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609 S.E.2d 683
Page 1
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
SPACEMAKERS OF AMERICA, INC. et al.
v.
SUNTRUST BANK.
No. A04A2080.
Jan. 21, 2005.
Background: Corporate customer brought action against bank for negligence,
conversion, and unauthorized payment of forged items after bank processed approximately 65 checks
that had been forged by customer's bookkeeper. The State Court, Fulton County, Cole, J., entered
(3) customer was precluded from recovering against bank pursuant to terms of commercial bank
account.
Affirmed.
*335 ELLINGTON, Judge.
Spacemakers of America, Inc. sued SunTrust Bank after the bank processed approximately 65 checks
evidence. To prevail at summary judgment under OCGA ß 9-11-56(c), the moving party must
demonstrate that there is no genuine issue of material fact and that the undisputed facts, viewed in the
light most favorable to the nonmovant, warrant judgment as a matter of law.
(Footnote omitted.) Baker v. Housing Auth. of the City of Waynesboro, 268 Ga.App. 122, 601 S.E.2d
350 (2004). The record in this case shows the following undisputed facts: Jenny Triplett applied with
of these convictions were the result of Triplett forging the checks of previous employers.
Spacemakers hired Triplett as a bookkeeper on December 1, 1999, delegating to her the sole
responsibility for maintaining the *336 company's checkbook, reconciling it with the monthly bank
statements, and preparing financial reports. According to Dennis Rose, Spacemakers' president, Triplett
also handled the company's accounts payable and regularly presented him with invoices from vendors
relied on Triplett's representations regarding how much money was in the bank account at any given time.
On January 3, 2000, just weeks after starting her job at Spacemakers, Triplett forged Rose's signature on
a check for $3,000. She made the check payable to her husband's company, "Triple M Entertainment
Group," which was not a vendor for Spacemakers. By the end of her first full month of employment,
Triplett had forged five more checks totaling $22,320.30, all payable to Triple M. Then, over the next nine
609 S.E.2d 683
Page 2
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
checks payable to Triple M. Most of the checks were for amounts between $5,000 and $10,000, and only
two of the checks were for an amount over $20,000: a check for $24,500 dated September 1, 2000, and
a check for $30,670 dated October 5, 2000. There is no evidence that anyone at Spacemakers other
company's cash assets during the spring and summer of 2000. During this period, the company
barely had enough money to pay its bills and its checks sometimes "bounced," so the Roses
opened up a line of credit with SunTrust in order to keep the company in business. Even so, they
never investigated Triplett's bookkeeping to see if there had been unauthorized activity within the
account.
On November 9, 2000, Spacemakers sent a letter to SunTrust demanding that the bank credit
$523,106.03 to its account for the forged checks. [FN2] The bank refused, contending that Spacemakers'
failure to provide the bank with timely notice of the forgeries barred its claim under the notice provisions of
the account agreement between the bank and Spacemakers, as well as under the notice provisions of the
Georgia Commercial Code, specifically OCGA ß 11-4- 406. The bank also contended that Spacemakers'
In granting summary judgment to the bank, the trial court found that Spacemakers could not recover for
the first forged check from January 2000 because it failed to notify the bank of the forgery within 30 days
of receiving its bank statement, as required by OCGA ß 11-4-406. The trial court also found that, under
the same provision, Spacemakers could not recover for the 64 subsequently forged checks because they
were all forged by the same person who forged the first check. Further, the court found that there was no
was not authorized because of an alteration of an item or because a purported signature by or on
behalf of the customer was not authorized. If, based on the statement or items provided, the customer
should reasonably have discovered the unauthorized payment, the customer must promptly notify the
bank of the relevant facts.
*338 (d) If the bank proves that the customer failed, with respect to an item, to comply with the duties
exceeding 30 days, in which to examine the item or statement of account and notify the bank.
In other words, this rule imposes upon a bank customer the duty to promptly examine its monthly
609 S.E.2d 683
Page 3
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
statements and notify the bank of any unauthorized transaction. If the customer fails to report the first
forged by the same wrongdoer. [FN3] OCGA ß 11-4- 406(d)(2); see also Espresso Roma Corp. v. Bank
of America, 100 Cal.App.4th 525, 529(1), 124 Cal.Rptr.2d 549 (2002) (construing a parallel provision of
the California Code); [FN4] Marx v. Whitney Nat. **687 Bank, 713 So.2d 1142, 1147 (1998) (construing
a parallel provision of the Louisiana Code); Globe Motor Car Co. v. First Fidelity Bank, 273 N.J.Super.
388, 401(II), 641 A.2d 1136 (1993) (construing a parallel provision of the New Jersey Code); Read v.
attempts a larger misdeed." (Footnote omitted) Id.; see also Globe Motor Car Co. v. First Fidelity Bank,
273 N.J.Super. at 401(II), 641 A.2d 1136 (finding that the *339 wrongdoer's "successful series of forgeries
over a three-year period is more fairly attributable to the folly and carelessness of the plaintiff in failing to
detect the forgeries when the cancelled checks were returned to it than to the bank for paying the
checks").
the state.
[2] In this case, the undisputed evidence showed that Spacemakers hired as a bookkeeper a twice-
convicted embezzler who was on probation, then delegated the entire responsibility of reviewing and
reconciling its bank statements to her while failing to provide any oversight on these essential tasks. The
bookkeeper started forging checks within weeks of taking control of the company's checkbook and, by the
were designed to prevent. Accordingly, we find that Spacemakers is precluded as a matter of law from
asserting claims based upon the forgeries in this case. Read v. South Carolina Nat. Bank, 286 S.C. at
539, 335 S.E.2d 359. The trial court did not err in granting summary judgment to the bank.
2. Spacemakers also contends the trial court erred in finding that there was no evidence that the bank
failed to use ordinary care in processing customers' checks. Specifically, Spacemakers claims a jury
summary judgment, however, Spacemakers had the burden of presenting some evidence to refute the
bank's evidence that it complied with reasonable commercial standards of the banking industry and to
show that the bank's negligence contributed to the company's losses. OCGA ß ß 11-3- 406(c); 11-4-
406(e); Read v. South Carolina Nat. Bank, 286 S.C. at 540- 541, 335 S.E.2d 359. As shown below,
Spacemakers failed to carry this burden.
609 S.E.2d 683
Page 4
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
FN6. OCGA ß 11-4-406(e) reads in relevant part:
If subsection (d) of this Code section applies and the customer proves that the bank failed to
exercise ordinary care in paying the item and that the failure substantially contributed to loss, the
loss is allocated between the customer precluded and the bank asserting the preclusion
according to the extent to which the failure of the customer to comply with subsection (c) of this
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.
Ordinary care in this context is comparable to a "professional negligence" standard of care and does not
refer to what a "reasonable person" would do under the circumstances. Espresso Roma Corp. v. Bank of
America, 100 Cal.App.4th at 531(2), 124 Cal.Rptr.2d 549.
characteristics which may indicate fraud on an account. These characteristics include, but are not limited
to, the following: check numbers *341 that are out of sequence; checks that have duplicate, missing, or
out-of-range serial numbers; checks for high dollar amounts; checks for an amount greater than average
for the account; and checks for an amount which exceeds the largest found in the account's history. If a
check meets any of these characteristics, it is " outsorted" and visually inspected by SunTrust employees.
checks in this case was for an amount less than $250.
FN8. Checks are also visually inspected for fraud for other reasons not applicable in this case.
SunTrust's standards with respect to thresholds for sight inspection of checks drawn on commercial
accounts not only meet but are in fact more stringent than the standards for sight inspection of such
checks among other banks in the Atlanta, Georgia area and are in observance and in fact exceed
Cal.App.4th at 532(2), 124 Cal.Rptr.2d 549. The only evidence Spacemakers presented to refute
SunTrust's showing was an expert witness, who testified that he had never analyzed fraud detection
systems in any national **689 bank in the Atlanta area. He also admitted that he did not know what fraud
detection procedures SunTrust actually performs on commercial checks under $20,000. Even so, the
witness deposed that, in his opinion, the bank was negligent because it did not visually inspect the
609 S.E.2d 683
Page 5
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
signature on every check it processes, regardless of the check's amount. The expert witness later
abandoned that position, however, and admitted that he did not think that reasonable commercial
standards for national banks in the Atlanta area required banks to visually inspect every check. The
witness had no opinion as to how large a check amount would have to be for the bank to be required to
Accordingly, we find the record supports the trial court's conclusion that Spacemakers failed to create a
jury issue as to whether the bank exercised ordinary care under the circumstances. Espresso Roma
Corp. v. Bank of America, 100 Cal.App.4th at 533(2), 124 Cal.Rptr.2d 549.
[5] 3. We also find that, even if OCGA ß 11-4-406 did not preclude Spacemakers from recovering from
the bank, there was a second basis for granting summary judgment on the company's claims. See R.W.
paid. In fact, a second provision specifically detailed the customer's duty with regard to recognizing
account discrepancies and its liability to fulfill this duty:
You should carefully examine the statement and canceled checks (including the face and back), if
included in the statement, when you receive the statement. The Bank will not be liable for any
unauthorized signature, alteration, misencoding or other error on the face of any item in your statement,
*343 Most importantly, the booklet contained the following provision: "Bookkeepers. In the event you
authorize any third person ... to retain possession of or prepare items for [your company], you agree to
assume full responsibility for any errors or wrongdoing by such third person ... if the Bank should pay
such items." Therefore, under these express provisions, Spacemakers cannot recover from the bank for
the payments on the forged checks.
Division 1, supra, wherein we held that, under OCGA ß 11-4- 406(d), a customer's failure to timely report
a wrongdoer's first forgery precludes it from recovering for any subsequent forgery by the same
wrongdoer. This is true even if the subsequent forgery is discovered and timely reported to the bank
pursuant to OCGA ß 11-4-406(c). There was no error.
FN9. Although the trial court's order states that Spacemakers failed to timely notify the bank of
Under OCGA ß 11-3-420(a)(i), the issuer of a check (in this case, Spacemakers) cannot maintain a claim
609 S.E.2d 683
Page 6
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
609 S.E.2d 683
Page 2
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
checks payable to Triple M. Most of the checks were for amounts between $5,000 and $10,000, and only
two of the checks were for an amount over $20,000: a check for $24,500 dated September 1, 2000, and
a check for $30,670 dated October 5, 2000. There is no evidence that anyone at Spacemakers other
company's cash assets during the spring and summer of 2000. During this period, the company
barely had enough money to pay its bills and its checks sometimes "bounced," so the Roses
opened up a line of credit with SunTrust in order to keep the company in business. Even so, they
never investigated Triplett's bookkeeping to see if there had been unauthorized activity within the
account.
On November 9, 2000, Spacemakers sent a letter to SunTrust demanding that the bank credit
$523,106.03 to its account for the forged checks. [FN2] The bank refused, contending that Spacemakers'
failure to provide the bank with timely notice of the forgeries barred its claim under the notice provisions of
the account agreement between the bank and Spacemakers, as well as under the notice provisions of the
Georgia Commercial Code, specifically OCGA ß 11-4- 406. The bank also contended that Spacemakers'
In granting summary judgment to the bank, the trial court found that Spacemakers could not recover for
the first forged check from January 2000 because it failed to notify the bank of the forgery within 30 days
of receiving its bank statement, as required by OCGA ß 11-4-406. The trial court also found that, under
the same provision, Spacemakers could not recover for the 64 subsequently forged checks because they
were all forged by the same person who forged the first check. Further, the court found that there was no
was not authorized because of an alteration of an item or because a purported signature by or on
behalf of the customer was not authorized. If, based on the statement or items provided, the customer
should reasonably have discovered the unauthorized payment, the customer must promptly notify the
bank of the relevant facts.
*338 (d) If the bank proves that the customer failed, with respect to an item, to comply with the duties
exceeding 30 days, in which to examine the item or statement of account and notify the bank.
In other words, this rule imposes upon a bank customer the duty to promptly examine its monthly
609 S.E.2d 683
Page 3
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
statements and notify the bank of any unauthorized transaction. If the customer fails to report the first
forged by the same wrongdoer. [FN3] OCGA ß 11-4- 406(d)(2); see also Espresso Roma Corp. v. Bank
of America, 100 Cal.App.4th 525, 529(1), 124 Cal.Rptr.2d 549 (2002) (construing a parallel provision of
the California Code); [FN4] Marx v. Whitney Nat. **687 Bank, 713 So.2d 1142, 1147 (1998) (construing
a parallel provision of the Louisiana Code); Globe Motor Car Co. v. First Fidelity Bank, 273 N.J.Super.
388, 401(II), 641 A.2d 1136 (1993) (construing a parallel provision of the New Jersey Code); Read v.
attempts a larger misdeed." (Footnote omitted) Id.; see also Globe Motor Car Co. v. First Fidelity Bank,
273 N.J.Super. at 401(II), 641 A.2d 1136 (finding that the *339 wrongdoer's "successful series of forgeries
over a three-year period is more fairly attributable to the folly and carelessness of the plaintiff in failing to
detect the forgeries when the cancelled checks were returned to it than to the bank for paying the
checks").
the state.
[2] In this case, the undisputed evidence showed that Spacemakers hired as a bookkeeper a twice-
convicted embezzler who was on probation, then delegated the entire responsibility of reviewing and
reconciling its bank statements to her while failing to provide any oversight on these essential tasks. The
bookkeeper started forging checks within weeks of taking control of the company's checkbook and, by the
were designed to prevent. Accordingly, we find that Spacemakers is precluded as a matter of law from
asserting claims based upon the forgeries in this case. Read v. South Carolina Nat. Bank, 286 S.C. at
539, 335 S.E.2d 359. The trial court did not err in granting summary judgment to the bank.
2. Spacemakers also contends the trial court erred in finding that there was no evidence that the bank
failed to use ordinary care in processing customers' checks. Specifically, Spacemakers claims a jury
summary judgment, however, Spacemakers had the burden of presenting some evidence to refute the
bank's evidence that it complied with reasonable commercial standards of the banking industry and to
show that the bank's negligence contributed to the company's losses. OCGA ß ß 11-3- 406(c); 11-4-
406(e); Read v. South Carolina Nat. Bank, 286 S.C. at 540- 541, 335 S.E.2d 359. As shown below,
Spacemakers failed to carry this burden.
609 S.E.2d 683
Page 4
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
FN6. OCGA ß 11-4-406(e) reads in relevant part:
If subsection (d) of this Code section applies and the customer proves that the bank failed to
exercise ordinary care in paying the item and that the failure substantially contributed to loss, the
loss is allocated between the customer precluded and the bank asserting the preclusion
according to the extent to which the failure of the customer to comply with subsection (c) of this
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.
Ordinary care in this context is comparable to a "professional negligence" standard of care and does not
refer to what a "reasonable person" would do under the circumstances. Espresso Roma Corp. v. Bank of
America, 100 Cal.App.4th at 531(2), 124 Cal.Rptr.2d 549.
characteristics which may indicate fraud on an account. These characteristics include, but are not limited
to, the following: check numbers *341 that are out of sequence; checks that have duplicate, missing, or
out-of-range serial numbers; checks for high dollar amounts; checks for an amount greater than average
for the account; and checks for an amount which exceeds the largest found in the account's history. If a
check meets any of these characteristics, it is " outsorted" and visually inspected by SunTrust employees.
checks in this case was for an amount less than $250.
FN8. Checks are also visually inspected for fraud for other reasons not applicable in this case.
SunTrust's standards with respect to thresholds for sight inspection of checks drawn on commercial
accounts not only meet but are in fact more stringent than the standards for sight inspection of such
checks among other banks in the Atlanta, Georgia area and are in observance and in fact exceed
Cal.App.4th at 532(2), 124 Cal.Rptr.2d 549. The only evidence Spacemakers presented to refute
SunTrust's showing was an expert witness, who testified that he had never analyzed fraud detection
systems in any national **689 bank in the Atlanta area. He also admitted that he did not know what fraud
detection procedures SunTrust actually performs on commercial checks under $20,000. Even so, the
witness deposed that, in his opinion, the bank was negligent because it did not visually inspect the
609 S.E.2d 683
Page 5
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
signature on every check it processes, regardless of the check's amount. The expert witness later
abandoned that position, however, and admitted that he did not think that reasonable commercial
standards for national banks in the Atlanta area required banks to visually inspect every check. The
witness had no opinion as to how large a check amount would have to be for the bank to be required to
Accordingly, we find the record supports the trial court's conclusion that Spacemakers failed to create a
jury issue as to whether the bank exercised ordinary care under the circumstances. Espresso Roma
Corp. v. Bank of America, 100 Cal.App.4th at 533(2), 124 Cal.Rptr.2d 549.
[5] 3. We also find that, even if OCGA ß 11-4-406 did not preclude Spacemakers from recovering from
the bank, there was a second basis for granting summary judgment on the company's claims. See R.W.
paid. In fact, a second provision specifically detailed the customer's duty with regard to recognizing
account discrepancies and its liability to fulfill this duty:
You should carefully examine the statement and canceled checks (including the face and back), if
included in the statement, when you receive the statement. The Bank will not be liable for any
unauthorized signature, alteration, misencoding or other error on the face of any item in your statement,
*343 Most importantly, the booklet contained the following provision: "Bookkeepers. In the event you
authorize any third person ... to retain possession of or prepare items for [your company], you agree to
assume full responsibility for any errors or wrongdoing by such third person ... if the Bank should pay
such items." Therefore, under these express provisions, Spacemakers cannot recover from the bank for
the payments on the forged checks.
Division 1, supra, wherein we held that, under OCGA ß 11-4- 406(d), a customer's failure to timely report
a wrongdoer's first forgery precludes it from recovering for any subsequent forgery by the same
wrongdoer. This is true even if the subsequent forgery is discovered and timely reported to the bank
pursuant to OCGA ß 11-4-406(c). There was no error.
FN9. Although the trial court's order states that Spacemakers failed to timely notify the bank of
Under OCGA ß 11-3-420(a)(i), the issuer of a check (in this case, Spacemakers) cannot maintain a claim
609 S.E.2d 683
Page 6
271 Ga.App. 335, 609 S.E.2d 683, 55 UCC Rep.Serv.2d 893, 5 FCDR 268
(Cite as: 271 Ga.App. 335, 609 S.E.2d 683)
