## Facts

- VR Electric, Inc. maintained a deposit account at Bank of Texas, N.A.
- VR’s bookkeeper prepared an unsigned check for $8,276 and left it on the office front counter for VR’s president to sign.
- An outside contractor’s employee took the check, forged the president’s signature, and endorsed the check.
- The check was later endorsed to a car dealer, who deposited it into his own account.
- Bank of Texas processed and paid the check through automated processing without manual signature verification.
- Bank employees gave inconsistent testimony about an unwritten policy for manual signature review (threshold described as either $100,000 or $250,000).
- After discovering the forgery, VR notified the bank and demanded re-crediting of the account; the bank refused.

## Issues

1. Whether VR was precluded under Tex. Bus. & Com. Code § 3.406(a) from asserting the forged drawer signature because VR’s lack of ordinary care substantially contributed to the forgery.
2. If both VR and the bank failed to exercise ordinary care, whether Tex. Bus. & Com. Code § 3.406(b) required allocating the loss between them based on comparative contribution.
3. Whether the trial court erred by disregarding the jury’s finding that the bank acted in good faith.
4. Whether the judgment and attorney’s-fee award could rest on a breach-of-contract theory given how the case was submitted to the jury and the findings returned.

## Decision

- The court of appeals modified the trial court’s judgment and affirmed as modified.
- VR was not wholly barred from recovery under § 3.406(a); instead, the case required comparative allocation of loss under § 3.406(b) when both parties’ lack of ordinary care contributed.
- The trial court erred in setting aside the jury’s good-faith finding; there was evidence supporting it.
- The bank was not entitled to eliminate liability solely by pointing to VR’s negligence because evidence supported the jury’s finding that the bank also failed to exercise ordinary care in paying the item.
- The judgment was adjusted to conform to the governing comparative-responsibility framework and to ensure any recovery components (including fees) matched the issues tried and findings made.

## Legal Principles

- Under Tex. Bus. & Com. Code § 3.406(a), a party whose failure to exercise ordinary care substantially contributes to a forged signature may be precluded from asserting the forgery against a person who, in good faith, pays or takes the instrument.
- Under Tex. Bus. & Com. Code § 3.406(b), when both the customer and the bank fail to exercise ordinary care, the loss is allocated between them according to each party’s contribution to the loss.
- A jury’s good-faith finding may not be disregarded if supported by evidence; good faith includes honesty in fact and observance of reasonable commercial standards of fair dealing.
- Automated processing does not excuse a bank from using procedures consistent with ordinary care; inconsistent or unwritten verification practices may support a finding of lack of ordinary care.
- Comparative-responsibility rules govern the extent of each liable party’s monetary responsibility when multiple actors’ negligence contributes to the loss.

## Conclusion

In a forged-check dispute, a customer’s careless check handling does not necessarily bar recovery; when evidence supports that the bank also lacked ordinary care, Texas UCC § 3.406 requires allocating the loss comparatively, and the judgment must reflect the jury’s supported findings, including good faith, and the proper basis for any fee award.


Bank of Texas, N.A. v. VR Electric, Inc., 276 S.W.3d 671 (Tex. App.—Houston [1st Dist.] 2008)