Opinion
No. 98 Civ. 888 (JSM).
September 29, 2000.
For Plaintiff, Vincent I. Eke-Nweke, Law Office of Vincent I. Eke-Nweke, P.C., 498 Atlantic Avenue, Brooklyn, N.Y. 11217
For Defendant, Peter Sullivan, Berkman, Henoch, Peterson Peddy, P.C., 100 Garden City Plaza, Garden City, N.Y. 11530
MEMORANDUM OPINION AND ORDER
Plaintiff Weafri Well Services, Co., Ltd. ("Plaintiff") has brought this action for breach of contract and breach of the duty of care against the defendant, Fleet Bank, National Association ("Defendant Bank"), because Defendant Bank allegedly paid forged checks from Plaintiff's account with the bank. Both parties now move for summary judgment. For the reasons set forth below, Plaintiff's motion is granted in part and denied in part, and Defendant Bank's motion is granted in part and denied in part.
FACTS
Plaintiff is a Nigerian corporation that services oil wells and rigs. Cletus Onyekwere ("Onyekwere") is Plaintiff's principal shareholder and chief executive officer. In December 1993, Onyekwere opened a checking account for Plaintiff by mail with National Westminister Bank USA ("NatWest"). Onyekwere and his wife were the only authorized signatories on the account.
Onyekwere's wife is not involved in Plaintiff's operations.
Onyekwere opened Plaintiff's NatWest account because Plaintiff purchases equipment and materials in Houston, Texas for its business. Onyekwere travels to Houston to buy these materials. While conducting business in Houston, Onyekwere stays with his brother Henry. Onyekwere's other brother, Christopher, also resides in Houston.
When Onyekwere signed the signature card to open Plaintiff's account with NatWest, he "acknowledge[d] having received a copy of the Bank's Rules pertaining to this account." See Crowley Dep. Ex. 4. Defendant Bank claims that the "Bank's Rules" to which this signature card refers is the "NatWest Deposit Agreement." Plaintiff denies ever receiving this agreement.
Effective May 1, 1996, NatWest merged with Fleet Bank of New York, N.A. The merged entity is Defendant Bank. Defendant Bank asserts that after the merger Plaintiff received a document called the "Fleet Deposit Account Agreement." Plaintiff also denies receiving this agreement.
While in Houston during August 1996, Onyekwere used the last of the checks in Plaintiff's starter checkbook for the account, so Onyekwere ordered new checks. Defendant Bank delivered new checks to Onyekwere at his brother Henry's apartment in the same month. The new checks, starting at number 101, had three checks to a page and were stored in a three-ring binder. Onyekwere began using these checks in August 1996. Before returning from Houston to Nigeria in September, he stored the binder inside a locked briefcase in a closet in the room that he used in Henry's Houston apartment.
On Onyekwere's subsequent trips to Houston in 1996 and 1997, he retrieved the new checks from the closest in Henry's apartment but returned them to the locked briefcase in the closet when he was not using them. Each time Onyekwere returned to Nigeria, he left the checks in the locked binder in the closet at Henry's apartment.
During his subsequent visits to Houston, Onyekwere wrote checks 114 and 115 in late October and early November 1996, check 116 in January 1997, and checks 117, 118, and 143-150 in May 1997. Eight pages of new checks (checks 119-142) were not used by Onyekwere. Plaintiff suggests that Onyekwere may have misinserted these eight pages upon returning the pages for the checks to the binder, causing the break in the sequence by using check 143 after check 118.
During this period, Defendant Bank received a written request for a change of address on Plaintiff's account. Specifically, in January 1997 Defendant Bank's employee, John Crowley ("Crowley"), received a letter requesting that Plaintiff's future account statements be sent to another address in Nigeria. Plaintiff asserts that this request was suspicious for various reasons. For instance, Plaintiff points out that the letterhead on the request is dissimilar from Plaintiff's letterhead and that the request lacked certain contact information. Crowley testified that he responded properly by faxing and mailing a request for confirmation to Plaintiff, but Plaintiff questions whether Crowley did so. Defendant Bank did not receive a confirmation, so Plaintiff's address was never changed.
Starting in February 1997, Defendant Bank paid seven allegedly forged checks bearing what purports to be Onyekwere's signature; Plaintiff's account was debited for the sums paid. The first forged check, check 120 for $10,200 dated February 21, 1997, was posted against Plaintiff's account on February 28 and would have been presented for signature verification on March 3. Check 121 for $2800 dated March 10, 1997 was posted to the account on March 12. Check 135 for $50,000 dated May 29, 1997 was posted to the account on June 10 and would have been presented for signature verification on June 11. Check 136 for $72,500 dated June 5 was posted to the account on June 11 and would have been presented for signature verification on June 12. Check 138 for $71,000 dated June 13 was posted to the account on June 20 and would have been presented for signature verification on June 23. Check 139 for $91,000 dated June 14 was posted to the account on June 19 and would have been presented for signature verification on June 20. Check 140 for $88,000 dated June 16 was posted to the account on June 20 and would have been presented for signature verification on June 23.
In addition to these seven checks, a second check numbered 120 for $9000 dated January 22, 1997 was posted to Plaintiff's account on March 28 but was returned as unpaid the following day for insufficient funds.
Checks meeting the dollar criteria for signature verification were presented for such verification on the business day after they were posted.
These checks were processed for payment at Defendant Bank's Melville, New York facility ("Melville"), which had been operated by NatWest's facility before the merger. The parties dispute various aspects of how check processing occurred at Melville. Both agree, however, that Defendant Bank's employees at Melville changed from NatWest's procedures to Defendant Bank's procedures in the first half of 1997.
Among the disputed issues, the parties disagree about when Defendant Bank's signature verification policy changed. Plaintiff contends that the Melville employees changed from NatWest's policy of checking signatures on checks for $5000 and above to Defendant Bank's policy of checking signatures on checks for $50,000 and above at the beginning of March 1997. However, Defendant Bank maintains that it adopted its signature verification policies at Melville, the former NatWest facility, in mid-March 1997.
The parties also disagree about whether the Melville employees continued to initial checks that they had sight verified. Under NatWest's policy, the Melville employees stamped or wrote their initials on checks that they sight verified, but Defendant Bank's employees were not required to initial. Plaintiff maintains that through June 1997 all Melville employees continued to initial each check that they sight verified. In contrast, Defendant Bank contends that although some Melville employees may have continued to initial checks after Defendant Bank's procedures were adopted, these employees were not required to do so and many did not.
After processing the checks for a given month, Defendant Bank mailed monthly statements to customers approximately four days after the end of the month. A monthly statement for February 1997 (the "February 1997 Statement") and check 120 were mailed to Plaintiff on or about March 4, 1997. Plaintiff claims that it received the February 1997 Statement on June 20. Onyekwere notified Crowley at Defendant Bank that check 120 was a forgery three or four days later.
After Defendant Bank was notified, it took action to recover the amounts paid upon the seven checks in question, but no recovery was made. When the bank failed to re-credit Plaintiff's account, Plaintiff brought this action for breach of contract and breach of the duty of care to recover the amounts debited from its account under the allegedly forged checks. In its answer, Defendant Bank raised affirmative defenses based on U.C.C. § 3-406, U.C.C. § 4-406, and a deposit agreement.
DISCUSSION
I. U.C.C. Defenses
Articles 3 and 4 of the U.C.C. establish a series of shifting burdens of risk of loss with respect to forged checks.See Putnam Rolling Ladder Co. v. Manufacturers Hanover Trust Co., 74 N.Y.2d 340, 345 (1989). Initially, the U.C.C. imposes strict liability on a bank that charges against a customer's account any item not properly payable, such as a check bearing a forgery of a customer's signature. See N.Y. U.C.C. §§ 3-404(1), 4-401(1);Woods v. MONY Legacy Life Ins. Co., 84 N.Y.2d 280, 283 (1994);Putnam, 74 N.Y.2d at 345. Thus, where a bank pays a check bearing a forged signature and debits a customer's account, the customer is entitled to have the account re-credited by the bank.See Zambia Nat'l Commercial Bank Ltd. v. Fidelity Int'l Bank, 855 F. Supp. 1377, 1386 (S.D.N.Y. 1994)
While the initial risk of loss from a forgery is placed upon the bank, the U.C.C. recognizes several conditions that will shift the risk of loss to the customer, including negligence of the customer that substantially contributes to the forgery, U.C.C. § 3-406, and failure of the customer to examine bank statements in a timely manner, U.C.C. § 4-406. See id. at 1386;see also Herzog, Engstrom Koplovitz P.C. v. Union Nat'l Bank, 640 N.Y.S.2d 703, 704 (App.Div. 1996), amended in Part by No. 91 Civ. 8747, 1994 WL 440717 (S.D.N.Y. Aug. 12, 1994), and judgment amended by No. 91 Civ. 8747, 1994 WL 557050 (S.D.N.Y. Oct. 7, 1994)
Here, Plaintiff contends that it is entitled to summary judgment on its cause of action for breach of contract because there is no question of fact that Defendant Bank paid the forged checks and debited Plaintiff's account and that the conditions that will shift the risk of loss to Plaintiff set forth in sections 3-406 and 4-406 are not present. In contrast, Defendant Bank maintains that its motion for summary judgment should be granted because it has established to the exclusion of any genuine issue of material fact that these conditions exist and thus, that Plaintiff is precluded from asserting the forgeries and obtaining a re-credit of its account.
While it is clear that there is no question that Defendant Bank paid the forged checks and debited Plaintiff's account, whether Plaintiff is precluded from asserting the forgeries under either U.C.C. § 3-406 or U.C.C. § 4-406 requires further analysis.
A. U.C.C. § 3-406
Under U.C.C. § 3-406, a customer is precluded from asserting a forged signature against a bank where the bank establishes that (1) the customer's negligence substantially contributed to the making of the forgery, and (2) the bank itself acted in good faith and in accordance with reasonable commercial standards.See N.Y. U.C.C. § 3-406; see also Fundacion Museo de Arte Contemporaneo de Caracas — Sofia Imber v. CBI-TDB Union Bancaire Privee, 996 F. Supp. 277, 290 (S.D.N.Y.), aff'd, 160 F.3d 146 (2d Cir. 1998); Zambia, 855 F. Supp. at 1387; Lund v. Chemical Bank, 797 F. Supp. 259, 268 (S.D.N.Y. 1992).
Under the first prong, the bank must establish not only that the customer was careless, but also that the customer's negligence set the stage for, or in some way provided the wrongdoer with the opportunity to make, the forgery. See Zambia, 855 F. Supp. at 1387; Ernst Co. v. Chemical Bank, 618 N.Y.S.2d 705, 708 (App.Div. 1994). Although the statute does not supply a definition of negligence that would support a defense under Section 3-406, the Code commentary "indicates that the question of whether the customer failed to exercise ordinary care and thereby substantially contributed to the forgery is a question for the finder of fact, to be decided on a case-by-case basis."Zambia, 855 F. Supp. at 1387 (citing U.C.C. § 3-406, cmt. 7)
Under section 3-406, the bank must also establish that it complied with reasonable commercial standards when it paid the forged checks. See id.; American Sec. Bank. N.A. v. American Motorists Ins. Co., 538 A.2d 736, 738 (D.C. 1988). If the bank fails to do so, it remains liable even if the customer was also negligent. See Zambia, 855 F. Supp. at 1388. Courts have found the term "reasonable commercial standards" synonymous with the concept of "ordinary care" contained in U.C.C. § 4-103(3). See id. at 1387-88 (citing cases); see also Five Towns College v. Citibank. WA., 489 N.Y.S.2d 338, 344 (App.Div. 1985).
Plaintiff argues that it is entitled to summary judgment on Defendant Bank's defenses based on U.C.C. § 3-406 for two reasons: first, it is beyond factual dispute that Plaintiff's negligence did not substantially contribute to the making of the forged checks, and second, there is no question of fact that the bank failed to pay the forgeries in accordance with reasonable commercial standards. Defendant Bank contends that it is entitled to summary judgment because it has shown to the preclusion of any question of fact that Plaintiff's negligence substantially contributed to the forgeries.
1. Factual Issues Exist Regarding Whether Plaintiff's Negligence Substantially Contributed to the Making of the Forgeries
Defendant Bank does not address whether a question of fact exists regarding its adherence to reasonable commercial standards, even though the bank must establish to the exclusion of any question of fact that it followed reasonable commercial standards to be entitled to summary judgment. See Zambia, 855 F. Supp. at 1388.
First, questions of fact exist regarding whether Plaintiff was negligent with its checks and whether this negligence substantially contributed to the making of the forgeries. See Zambia, 855 F. Supp. at 1387. For example, although Plaintiff presents evidence that the binder containing the original checks was kept in a locked briefcase in a closet in Henry's Houston apartment and that no one else besides Onyekwere knew that these original checks were kept there, Defendant Bank asserts that Plaintiff was negligent in leaving the checks unattended in the closet and in failing to notify that bank that it was not receiving monthly statements. Defendant Bank supports the first assertion with evidence that Onyekwere left the checks locked in a briefcase in the closet whenever he returned to Africa but established no other safeguards with respect to the checks. The bank also presents evidence that Plaintiff did not inform the bank that (1) plaintiff had not received some of its monthly statements, and (2) those statements that it had received arrived weeks after these statements were mailed. This evidence raises a factual issue regarding Plaintiff's negligence.
Furthermore, an issue of fact remains regarding whether this alleged negligence substantially contributed to, i.e, set the stage for, or in some way provided the wrongdoer with the opportunity to make, the forgery. See Zambia, 855 F. Supp. at 1387, 1389; see also Ernst, 618 N.Y.S.2d at 708. Neither Plaintiff nor Defendant Bank has established the absence of a material fact on this issue.
Because these factual issues exist, Defendant Bank's motion for summary judgment on its defenses based on U.C.C. § 3-406 is denied.
2. Factual Issues Exist Regarding Whether Defendant Bank Paid Checks 120, 121, 136, 138, 139, and 140 in Accordance with Reasonable Commercial Standards but There Is No Factual Issue that the Bank Paid Check 135 in Accordance with Reasonable Commercial Standards
Plaintiff argues that it is entitled to summary judgment on Defendant Bank's U.C.C. § 3-406 defenses because there is no question of fact that Defendant Bank did not act in accordance with reasonable commercial standards. Plaintiff has made numerous arguments as to why no factual question on this issue exists. These arguments, however, are not persuasive.
Plaintiff contends that Defendant Bank did not pay the checks in accordance with reasonable commercial standards because suspicious circumstances, such as an unauthorized request for the change of Plaintiff's address and the lack of proper endorsement on two checks (checks 135 and 139), put Defendant Bank on notice that the checks were forgeries. However, Plaintiff presents no evidence that the circumstances here were out of the ordinary or that the bank was actually put on notice that future checks might be forged. Moreover, the bank adduces evidence that the circumstances to which Plaintiff refers were not suspicious. For example, a bank employee testified that the change of address request did not raise his suspicions for various reasons.
Plaintiff also fails to establish the absence of a factual issue regarding whether Defendant Bank failed to follow reasonable commercial standards when its employees did not notice the alleged forgeries. Plaintiff contends that because the forgeries were patently irregular, a comparison between the true signature and the forgeries would have put Defendant Bank on notice had the bank exercised reasonable commercial procedures.
While the forgeries can be discerned upon careful examination, Plaintiff presents no admissible evidence that the bank's employees should have discovered that Onyekwere's signature was forged. In contrast, Defendant Bank proffers testimony from various employees that the signatures were not obviously forged. The bank also points out that even Onyekwere, whose signature was allegedly forged, admitted that he would have trouble differentiating the forged signatures from his true ones.
Plaintiff notes various irregularities with the forged signatures, but Plaintiff's only evidence that the bank's employees should have noticed these irregularities is the comment by the bank's security officer that "[a] closer inspection of the signature might have revealed the forgery." Eke-Nweke Aff. Ex. 12C at 2. However, the comment is not admissible as an admission by a party-opponent because there is no evidence that the officer was authorized to make the statement or that the statement was within the scope of his agency. See Fed.R.Evid. 801(d)(2) (C)-(D).
Plaintiff also attempts to establish the bank's negligence as a matter of law with respect to particular checks. With respect to check 135, there is undisputed evidence that Defendant Bank paid this check in accordance with reasonable commercial standards because Manno sight verified this check, as evidenced by the stamp of her initials "KM" on the check. Thus, as a question of fact exists, Plaintiff's motion for summary judgment on the bank's U.C.C. § 3-406 defenses is denied with respect to check 135.
Because there is no question of fact that Defendant Bank paid check 135 in accordance with reasonable commercial standards, if the bank had been able to establish to the preclusion of any genuine issue of fact that Plaintiff's negligence substantially contributed to the making of the forgeries, then Defendant Bank would have been entitled to summary judgment of its defenses based on U.C.C. § 3-406 with respect to check 135.
Factual issues remain as to whether checks 120, 121, 136, 138, 139, and 140 were paid in accordance with reasonable commercial standards, so Plaintiff is not entitled to summary judgment on the bank's U.C.C. § 3-406 defenses with respect to these checks.
In addition, although Defendant Bank's motion for summary judgment on its U.C.C. § 3-406 defenses is denied with respect to all seven checks because factual issues exist regarding whether Plaintiff's negligence substantially contributed to the making of the forgeries, see above, the fact that jury issues remain regarding Defendant Bank's adherence to reasonable commercial standards with respect to checks 120, 121, 136, 138, 139, and 140 is alternate grounds upon which the bank's summary judgment motion on its U.C.C. § 3-406 defenses could be denied with respect to these checks.
Check 121 would have been presented for signature verification on March 13, 1997. On this date, regardless of whether Defendant Bank had a policy of sight verifying checks for $10,000 and above or $50,000 and above, check 121 for $2800 would not have been sight verified. The parties have not established, however, whether the bank's policy not to sight verify a check for $2800 constituted a failure to follow reasonable commercial standards. Thus, because a factual question exists regarding whether check 121 was paid in accordance with reasonable commercial standards, Plaintiff's motion for summary judgment on Defendant Bank's defenses based on U.C.C. § 3-406 is denied with respect to this check.
A question of fact also remains as to whether checks 120, 136, 138, 139, and 140 were paid in accordance with reasonable commercial standards. Plaintiff argues that there is no question of fact that checks 136, 138, 139, and 140 were not processed in accordance with reasonable commercial standards because these checks were drawn for more than $50,000 but were not actually sight verified, in violation of the bank's policy effective in June 1997 to verify the signatures on all checks for $50,000 and above. To establish this, Plaintiff relies upon the testimony of a former bank employee, Kathleen Manno ("Manno"), to support its position.
"[A] bank's failure to follow its own policies is unreasonable." Lund v. Chemical Bank, 797 F. Supp. 259, 270 (S.D.N.Y. 1992); see also New Jersey Steel Corp. v. Warburton, 655 A.2d 1382, 1387 (N.J. 1995); American Sec. Bank, N.A. v. American Motorists Ins. Co., 538 A.2d 736, 739-41 (D.C. 1988);Dennis v. South Carolina Nat'l Bank, 382 S.E.2d 237, 241-42 (S.C.Ct.App. 1988)
Defendant Bank has suggested that Manno probably verified the signatures on checks 136, 138, 139, and 140 because a handwritten log from the bank indicates that on the days that these checks were presented for signature verification, Manno was assigned to the processing station that was responsible for verifying these checks. See Def.'s Resp. to Pl.'s First Set of Interrogs., response 10. Plaintiff points out that checks 136, 138, 139, and 140 were not stamped or initialed while Manno testified that she stamped all checks that she sight verified and that other sight verifiers would have stamped all checks that they sight verified. See Manno Dep. at 40, 72, 74, 103. However, Manno also testified that it was "possible for checks to be sight verified and not stamped" because checks normally assigned to her processing station "could have gone elsewhere" to other signature verification people who did not use a stamp to initial checks. See id. at 103-06.
Moreover, Defendant Bank has presented other evidence that the signatures on checks 136, 138, 139, and 140 may not have been verified by Manno. See Watson Dep. at 60, 63; Bolger Dep. at 54. This evidence adduced by the bank, combined with Manno's admission that checks could be verified without being stamped, raises a question of fact as to whether Defendant Bank's employees followed the bank's policies. Thus, because there is a question of fact regarding whether Defendant Bank acted in accordance with reasonable commercial standards when paying checks 136, 138, 139, and 140, Plaintiff's motion for summary judgment on the bank's U.C.C. § 3-406 defenses is denied with respect to these checks.
Plaintiff makes a similar argument with respect to check 120, contending that this check was not sight verified by the bank. Plaintiff maintains that the testimony of Gloria Bolger ("Bolger"), a former bank employee, conclusively establishes that check 120 was not sight verified. However, her testimony simply indicates that she could not tell whether the checks were sight verified if the original check did not have a stamp, see Bolger Dep. at 50-53, 55-58, and that at the time that these checks would have been sight verified it was not Defendant Bank's policy to stamp checks after such verification, see Bolger Dep. at 53-54.
Plaintiff also relies upon the testimony of another bank employee, Joanna Watson ("Watson"), who was assigned to the station responsible for sight verifying check 120, to show that this check was not verified. While it is true that Watson testified that she did not sight verify check 120 and that she would have stamped it if she had, she also admitted that it was possible that a verified check might not be stamped because it was verified by someone who did not have a stamp. See Watson Dep. at 60. Thus, both Bolger's and Watson's testimony does not establish that the bank's employees failed to adhere to reasonable commercial standards when they paid check 120 because according to Bolger and Watson these checks could have been sight verified without being stamped.
With respect to check 120, Plaintiff also argues that it is beyond factual dispute that Defendant Bank did not pay this check in accordance with reasonable commercial standards because check 120 for $10,200 would have been presented for signature verification on March 3, 1997 and as of March 3 Defendant Bank had a policy not to verify signatures on checks for under $50,000. Plaintiff continues that because a bank's check-cashing procedure "must reasonably relate to the detection of unauthorized signatures in order to be considered an exercise of ordinary care or reasonable commercial standards," Medford Irrigation Dist. v. Western Bank, 676 P.2d 329, 332 (Or.Ct.App. 1984), Defendant Bank's procedure with respect to check 120, which was under $50,000, was not "reasonably relate[d] to the detection" of forgeries and thus, was not in accordance with reasonably commercial standards.
However, while Plaintiff claims that it was the bank's policy as of March 3 to verify the signatures on only those checks for $50,000 and above, Plaintiff has presented no evidence that this policy was effective as of March 3. Plaintiff cites the deposition testimony of two former bank employees, Bolger and Manno, to support its assertion that Defendant Bank increased its dollar criteria for sight verification to $50,000 as of March 3, see Pl.'s Reply Mem. at 5, but their deposition testimony indicates that the policy change occurred in March 1997, but not specifically by March 3. In addition, Plaintiff refers to Defendant Bank's policy manual to support its position, see id., but this manual only states that the policy changed in March 1997.
Moreover, Defendant Bank has proffered evidence that check 120 was sight verified in accordance with reasonable commercial standards. Defendant Bank asserts that it increased its dollar criteria for sight verification from $10,000 to $50,000 in mid-March and relies upon a supplementary affidavit of a bank employee, who testified that the policy increase would not have occurred before March 21, 1997. See Redline Aff. ¶ 8, 12-13, 23. Thus, there is a question of fact as to whether Defendant Bank paid check 120 in accordance with reasonable commercial standards, and Plaintiff is not entitled to summary judgment on the bank's U.C.C. § 3-406 defenses with respect to check 120.
Plaintiff argues that the assertions in Redline's affidavit cannot defeat its summary judgment motion because they contradict his earlier deposition testimony. However, the assertions in his affidavit do not contradict his deposition testimony, but merely supplement it, so they are admissible.
In summary, Defendant Bank's motion for summary judgment on its defenses based on U.C.C. § 3-406 is denied because questions of fact exist as to whether Plaintiff's negligence substantially contributed to the making of the forgeries. Plaintiff's motion for summary judgment on these defenses is denied because Plaintiff has failed to show to the exclusion of any issue of fact that the checks were not paid in accordance with reasonable commercial standards.
B. U.C.C. § 4-406
Plaintiff also maintains that it is entitled to summary judgment on Defendant Bank's defenses based on U.C.C. § 4-406 because there is no question of fact (1) that Plaintiff examined its February 1997 Statement with reasonable care and promptness and notified the bank of the forgery promptly and (2) that the bank failed to exercise ordinary care in paying the forged checks. Defendant Bank responds that its motion for summary judgment on these defenses should be granted with respect to checks 135, 136, 138, 139, and 140 because with respect to these checks it has demonstrated to the exclusion of any question of fact (1) that Plaintiff has failed to meet its obligations under U.C.C. § 4-406 and (2) that the bank exercised ordinary care.
Defendant Bank also argues that it is entitled to summary judgment on its U.C.C. § 4-406 defenses with respect to checks 120 and 121, but to the extent that the bank's motion seeks summary judgment with respect to these checks the motion is denied.
As mentioned above, although the risk of loss due to forgeries is initially on the bank, under U.C.C. § 4-406 when a bank "sends" an account statement to its customer, the customer must exercise reasonable care and promptness to examine its statement to discover forgeries and must notify the bank promptly of any discovered forgeries. See Putnam Rolling Ladder Co. v. Manufacturers Hanover Trust Co., 74 N.Y.2d 340, 345 (1989);Herzog, Engstrom Koplovitz P.C. v. Union Nat'l Bank, 640 N.Y.S.2d 703, 704 (App.Div. 1996). If the customer fails to comply with this duty, under certain circumstances the customer may be precluded from asserting the forgeries against the bank, for in these circumstances the risk of loss shifts from bank to customer. See U.C.C. § 4-406(2); see also Zambia Nat'l Commercial Bank Ltd. v. Fidelity Int'l Bank, 855 F. Supp. 1377, 1391 (S.D.N.Y. 1994), amended in part by No. 91 Civ. 8747, 1994 WL 440717 (S.D.N.Y. Aug. 12, 1994), and judgment amended by No. 91 Civ. 8747, 1994 WL 557050 (S.D.N.Y. Oct. 7, 1994); Putnam, 74 N.Y.2d at 345. However, U.C.C. § 4-406(3) shifts the risk of loss back to the bank where the customer establishes that the bank failed to exercise ordinary care in paying the forged checks. See Putnam, 74 N.Y.2d at 346.
U.C.C. § 4-406(2) sets forth the conditions under which a customer will be precluded from asserting forgeries against the bank. Under this provision, if the bank demonstrates that the customer failed to fulfill its duty to examine its statements to discover forgeries with reasonable care and promptness and to notify the bank promptly, then the customer cannot recover for subsequent forgeries by the same wrongdoer paid after the first forged check and statement "was available" to the customer for at least fourteen days. See Zambia, 855 F. Supp. at 1391; Putnam, 74 N.Y.2d at 345 n. 1.
Here, although the risk of loss initially rested upon Defendant Bank, the risk of loss with respect to checks 135, 136 138, 139, and 140 shifted from the bank to Plaintiff because the bank has established to the exclusion of any genuine issue of material fact that Plaintiff failed to examine its February 1997 Statement with reasonable care and promptness and to notify the bank of the forgery of check 120 promptly, as required by U.C.C. § 4-406(2)(b). Nonetheless, a question of fact remains regarding whether Defendant Bank exercised ordinary care when it paid checks 136, 138, 139, and 140, so neither party is entitled to summary judgment on the bank's U.C.C. § 4-406 defenses with respect to these checks. Defendant Bank has shown, however, to the exclusion of any question of fact that the bank exercised ordinary care when it paid check 135, so Defendant Bank's motion for summary judgment on its defenses based on U.C.C. § 4-406 is granted with respect to this check. Accordingly, Plaintiff's motion for summary judgment on these defenses is denied with respect to check 135. In addition, as a result of the award of summary judgment in the bank's favor, Plaintiff is precluded from asserting the forgery of check 135 against Defendant Bank.
1. There Is No Question of Fact that Plaintiff Failed to Examine its Statement with Reasonable Care and to Notify Defendant Bank of the Forgeries Promptly
Defendant Bank has established that there is no question of fact that with respect to checks 135, 136, 138, 139, and 140, Plaintiff failed to examine its February 1997 Statement with reasonable care and promptness and to notify the bank of these forgeries promptly, as required by U.C.C. § 4-406(1) and (2)(b). Under U.C.C. § 4-406(2)(b), a customer may not recover for subsequent forgeries by the same wrongdoer that are paid after the initial check and statement "was available" to the customer for a reasonable period not exceeding fourteen days. Here, the February 1997 Statement "was available" under section 4-406(2)(b) when Defendant Bank mailed it to Plaintiff on or about March 4, 1997. Thus, because Plaintiff did not notify Defendant Bank of the forgery of check 120, which was contained in the February 1997 Statement, Plaintiff failed to examine its statement with reasonable care and promptness and to notify Defendant Bank of the forgery promptly. See U.C.C. § 4-406(1), (2)(b) Accordingly, Plaintiff cannot recover for the subsequent forgeries by the same wrongdoer that were paid after approximately March 18 — checks 135, 136, 138, 139, and 140 — unless Plaintiff shows to the exclusion of a question of fact that the bank lacked ordinary care in paying these checks.
Plaintiff argues that the February 1997 Statement "was available" when Plaintiff received the statement on June 20, 1997, implying that by notifying Defendant Bank of the forgeries on June 23, Plaintiff is not precluded under U.C.C. § 4-406(2)(b) from asserting the forgeries of checks 135, 136, 138, 139, and 140.
While one court in this district has measured when a statement "was available" from the date that it was received, the court did not discuss its reasoning for this decision. See Simcoe Erie Gen. Ins. Co. v. Chemical Bank, 770 F. Supp. 149, 154 (S.D.N.Y. 1991). Because the Simcoe court provided no reasoning for its choice and because New York courts have found that statements are "made available" to the customer under section 4-406(1) when they are mailed, see Woods, 84 N.Y.2d at 285-86; Mesnick v. Hempstead Bank, 434 N.Y.S.2d 579, 581 (Sup. Ct. 1980), the Court finds that the February 1997 Statement "was available" when mailed. See 5 Hawkland, Uniform Commercial Code Series § 4-406:5, at 4-1016 to 4-1017 (1997-1999). But see id. at 4-1000.
2. Factual Issues Exist Regarding Whether Defendant Bank Lacked Ordinary Care in Paying Checks 136, 138, 139, and 140 and There Is No Factual Issue that the Bank Exercised Ordinary Care in Paying Check 135
As explained above, even though Defendant Bank has shown to the exclusion of any genuine issue of fact that Plaintiff failed to examine its statement with reasonable care and promptness and to notify the bank of the forgery promptly so as to preclude Plaintiff from asserting the forgeries of checks 135, 136, 138, 139, and 140, this preclusion is not effective if Plaintiff can establish to the exclusion of an issue of fact that Defendant Bank lacked ordinary care in paying these forged checks. See U.C.C. § 4-406(3); see also Putnam, 74 N.Y.2d at 346.
"[A] customer can prove that a bank lacked ordinary care by presenting any type of proof that the bank failed to act reasonably." Putnam, 74 N.Y.2d at 346. As discussed above, courts have treated the concepts of "ordinary care" and "reasonable commercial standards" as equivalents. See Zambia, 855 F. Supp. at 1387-88 (citing cases). Thus, the Court's analysis with respect to whether Defendant Bank paid checks 135, 136, 138, 139, 140 in accordance with reasonable commercial standards under U.C.C. § 3-406 can be used to determine whether Defendant Bank exercised ordinary care in paying these same checks.
As it was determined that there is no question of fact that check 135 was paid in accordance with reasonable commercial standards because Manno's initials on the check demonstrated that she had sight verified it, there is no question of fact that Defendant Bank exercised ordinary care in paying this check. Consequently, the bank has shown, to the preclusion of any genuine issue of material fact, (1) that Plaintiff failed to exercise reasonable care in examining its February 1997 Statement and in notifying the bank that check 120 was a forgery and (2) that the bank did not lack ordinary care in paying check 135. Such a showing requires summary judgment for Defendant Bank, dismissing Plaintiff's breach of contract claims based on check 135. By necessity, Plaintiff's motion for summary judgement on check 135 is denied.
In contrast, because questions of fact persist regarding whether checks 136, 138, 139, and 140 were paid in accordance with reasonable commercial standards, there also remain factual questions as to whether Defendant Bank exercised ordinary care in paying these checks. Thus, both parties' motions for summary judgment on the bank's defenses based on U.C.C. § 4-406 are denied with respect to checks 136, 138, 138, and 140.
II. Defenses Based on the Deposit Agreement
Finally, the parties move for summary judgment on Defendant Bank's affirmative defenses based on a deposit agreement. By way of background, in its answer to the amended complaint, Defendant Bank quoted from the Fleet Deposit Account Agreement and asserted that it had affirmative defenses based on a deposit agreement. The answer, however, did not mention the NatWest Deposit Agreement. Then, in response to Plaintiff's argument in its motion for summary judgment that Plaintiff had not received "the alleged Deposit Agreement," Pl.'s Mem. at 24-25, Defendant Bank apparently abandoned its defenses based on the Fleet Deposit Account Agreement and proceeded to seek summary judgment based on the NatWest Deposit Agreement, see Def.'s Opp'n Mem. at 5-6.
In this vein, Defendant Bank argues that it is entitled to summary judgment on its defenses based on the NatWest Deposit Agreement because Plaintiff's amended complaint is barred by Plaintiff's failure to satisfy a condition precedent contained in the Natwest Deposit Agreement. Plaintiff replies that it received neither the Fleet Deposit Account Agreement nor the NatWest Deposit Agreement. See Pl.'s Reply Mem. at 15-16. Consequently, Plaintiff maintains that it is entitled to summary judgment on these defenses because Defendant Bank has produced no evidence that Plaintiff received, and agreed to, the NatWest Deposit Agreement.
To support its position that Plaintiff received the NatWest Deposit Agreement, Defendant Bank asserts that Onyekwere acknowledged receipt of this deposit agreement by signing the signature card when he opened Plaintiff's account with NatWest. See Def.'s Counter-Statement of Undisputed Facts ¶ 10, at 3; Def.'s Response to Pl.'s Statement of Undisputed Facts ¶ 21, at 5. While Onyekwere did sign this signature card, by doing so he did no more than "acknowledge having received a copy of the Bank's Rules pertaining to this account." Eke-Nweke Aff. Ex. 4 (Crowley Dep.), Ex. 4. Thus, although Onyekwere clearly acknowledged receiving NatWest's rules by signing the signature card, this card gives no indication that those rules were the NatWest Deposit Agreement. See id. Thus, there is a factual dispute as to whether the "Bank's Rules" that Plaintiff received was the deposit agreement, and therefore, both parties' motions for summary judgment on this issue are denied.
In addition, the document to which Defendant Bank refers as the NatWest Deposit Agreement has no title identifying it, appears to be missing pages prior to the page referenced by Plaintiff, and contains no date or effective time period. See Sullivan Affirmation Ex. H. Thus, even if the signature card specified that the bank's rules to which it refers are the NatWest Deposit Agreement, Defendant Bank has not demonstrated that the document to which it refers as the NatWest Deposit Agreement is the NatWest Deposit Agreement.
CONCLUSION
For the foregoing reasons, the plaintiff's motion for summary judgment is denied. The defendant's summary judgment motion is granted with respect to check 135 and denied with respect to checks 120, 121, 136, 138, 139, and 140.
SO ORDERED.