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IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY MAHAFFY & ASSOCIATES, INC., Plaintiffs, v. VICTORIA LONG, HARRY LONG, CENTURY CONSTRUCTION, INC., and PNC BANK, DELWARE, Defendants. : : : : : : : : : : :

C.A. No.: 01C-06-235 SCD

ORDER
For the reasons set forth in the Opinion attached hereto, Defendant PNC Bank's Motion for Summary Judgment is GRANTED in Part and DENIED in part. IT IS SO ORDERED this 29th day of September, 2003.

__________________________________ Judge Susan C. Del Pesco Original to Prothonotary xc: Jos. Scott Shannon, Esquire James J. Freebery, Esquire

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY MAHAFFY & ASSOCIATES, INC., Plaintiffs, v. VICTORIA LONG, HARRY LONG, CENTURY CONSTRUCTION, INC., and PNC BANK, DELWARE, Defendants. : : : : : : : : : : :

C.A. No.: 01C-06-235 SCD

Submitted: September 6, 2003 Decided: September 29, 2003 Upon consideration of Defendant PNC Bank's Motion for Summary Judgment GRANTED in Part, DENIED in Part

OPINION
Jos. Scott Shannon, Esquire, of Tighe, Cottrell & Logan, P.A., Wilmington Delaware, for Plaintiff Mahaffy & Associates; and James J. Freebery, Esquire, of McCarter & English, LLP, Wilmington Delaware, for Defendant PNC Bank, Delaware.

Del Pesco J.,

Introduction This case considers the application of Article 4 of the Uniform Commercial Code ("UCC"), Bank Deposits and Collections. Over a period of several years, customer's employee forged checks which were paid by the bank. Customer seeks reimbursement. Customer's admits its failure after receipt of bank statements to exercise reasonable promptness in discovering the forgeries and notifying the bank. Customer's breach of its statutory duty limits its claim to forged items paid within one year after receipt of each statement if customer can prove that bank failed to exercise ordinary care in paying the item, which failure substantially contributed to loss. If such a showing is made, there is a comparative negligence allocation of responsibility for the loss between customer and the bank. The UCC preempts common law theories of recovery for a loss of this nature. Factual Background Mahaffy & Associates, Inc. ("Mahaffy") is a mechanical and electrical engineering consulting firm. The firm has been doing business in Wilmington, Delaware since 1958. Mahaffy has done its banking with PNC (f/k/a Bank of Delaware) for over 50 years. Between 1997 and 2001 Mahaffy had two accounts with PNC: its Business Checking Account and its Payroll Account. The Business Checking Account was opened by Mahaffy with the execution of PNC signature cards and the issuance of an Account Agreement setting forth various terms and conditions. At all times relevant to this claim, PNC sent Mahaffy monthly account statements, which detailed account activity and enclosed cancelled checks for each account. The monthly statements included, among other information, balance summaries, lists of

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deposits and other additions, lists of checks and other deductions, and daily balances and activity detail regarding checks. The activity detail included the date each check was posted, the check number and amount, and a reference number for each check as well as a notation to indicate gaps in the check sequence. The statements were provided in order to permit Mahaffy to detect unauthorized checks or fraud by looking at the statements and the cancelled checks. Victoria Long was employed by Mahaffy from 1990 through April 2001. Long's duties included general bookkeeping, accounts payable and accounts receivable. She also performed the functions of an office manager. Over time, Long's duties, responsibilities, and rights to access increased as she gained Mahaffy's trust. By 1997, Long's responsibilities had grown to include preparation of financial reports for financial meetings of Mahaffy's principals, preparation of Mahaffy's corporate tax packages, preparation and submission of data and information used for doing Mahaffy's payroll, and review and submission for payment of Mahaffy's corporate American Express account. Consistent with her status and authority, Long exercised broad powers with respect to Mahaffy's accounts with PNC. A letter written by Hugh Mahaffy on March 9, 1994, authorized Victoria Long to "make inquires [sic] regarding balances & transactions for the companies [sic] Bank Accounts" at PNC.1 In addition to this authorization, Long was authorized to transfer funds from one account to the other. Long also was in charge of maintaining Mahaffy's financial and banking records and reviewing the monthly banking statements that PNC provided. During Long's

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Def's Opening Brief at 7.

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employment at Mahaffy, she had full and complete access to the corporate checkbook and to all of Mahaffy's records. She was Mahaffy's daily interface with PNC with respect to all its banking activities and needs. Commencing prior to 1997, Mahaffy almost always allowed Victoria Long to pick up the bank statements

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