HARTFORD ACCIDENT AND INDEMNITY COMPANY
v.
DEAN'S SHOP-RITE, INC.
No. 7921SC1098.
Court of Appeals of North Carolina.
September 2, 1980.*283 Hudson, Petree, Stockton, Stockton & Robinson by Grover G. Wilson, Winston-Salem, for plaintiff-appellant.
Blackwell, Blackwell, Canady & Eller by Jack E. Thornton, Jr., Winston-Salem, for defendant-appellee.
WEBB, Judge.
The only question presented by this appeal is whether the motion for summary judgment was properly allowed. We hold that it was.
G.S. 25-3-406 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 payor's business.
From reading this statute, if the defendant paid the checks in good faith and in accordance with the reasonable commercial standards of its business and the YMCA, by its negligence, substantially contributed to the making of the unauthorized checks by Ms. Massie, the plaintiff is barred from recovery.
We examine first the actions of the defendant. G.S. 25-1-201(19) provides:
"Good faith" means honesty in fact in the conduct or transaction concerned.
The evidence in all the papers filed show the defendant was honest in fact. It cashed the checks in good faith. All the evidence also showed the defendant regularly cashed checks for its customers. Personal checks were taken at the cash register for groceries from regular customers. Checks for larger amounts were cashed after approval at the window in the front office. Beverly Massie had been a customer for 10 years. We hold that the checks were cashed in accordance with the reasonable commercial standards of defendant's business. It may be that the defendant should have been more cautious since it knew Beverly Massie had previously cashed forged checks. That is not the test of G.S. 25-3-406. The defendant did in good faith cash the checks in the reasonable commercial standards of its business.
We next turn to the question of whether the YMCA, by waiting approximately a year from the time the first check was cashed before notifying the defendant the checks were unauthorized, did, by its negligence, substantially contribute to the making of the unauthorized checks. The statute does not define negligence. G.S. 25-4-406 makes provision for notifying a bank of unauthorized checks within certain time periods after bank statements have been received in order to hold the bank liable. We believe this is a standard of reasonable *284 conduct which should apply in regard to notifying other payors. We hold that by waiting approximately one year after the first check had been passed before notifying the defendant that the checks were unauthorized, the YMCA, by its negligence, substantially contributed to the making of the unauthorized checks.
If the evidence as forecast by the papers relied on by the court in the hearing on the motion for summary judgment were offered at trial the defendant would be entitled to a directed verdict in its favor. The motion for summary judgment was properly allowed. See Moore v. Fieldcrest Mills, Inc., 296 N.C. 467, 251 S.E.2d 419 (1979).
Affirmed.
HARRY C. MARTIN and WELLS, JJ., concur.