## Facts

- Gina Chin & Associates, Inc. (Chin), a food wholesaler, maintained corporate checking accounts at two banks other than First Union.
- Chin employed Amie Cheryl Lehman as an accounts payable clerk.
- Over roughly 1994–1995, Lehman forged signatures of Chin’s officers on checks drawn on Chin’s corporate accounts.
- The checks were made payable to Chin’s suppliers, but Lehman forged the suppliers’ indorsements.
- Lehman deposited the checks into her personal account at First Union Bank, sometimes with assistance from a First Union teller, Henry Steven Cardenas.
- Chin alleged the teller accepted business-payee checks into a personal account and deposited checks without required supervisory approval, contrary to customary banking practices and internal controls.
- Chin claimed total losses of approximately $270,488.72.
- Chin sued First Union, alleging negligence in taking and processing instruments bearing forged drawer signatures and forged payee indorsements, and negligent supervision of its employee, seeking loss allocation under U.C.C. §§ 3-404 and 3-405.

## Issues

1. In a “double forgery” (forged drawer signature and forged payee indorsement), may the drawer assert an affirmative claim against the depositary bank under U.C.C. §§ 3-404 and 3-405 for failure to exercise ordinary care?
2. Do U.C.C. §§ 3-404 and 3-405 permit comparative-fault allocation of loss between the drawer and a depositary bank whose negligence contributed to the loss?

## Decision

- The Supreme Court of Virginia reversed the circuit court’s grant of summary judgment for First Union.
- The court held that, in a double-forgery setting, a drawer may pursue recovery from a depositary bank under U.C.C. §§ 3-404 and 3-405 when the bank’s lack of ordinary care contributed to the loss.
- The court held the statutes’ text does not bar a drawer from qualifying as the “person bearing the loss” even when the drawer’s signature is forged.
- The court concluded Chin’s complaint stated a legally sufficient claim by alleging First Union negligently accepted the checks contrary to banking standards and negligently supervised its teller.
- The case was remanded for further proceedings.

## Legal Principles

- U.C.C. §§ 3-404 and 3-405 apply comparative-fault concepts to allocate losses from fraudulent instruments among parties whose lack of ordinary care contributed to the loss.
- The statutory language permits the loss-bearing party, including a drawer in a double-forgery scenario, to seek recovery from a person or bank that took the instrument for value or paid it without ordinary care.
- A depositary bank may face liability when it accepts and processes checks in a manner inconsistent with ordinary care, including ignoring customary banking standards and reasonable supervisory controls.
- The presence of both a forged drawer signature and a forged indorsement does not, by itself, preclude the drawer from pursuing a U.C.C.-based negligence claim against the depositary bank.

## Conclusion

The court held that U.C.C. §§ 3-404 and 3-405 are not limited to defensive bank doctrines and may support a drawer’s affirmative claim against a depositary bank in a double-forgery scheme, with loss allocation turning on each participant’s exercise of ordinary care.


Gina Chin & Associates, Inc. v. First Union Bank, 256 Va. 59, 500 S.E.2d 516 (Va. 1998)