U.S. Court of Appeals for the First Circuit, 1974

Hermetic Refrigeration Company, Inc. v. Central Valley National Bank Inc., Robert L. Walker and First Western Bank and Trust Company, Inc.

U.S. Court of Appeals for the First Circuit · Decided February 15, 1974 · Carter, Goodwin, Solomon, Judg

493 F.2d 476; 14 U.C.C. Rep. Serv. (West) 995; 1974 U.S. App. LEXIS 10053 (Federal Reporter, Second Series)

Counsel

C. Jay Hollander (argued), Fitzsim-mons & Hawthorne, Oakland, Cal., for appellant., William A. Resneck (argued), Marvin D. Morgenstein, Steinhart, Goldberg, Feigenbaum & Ladar, San Francisco, Cal., for appellee.

Cases that cite this one

18 later published cases cite this decision. The 17 that cite it most often are listed here.

Valley Bank v. Neibaur (Idaho 1991)
Allied Insurance Center, Inc. v. Wauwatosa Savings & Loan Ass'n (Wis. Ct. App. 1996)
Am. Mach. Tool Dist. v. Nat. Perm. Fed. Sav. (D.C. 1983)
American Machine Tool Distributors Ass'n v. National Permanent Federal Savings & Loan Ass'n (D.C. 1983)
Guardian Life Insurance Co. of America v. Weisman (3d Cir. 2000)
Hartford Fire Ins. v. First Union National Bank (Fairfax County Circuit Court 1998)
United States v. Dwayne Townsend (9th Cir. 1996)
McDowell v. Dallas Teachers Credit Union (Tex. App. 1989)
Taxel v. Commercebank (In re World Financial Services Center, Inc.) (United States Bankruptcy Court, S.D. California 1986)
D & G Equipment Co., Inc. v. The First National Bank of Greencastle, Pa. v. Georgion, Roger L., Third Party (1st Cir. 1985)
Matco Tools Corp. v. Pontiac State Bank (District Court, E.D. Michigan 1985)
Aetna Casualty and Surety Co. v. Hepler State Bank (Kan. Ct. App. 1981)
First National Bank v. Hovey (Mass. App. Ct. 1980)
Mott Grain Co. v. First National Bank & Trust Co. of Bismarck (N.D. 1977)
Maddox Ex Rel. Fitzgerald v. First Westroads Bank (Neb. 1977)
Empire Moving & Warehouse Corp. v. Hyde Park Bank & Trust Co. (Ill. App. Ct. 1976)
Commonwealth v. National Bank & Trust Co. (Pa. 1976)

This list shows which later cases cite this one. It does not say how they treated it, and no review of that has been done. Not a substitute for Shepard’s or KeyCite — verify before relying.

Opinion

ALFRED T. GOODWIN, Circuit Judge:

A bank which honored unauthorized endorsements by an embezzler of his employer’s checks appeals a judgment in favor of the employer, asserting error in the district court’s refusal to accept a defense of contributory negligence.

Robert Walker was employed by Hermetic Refrigeration Company as the manager of its Oakland office. As office manager he had authority to receive checks made payable to Hermetic and to transfer them to Hermetic’s Phoenix office, or, in the case of exceptionally large checks, to deposit them in Hermetic’s corporate account with the Bank of America in San Leandro. Walker, however, opened a personal checking account with Central Valley National Bank (Central Bank) and, without authorization, deposited therein checks made payable to Hermetic. Walker stamped these checks on the reverse side with a rubber stamp bearing Hermetic’s name and address and signed his name below the stamp.

California Commercial Code (hereinafter C.C.C.) § 3406 provides:

“Any person who by his negligence substantially contributes to a material alteration of the instrument or to the making of an unauthorized signature is precluded from asserting the alteration or lack of authority against a holder in due course or against a drawee or other payor who pays the instrument in good faith and in accordance with the reasonable commercial standards of the drawee’s or pay- or’s business.”

This section does not establish liability, but rather creates a conditional estoppel not otherwise available to a bank. However, before it can take advantage of the estoppel, the bank must first show that it acted in accordance with the reasonable commercial standards of the banking business. Comment, C.C.C. § 3406. See Cooper v. Union Bank, 9 Cal.3d 371, 107 Cal.Rptr. 1, 507 P.2d 609 (1973).

Walker’s peculations were undiscovered for more than six years. We will assume for the purposes of this appeal that in not detecting and stopping the embezzlement Hermetic was contributo-rily negligent.

Uncontradicted testimony at trial showed that Central Bank failed to comply with the reasonable commercial standards of the banking business, and the district judge found accordingly. That finding is supported by the evi *478 dence, and the conclusion that the bank could not assert the defense of contributory negligence is correct. See Gresham State Bank v. O and K Construction Co., 231 Or. 106, 370 P.2d 726, 372 P.2d 187 (1962).

Affirmed.

Case-law data current through December 31, 2025. Source: CourtListener bulk data.