness in examining the statement” or returned items to ascertain any unauthorized signature or alteration; and (2) promptly notify the bank of the pertinent facts if he or she reasonably should have discovered the unauthorized payment. (Id., subd. (c).)
Unless otherwise indicated, all statutory references are to the California Uniform Commercial Code.
There are consequences to the customer for failing to fulfill these obligations. Specifically, the statute establishes a scheme of conditional and absolute preclusion. Where a customer who receives regular monthly statements fails to discover and report the first forged or altered item within 30 days of the date that item was included in a monthly statement or cancelled checks, the customer is precluded from asserting a claim against the bank based on subsequent forged or altered items by the same wrongdoer that the bank paid in good faith. (§ 4406, subd. (d)(2); Espresso Roma Corp. v. Bank of America (2002) 100 Cal.App.4th 525, 528-529.) However, the preclusive effect of this provision is conditional to the extent the customer proves that the bank did not exercise ordinary care in paying the item and such failure contributed to the loss, in which case the loss will be allocated between the parties under comparative negligence principles. (§ 4406, subd. (e); Espresso Roma Corp. v. Bank of America, supra, 100 Cal.App.4th at p. 528.)
Section 4406 also establishes a rule of absolute preclusion of claims if the customer does not discover and report the forgery or alteration within one year of receiving the statement or items, regardless of either party’s care or lack of care. (Id., subd. (f).) This rule is based on the notion that “ ‘there is little excuse for a customer not detecting an alteration of his own check or a forgery of his own signature.’ ” (Mac v. Bank of America (1999) 76 Cal.App.4th 562, 567, quoting U. Com. Code com. 5, 23B West’s Ann. Cal. U. Com. Code (1964 ed.) foll. § 4406, p. 663, with respect to a predecessor provision.) The Legislature enacted this statutory preclusion with the intent that the one-year period to discover and report forgeries and alterations should coincide with the one-year statute of limitations set forth in Code of Civil Procedure section 340, subdivision (c), requiring a party to sue on a forged or altered item within one year of the date the item was made available. (Roy Supply Inc. v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1065, fn 15, 1073-1074, fn. 25; see Mac v. Bank of America, supra, 76 Cal.App.4th at pp. 566-567, fn. 4.)
B. Litke is Precluded or Time-barred from Pursuing his Claims
Litke was obligated by contract and at law to discover and report each forgery to CNB within one year after the applicable statement or cancelled check was made available to him. (§ 4406, subds. (a), (f).) He concedes that, at most, he can recover for forgeries appearing on statements up to one year prior to October 26, 2006, the date the fraud was first discovered. However, Litke lost his right to assert claims on forged checks coming within that one-year period. Again, under the contract and the law, Litke failed to timely discover and report the first forgeries within 30 days of the date those items were made available to him, and thus he was precluded from asserting against the bank all subsequent forgeries by Nguyen, the same wrongdoer. (Id., subd. (d)(2).)
C. No Triable Issue of Fact as to CNB’s Negligence
Litke tries to circumvent the above result, first taking aim at the trial court’s ruling that CNB failed to exercise ordinary care in paying the forged checks. This ruling was sound. The code defines “ordinary care” as “observance of reasonable commercial standards, prevailing in the area” in which the business is located. (§§ 3103, subd. (a)(7), 4104, subd. (c).) “In the case of a bank that takes an instrument for processing for collection or payment by automated means, reasonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the bank’s prescribed procedures and the bank’s procedures do not vary unreasonably from general banking usage not disapproved by this division or Division 4....” (§ 3103, subd. (a)(7).) The concept of “ordinary care” in section 4406, subdivisions (d) and (e) “is a ‘ “professional negligence” standard of care which looks at the procedures utilized in the banking industry rather than what a “reasonable person” might have done under the circumstances.’ [Citation.] ‘ ‘‘ [R]easonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the bank’s prescribed procedures and the bank’s procedures do not vary unreasonably from general banking usage.” ’ [Citation.]” (Espresso Roma Corp. v. Bank of America, supra, 100 Cal.App.4th at p. 531.)
Here, the Disclosures explained how CNB processed and paid checks written against a customer’s account. The Disclosures in effect at the time Litke opened his accounts stated: “We follow a system of check processing and review dependent upon the amount of the item and the number of items presented for payment on a given day. This means that we may not physically examine all items presented for payment against your account but rather may process checks mechanically, relying upon the [magnetic ink character recognition] figures encoded along the bottom strip of your check.”
CNB also presented evidence that the automated “bulk filing” process it used to process the vast majority of checks was also used by “all peer banks and virtually all other banks.” Further, CNB’s fraud detection filters “were equal to or more stringent than those of other peer banks in California.” In fact, CNB reviewed a larger percentage of checks than other peer banks.
Litke insists that the contract documents contain inconsistent or conflicting provisions on what constituted CNB’s “prescribed procedures, ” and hence the issue of whether the bank exercised ordinary care should survive summary judgment. Initially he protests that the terms of the signature cards contradict the Disclosures, which appear in small print. In particular, the signature cards state that, subject to the single signature exception for Litke or Margherita, the minimum authorized signatures required for withdrawals was two. He reasons that this language was a specific contractual term which controls over the inconsistent general “boilerplate” language of the Disclosures. We disagree.
The two-signature provision is no more specific than the terms relating to CNB’s check processing procedures. And more to the point, there is no inconsistency. Litke is correct that the signature cards required that checks bear two authorized signatures and identified the authorized signers. However, these provisions do not translate into an affirmative duty on the bank’s part to visually inspect and verify each signature; as set forth above, it is clear CNB did not commit to such a duty and the code does not require sight examination. Nor do these provisions relegate the bank in perpetuity to strict liability for any and all forged checks it pays on Litke’s accounts, i.e., when payment is made on other than two authorized signatures. In other words, the two-signature requirement does not alter the obligations of the parties under their agreement as delineated in the Disclosures and defined at law. Rather, the Disclosures allocate liability for loss on a forged or altered item through the rules of preclusion and defenses that come into play based on how the parties perform or fail to perform their duties under the agreement.
Alternatively, Litke asserts that there were “conflicting provisions” concerning CNB’s “prescribed procedures” for processing checks against his accounts and that “extrinsic evidence of the parties’ conflicting understandings” reveals an ambiguity in the contracts which precludes summary judgment. There is no ambiguity regarding the prescribed procedures. Again, nothing in the signature cards or at law says that CNB will visually confirm signatures when paying checks against Litke’s accounts. Moreover, to reiterate, the agreement between the parties-including the Disclosures-did not create unfettered strict liability in the bank for payment on forged items, but rather shifted loss between the parties according to their prescribed duties and the attendant preclusions and defenses that arose in the wake of nonperformance.
D. No Estoppel
Litke concedes that at most, his estoppel argument would apply to the time period between October 26, 2006 and July 24, 2007, the effective date of the complaint. He argues that during those nine months, CNB repeatedly assured him that it was investigating the fraud and would “take care” of the matter. Thus, CNB is equitably estopped from relying on the statute of limitations as to that nine-month period and claims on forged checks appearing on bank statements or returned one year prior to October 26, 2006, would still be viable.
Litke’s estoppel argument fails because he cannot show that he relied on the purported assurances to his injury. (Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 652, 655.) As the trial court correctly ruled, at the time of the assurances on or after October 26, 2006, all of Litke’s claims were barred by statute and contract. To reiterate, because Litke did not discover or report the earliest forgeries within the 30-day window, he was foreclosed from seeking recovery on all subsequent forgeries by Nguyen. (§ 4406, subd. (d)(2).)
III. DISPOSITION
The judgment is affirmed.
We concur: Ruvolo, P.J. Rivera, J.