## Facts

- Thompson Maple Products, Inc. purchased maple logs from local timber owners and used independent truckers, including Emery Albers, to haul logs to its mill.
- Thompson used “scaling slips” to record log quantity, grade, and owner; blank slip pads were kept in areas readily accessible to truckers.
- Although the intended procedure was for an employee to give the trucker one copy and send the original to the bookkeeper, employees commonly gave both copies to the trucker to take to the office.
- Thompson’s office issued checks payable to the timber owners listed on the slips and routinely entrusted the completed checks to truckers (including Albers) for delivery to the payees.
- Albers obtained blank scaling slips, created false slips showing fictitious log deliveries in the names of real timber owners, and submitted them to Thompson’s bookkeeper.
- Thompson issued checks based on the false slips; Albers then forged the payees’ endorsements and cashed the checks or deposited them into his account at Citizens National Bank.
- The scheme resulted in losses exceeding $100,000 before discovery in 1963; Albers confessed and was imprisoned.
- Thompson sued the bank in assumpsit for paying checks over forged endorsements, alleging breach of the deposit contract.

## Issues

1. Whether, under U.C.C. § 3-406, Thompson was precluded from asserting forged payee endorsements against Citizens because Thompson’s negligence substantially contributed to the unauthorized signatures.
2. Whether Citizens satisfied § 3-406’s conditions by paying the instruments in good faith and in accordance with reasonable commercial standards.

## Decision

- The Pennsylvania Superior Court affirmed the trial court’s judgment limiting/denying recovery for the checks at issue.
- The court held that Thompson’s negligent business practices substantially contributed to the making of the forged endorsements.
- Because the bank paid in good faith and in accordance with reasonable commercial standards, § 3-406 barred Thompson from asserting the forgeries against the bank for that portion of the loss.

## Legal Principles

- Under U.C.C. § 3-406, a person whose negligence substantially contributes to an unauthorized signature is precluded from asserting the lack of authority against a drawee or other payor who pays in good faith and according to reasonable commercial standards.
- “Negligence” under § 3-406 is determined from the facts of the particular case; the statute does not supply a categorical definition.
- Lax internal controls may constitute negligence substantially contributing to forgery, including: leaving blank forms accessible to wrongdoers, routing source documents through unsupervised intermediaries, and entrusting checks to third parties for delivery without safeguards.
- Pre-U.C.C. decisions limiting estoppel based on general business negligence do not control where § 3-406 expressly allocates loss based on negligence that substantially contributes to the unauthorized signature.

## Conclusion

The court applied U.C.C. § 3-406 to place the loss on the drawer where the drawer’s deficient controls enabled a third party to generate false documentation, obtain checks, and forge endorsements, and where the drawee bank paid the instruments in good faith and consistent with reasonable commercial banking standards.


Thompson Maple Prods., Inc. v. Citizens Nat’l Bank, 234 A.2d 32 (Pa. Super. Ct. 1967)