ARKWRIGHT MUTUAL INSURANCE CO., Plaintiff-Appellant,

                                                      v.

  NATIONSBANK, N.A., (SOUTH), f.k.a. NationsBank of Florida, N.A., Nationsbank, N.A. (South),
Defendant-Appellee.

                                               No. 99-11396.

                                      United States Court of Appeals,

                                              Eleventh Circuit.

                                               May 25, 2000.

Appeal from the United States District Court for the Southern District of Florida.(No. 96-02969-CV-ASG),
Alan S. Gold, Judge.

Before COX, Circuit Judge, and GODBOLD and MESKILL*, Senior Circuit Judges.

        PER CURIAM:

        This case arose from the forgery of 27 checks drawn on a Florida Power and Light PMIS

disbursement bank account at NationsBank. Between June and October of 1993 forgers created 27 fake

checks totaling $4,387,057.05 and paid by banks across the United States. Arkwright Mutual Insurance

Company is a commercial crime insurer that reimbursed Florida Power and Light (FPL) for the forged check

losses. After FPL notified NationsBank of the forged checks, NationsBank unsuccessfully attempted to

recover the funds from the collecting banks that received payment for the forged checks. Because it did not

receive reimbursement from the collecting banks NationsBank refused to credit FPL's account. NationsBank

contended that its banking contract with FPL shifted the risk for loss by forgery to FPL because the bank

allowed FPL to use a facsimile signature machine. Arkwright filed this diversity suit in an attempt to recover

the losses from the forgeries. The district court granted NationsBank's summary judgment motion after

finding that the parties contractually agreed to shift the risk of loss to FPL and that NationsBank's exercised

ordinary care when it processed the forged checks. We must decide whether this interpretation of the banking

contract is correct and whether summary judgment was properly granted. We agree with the district court


   *
    Honorable Thomas J. Meskill, Senior U.S. Circuit Judge for the Second Circuit, sitting by
designation.
that the contract shifted the risk of loss to FPL and affirm that portion of the district court's decision.

However, the record is not sufficiently developed to determine whether NationsBank acted with ordinary

care. Therefore we reverse and remand the case for further proceedings to determine if NationsBank acted

with ordinary care when it processed the forged checks.

        Arkwright sued Nationsbank to recover the amount debited from FPL's account for violations of

Florida's version of the U.C.C. and for breach of the banking contract.1 Ordinarily, a drawee bank is

absolutely liable to its customer for payment of a forged check. Because a forged check is not a "properly

payable item," Fla. Stat. § 673.4031 (1993); see also Perini Corp. v. First Nat'l Bank, 

, 403 (5th

Cir.1977), a forged maker's signature is wholly inoperative as the professed drawer's signature. 

. Any payment on such an instrument is not to the professed drawer's order and violates the

drawee bank's strict duty to charge the account of its customer only for properly payable items. 

. Arkwright's U.C.C. cause of action is based on Florida Uniform Commercial Code Statute §

674.401 which provides that a bank may only charge against its customer's account an item that is properly

payable from the account. Arkwright's breach of contract action alleges that the account agreement did not

permit NationsBank to pay and charge forged checks against the FPL account.

        NationsBank contends that it had no duty to reimburse FPL's account because the banking contract

incorporated language in an FPL Corporate Resolution that instructed the bank to accept, honor, and pay all

checks "bearing or purporting to bear" the facsimile signature of FPL's authorized representative. Florida's

version of the U.C.C. allows a bank and its customer to contract around the default rules set forth in U.C.C.

Fla. Stat. § 674.103(1);2 19B Fla. Stat. Ann., U.C.C. Comment to § 674.103 (1993) (indicating that §


   1
    Arkwright is equitably surrogated to any claims FPL may have against the person or persons liable for
the loss and has obtained an assignment of FPL's claims against the person or persons liable for the loss.
   2
    effect of the provisions of this chapter may be varied by agreement, but the parties to the agreement
cannot disclaim a bank's responsibility for lack of good faith or failure to exercise ordinary care or limit
the measure of damages for the lack of failure. However, the parties may determine by agreement the
standards by which the bank's responsibility is to be measured if those standards are not manifestly

                                                      2
674.103(1) "permits within wide limits variation of the effects of provisions of the article by Agreement.").

Under Fla. Stat. § 674.401(1), a check that would not otherwise be properly payable becomes properly

payable if it is authorized by the customer and is in accordance with the banking agreement. This statute is

consistent with Florida common law which recognizes that the relationship between a bank and its customer

is contractual in nature. See Federal Ins. Co. v. NCNB Nat. Bank of N.C., 

, 1548 (11th

Cir.1992). However, Arkwright contends that the checks at issue were not properly payable because no

clause in its banking contract authorized NationsBank to pay checks with forged facsimile signatures.

         The parties agreed that NationsBank would move for summary judgment to determine whether the

bank had a duty to reimburse FPL under the banking contract. NationsBank filed its motion for summary

judgment and included several affidavits attesting that NationsBank acted with ordinary care. FPL objected

to the inclusion of any facts contained in NationsBank's summary judgment motion relating to the ordinary

care issue because discovery had not yet been conducted. After the district court asked the parties to clarify

the facts necessary to resolve NationsBank's summary judgment motion, the parties submitted a joint

stipulation setting forth the relevant facts and clarifying the issue before the court. The issue before the

district court, as clarified by the stipulation, stated:

                                        The Issue on Summary Judgment

         NationsBank's Motion for Summary Judgment raises a specific, narrow issue: whether the
         FPL/NationsBank banking contract shifts the risk of loss due to forgery from NationsBank to FPL.

The parties stipulated that 1) NationsBank paid forged checks drawn against FPL's account, 2) the checks

bore a forgery of FPL's authorized facsimile signature, although the checks appeared to be authentic,3 and 3)




unreasonable.

         Fla. Stat. § 674.103(1).
   3
    Each check bore a different serial number corresponding to actual FPL checks that FPL had internally
voided or canceled through its check production process without notice to Nationsbank.

                                                           3
NationsBank paid the forged checks under the U.C.C. definition of "good faith."4 The parties did not

stipulate, nor do they agree, that NationsBank exercised ordinary care when it paid the checks, and both

parties reserved the right to conduct further discovery pending the district court's interpretation of the banking

contract.

        The banking contract between FPL and NationsBank consisted of 1) a Corporate Resolution of FPL

dated July 16, 1992; 2) a Corporate Resolution of FPL dated September 9, 1993; 3) an unsigned and undated

Deposit Agreement; 4) the FPL signature cards; 5) Master Agreement for Treasury Management Accounts

and Services dated June 18, 1993; 6) the Controlled Disbursement Service Agreement dated June 18, 1993,

with Addendum dated July 21, 1993; and 7) an Account Reconciliation Service Agreement dated June 18,

1993.

        Arkwright contends that two sections of the contract indicate that there was no agreement shifting

the risk of loss to FPL. First, a handwritten provision was included in the Account Reconciliation Service

Agreement:

        Except as specifically amended by this Agreement, nothing herein shall alter or affect Bank's
        liabilities with respect to items improperly paid from Customer's Account, under the Uniform
        Commercial Code applicable to such items.

Second, § 8 of the Deposit Agreement states that NationsBank remains liable for "any amount improperly

paid out of the account due to an unauthorized signature."

        NationsBank contends that other provisions in the contract expressly modify the bank's liabilities.

First, § 8 is qualified by two other sections in the Deposit Agreement. Section 5(b) sets forth FPL's

responsibilities regarding the use of facsimile signatures:

        Facsimile Signatures: If your items are signed using any facsimile signature or non-manual form
        of signature, you acknowledge that it is solely for your benefit and convenience. You accept sole
        responsibility for maintaining security over any device affixing the signature. Such signature will
        be effective as your signature regardless of whether the person affixing it was authorized to do so.




   4
    This means that NationsBank acted honestly and not corruptly or in concert with the forgers.

                                                        4
§ 5(b). (emphasis added). Second, § 1(c) of the Deposit Agreement allows NationsBank to "recognize"

resolutions adopted by FPL affecting the account. On July 16, 1992 an FPL Corporate Resolution gave

NationsBank authority to pay all facsimile authorized checks up to $500,000 on the PMIS account.

                 Resolved, [NationsBank] is hereby authorized and requested to accept, honor and pay,
        without further inquiry and until written notice of revocation of the authority, hereinafter provided
        for is received by it, all checks, drafts or other orders for the payment or withdrawal of the monies
        of the Company as follows:

        ...

b.      With respect to the PMIS Disbursement Account,

i.      For payments of $500,000 or less, when bearing or purporting to bear the facsimile signature of the
        Treasurer, Controller or an Assistant Treasurer.

§ (b)(i)(emphasis added). A subsequent corporate resolution dated September 9, 1993 amended subsection

(b)(i) of the July 16, 1992 Corporate Resolution. The September 9 Corporate Resolution authorized

NationsBank to accept, honor, and pay all checks drawn on the PMIS Disbursement Account:

        (b)(i)   1) when bearing or purporting to bear the facsimile or actual signature of its Treasurer,
                 Controller, or an Assistant Treasurer; or 2) when bearing the actual signature of its
                 President, any Vice President (excluding the Vice President of Accounting), its Secretary or
                 an Assistant Secretary, or any other person or persons designated from time to time in
                 writing to a bank or trust company by the Chairman of the Board or the President ...

§ (b)(i)(1-2) (emphasis added). Twenty-four of the twenty-seven checks were drawn on the PMIS

Disbursement Account before the September 9, 1993 FPL Corporate Resolution. Two were drawn after this

date and the date of one check is uncertain.

                                  CONTRACTUAL INTERPRETATION

        We review the district court's interpretation of a contract de novo. Because the parties stipulated that

the signatures on the checks were forgeries the outcome of this issue depends on our interpretation of the

phrase "when bearing or purporting to bear." Arkwright contends that this phrase is not a risk shifting clause

and served only to allow the bank to pay checks with facsimile signatures that have some technical defect in

the ink such as a smudge or a smear. We disagree.



                                                      5
        The plain meaning of the phrase includes a much broader class of checks. Blacks Law Dictionary

defines "purport" as "The idea or meaning that is conveyed or expressed, especially by a formal document;

to profess or claim falsely; to seem to be." Blacks Law Dictionary 1250 (7th ed.1999). A forgery by its very

definition "purports to bear." Because the parties stipulated that the signatures on the checks were exact

duplicates of the facsimile signatures, the signature on these checks "seem to be" the authentic signature of

the authorized FPL representative. Therefore the checks would be properly payable under the contract

because they purport to bear an authorized signature. Arkwright's contention that the September 9, 1993

Corporate Resolution removed this authority is incorrect because it also contains the phrase "bearing or

purporting to bear."

        The Fifth Circuit reached the same conclusion on similar facts in Perini Corp. v. First Nat'l Bank of

Habersham County, 

(5th Cir.1977). Perini is binding on us. See Bonner v. City of Prichard,

Alabama, 

, 1209 (11th Cir.1981). In Perini the bank and Perini entered into a banking contract

that allowed the bank to incorporate corporate resolutions into the contract. Perini passed a corporate

resolution that authorized the bank

        to honor all checks, drafts, and other orders of payment of money drawn in the name of Perini
        Corporation on its Regular Accounts ... when bearing or purporting to bear the single facsimile
        signature of R.A. Munroe ... said banks shall be entitled to honor and charge Perini Corporation for
        all such checks, ... regardless of by whom or by what means the actual or purported facsimile
        signature thereon may have been affixed thereto, if such facsimile signature resembles the facsimile
        specimen from time to time filed with said banks.

. At a later date someone stole a number of pre-printed checks and gained access to

the signature machine or developed a perfect copy of the facsimile signature it produced. Perini sought to

be reimbursed after the bank paid on the forged checks. 

However, the Fifth Circuit stated that

through the language in this corporate resolution Perini contractually assumed the risk of loss for the

convenient use of the facsimile signature machine. 

The first sentence of the holding reiterated

Perini's assumption of the risk: "One answer is clear, however. Perini has no recourse on the unauthorized

signature of R.A. Munroe against Morgan or Brown Brothers. Perini's resolution authorizing the drawees'


                                                     6
payment of checks bearing signatures resembling the machine-embossed facsimile signature precludes that

course of action." 

See also Jefferson Parish School Bd. v. First Commerce Corp., 

(La.Ct.App.1996) (same holding with similar facts, citing to Perini ). Therefore Perini forfeited any claim

he had against the bank for good faith payments on forged instruments. 

not find Perini distinguishable. Although the corporate resolution in Perini did contain

additional language in the clause with the phrase "bearing or purporting to bear," the additional language is

not necessary to ascertain the plain meaning of the phrase "purporting to bear." This is especially true in the

present case because the parties stipulated that the facsimile signatures are identical copies. The plain

meaning of the phrase "bearing or purporting to bear" necessarily includes all signatures that are identical to

the one produced by the facsimile signature machine.

        Arkwright contends that even if the contract shifted the risk of loss for forgery to FPL, such a

provision is void under Florida law because it is an exculpatory clause. An exculpatory clause denies an

injured party the right to recover damages from the person who negligently caused his injury. See O'Connell

v. Walt Disney World Co., 

, 446 (Fla. 5th DCA 1982). Arkwright relies on Cumis Ins. Society,

Inc. v. Girard Bank, 

(E.D.Pa.1981), in support of its contention. Cumis also involved a

customer who signed a corporate resolution authorizing the bank to honor checks "bearing or purporting to

bear" the facsimile signature of a signature or signatures resembling the facsimile specimens. 

The

customer sought reimbursement from the bank after the bank paid several checks with a forged facsimile

signature. The trial court found that the resolution was insufficient to relieve the bank from liability under

Pennsylvania law because the resolution was an exculpatory clause that must be strictly construed against the

bank. 

Although Cumis directly supports Arkwright's contention, it is not controlling and is

distinguishable from the present case.

         Cumis is distinguishable because exculpatory agreements must be strictly construed against a bank

under Pennsylvania law. Florida's public policy against exculpatory clauses indicates that, although viewed



                                                      7
with disfavor, they will be enforced if they are clear and unambiguous. See Theis v. J&J Racing Promotions,

, 94 (Fla. 2d DCA 1990), rev. denied, 

(Fla.1991). Cumis is also inconsistent with

the Perini decision that enforced a resolution with similar language under Georgia law. See, e.g., Perini, 

. See also Jefferson Parish School Bd., 

(finding bank not liable because resolution

contained language authorizing bank to pay checks "bearing or purporting to bear the facsimile signatures");

Wilmington Trust Co. v. Phoenix Steel Corp., 

(Del.1971) (same); Phoenix Die Casting Co. v.

Manufacturers and Traders Trust Co., 

, 

(N.Y.App.Div.1968) (same).

        Moreover, this was not a true exculpatory clause because NationsBank and FPL did not contract to

avoid the bank's duty to exercise ordinary care. Florida Stat. § 674.103(1) allows a customer who wishes to

use a facsimile signature machine for his own commercial purposes to enter into an agreement with a bank

that shifts the risk of forgery from the bank to the customer as long as the risk shifting agreement does not

attempt to disclaim the bank's statutory duties of good faith and ordinary care.5 NationsBank does not

contend nor was there any finding by the district court that the resolution removed the bank's duty of ordinary

care. In fact, all parties are in agreement that the bank retained its duty to exercise ordinary care. The district




   5
    The comment to Fla. Stat. § 674.103(1) states:

                 Section 1-102 states the general principles and rules for variation of the effect of this Act
                 by agreement and the limitations to this power. Section 4-103 states the specific rules for
                 variation of Article 4 by agreement and also certain standards of ordinary care .... it
                 would be unwise to freeze present methods of operation by mandatory statutory rules.
                 This section, therefore, permits within wide limits variation of the effect of provisions of
                 the Article by agreement.

        Official comment (2) reiterates the parties' ability to vary the UCC:

                 Subsection (a) confers blanket power to vary all provisions of the Article by agreements
                 of the ordinary kind. The agreements may not disclaim a bank's responsibility for its own
                 lack of good faith or failure to exercise ordinary care and may not limit the measure of
                 damages for the lack or failure, but this subsection like Section 1-102(3) approves the
                 practice of parties determining by agreement the standards by which the responsibility is
                 to be measured. In the absence of a showing that the standards manifestly are
                 unreasonable, the agreement controls.

                                                        8
court correctly found that the Corporate resolutions were limited in scope and provided only that Nationsbank

was authorized to pay certain checks "bearing or purporting to bear" the facsimile machine signature.

        Whether it is wise to enter into an agreement that shifts the risk of loss to the customer does not make

such agreements against public policy as long as the agreement does not abrogate the bank's duty to exercise

ordinary care. See FDIC v. Carre, 

(Fla. 2d DCA 1983) (addressing whether a clause limiting

the bank's liability toward a customer with a safety deposit box was exculpatory). FPL's decision to enter into

such an agreement for its own convenience shifted the risk of loss for forged facsimile signatures to FPL but

retained the bank's duty to exercise ordinary care and to act in good faith. See Orkin Exterminating Co., Inc.

v. Montagano, 

(Fla. 4th DCA 1978) (the principles that exculpatory clauses relieving a party

of his own negligence are not favored and are unenforceable unless they are clear and unequivocal). The

resolution shifting the risk of loss to FPL is enforceable.

                                             ORDINARY CARE

        There remains the issue whether NationsBank exercised ordinary care when it processed the forged

checks. The district court indicated that summary judgment was proper because it is undisputed that the bank

acted in good faith when it paid what appeared to be authentic checks. However, these facts do not answer

whether the bank exercised ordinary care when it paid the checks. We conclude that there is insufficient

evidence on the record to determine if NationsBank acted with ordinary care.

         It is clear from the briefs, the record, and the district court's order that the narrow issue before the

district court on summary judgment was whether the banking contract between FPL and NationsBank shifted

the risk of loss to FPL. The parties stipulated to a narrow set of facts solely for the purpose of interpreting

the bank's general liability under the banking contract. The only evidence on the record addressing whether

NationsBank acted with ordinary care consisted of affidavits included with NationsBank's original motion

for summary judgment. Arkwright objected to the inclusion of these facts premised on its understanding of

the limited scope of NationsBank's motion, and the stipulations make it clear that the parties did not intend



                                                       9
to address the ordinary care issue on summary judgment. The stipulations do not support any finding that

NationsBank exercised ordinary care, and the record was not sufficiently developed to allow the district court

to decide this issue.

        The district court's dismissal of the ordinary care issue undermines its own scheduling order in force

at the time of this motion. After NationsBank filed for summary judgment, the district court asked Arkwright

if discovery was necessary to decide the motion. Arkwright answered "no," conditioned upon the limited

scope of the summary judgment motion.6 However, in both the Stipulation of Arkwright and NationsBank

and Arkwright's response to the scheduling motion that the district court issued after NationsBank filed its

motion for summary judgment, Arkwright clearly expressed the need for further discovery to determine

whether NationsBank used ordinary care when it processed the forged checks.7

        We do not find, nor do the parties contend, that the contract relieved NationsBank of its duty to

exercise ordinary care.8 A blanket holding stating that liability shifts to the customer whenever the bank acts

in good faith and the checks appear to be authentic abrogates the restriction against contracting away the duty




   6
    Arkwright and NationsBank limited the issue on summary judgment in the stipulation agreement to
whether the FPL/NationsBank banking contract shifts the risk of loss due to forgery from NationsBank to
FPL. Arkwright reserved its right to amend its complaint to include breach of ordinary care pending the
resolution of the risk shifting issue.
   7
    In footnote 3 of the stipulations Arkwright stated:

                 Arkwright cannot at this time stipulate that NationsBank exercised ordinary care when
                 paying the checks. Ordinary Care is a different concept from good faith under the U.C.C.
                 Ordinary care involves negligence concepts, and is pertinent to statutory defenses.
                 Nationsbank agrees that the issues of contractual risk shifting can be addressed apart
                 from issues of NationsBank's ordinary care.

        (internal quotation marks omitted).
   8
    On page 7 of NationBank's reply brief in the lower court, it stated: "NationsBank does not suggest an
interpretation of the agreement that disavows its duty to exercise ordinary care. In fact, the agreement
implicitly, if not explicitly, adopts the duty of ordinary care."

                                                     10
of ordinary care. The district court's analysis ignores the possibility that a bank may breach its duty of

ordinary care even when presented with an authentic looking facsimile signature.9

        Any findings regarding whether NationsBank used ordinary care or was negligent when it paid the

forged instruments would be premature. We remand the case to allow the parties to present a more fully

developed record to the district court on this issue.

        AFFIRMED in part, REVERSED in part and REMANDED to the district court to resolve whether

the NationsBank acted with ordinary care when it processed the forged checks.




   9
    The district court stated:

                 The agreement in question is not exculpatory in nature because there is a complete
                 absence of language indicating an intent to either release or indemnify the bank for its
                 own negligence. Limited in scope, the agreement defines the permissible standards of
                 care but does not attempt to disclaim the statutory duty of ordinary care. The resolution
                 does not state that the bank can never be held liable for a forgery. It merely provides that
                 under certain circumstances, such as where the bank is presented with items bearing or
                 purporting to bear the facsimile machine signature, the bank is authorized to pay such
                 items.

        April 27, 1999 District Court Order, page 11.

                                                        11