Opinion
JENKINS, J. Plaintiff Brian P. Bums appeals from a judgment in favor of defendant The Neiman Marcus Group, Inc. (Neiman Marcus), after its general demurrer to the second amended complaint was sustained without leave to amend. Plaintiff seeks to recover damages arising from an employee’s fraudulent use of checks drawn on his personal checking account to make payments on the employee’s Neiman Marcus store credit card accounts. Plaintiff argues that he has alleged sufficient facts requiring the reinstatement of his causes of action for common law negligence or, in the alternative, a statutory cause of action pursuant to California Uniform Commercial Code, [483]section 3406, subdivision (b),1 and a related request for an accounting. We disagree and, accordingly, affirm.
FACTUAL AND PROCEDURAL BACKGROUND2
As more fully set forth in the operative complaint, plaintiff alleges that Carol Young3 was employed as plaintiffs secretary, and throughout the relevant time period, her base salary never exceeded the sum of $75,000. Between 1995 and 2000, Young opened several credit card accounts with Neiman Marcus. In the three-year period prior to 2006, Young spent approximately $1 million at Neiman Marcus, and “the balance on [one] credit card, as of January 10, 2006, is and was in excess of $242,000.” “As a result of her purchasing volume, [Young] was offered entree into [Neiman Marcus’s] exclusive INCIRCLE® rewards program—a loyalty incentive program offered only to [Neiman Marcus’s] most frequent and highest spending customers.” Young was also provided a designated sales associate, or a personal shopper, whose compensation was allegedly tied to the volume and price of the merchandise purchased by her clients.
According to plaintiff, Young “did not earn a sufficient salary from her employment to merit the excessive credit limits provided to her by [Neiman Marcus].” Young’s personal shopper is alleged to have known that plaintiff’s annual salary was less than $75,000, and that Young’s huge purchases were well beyond what her financial condition would justify and support. Despite this knowledge, the personal shopper “repeatedly contacted and encouraged [Young] to make excessive purchases with her various [Neiman Marcus] cards.”
The complaint describes the transactions giving rise to plaintiff’s negligence claim as follows. “Starting at least as early as 1995, . . . [Young] began paying for all her purchases at [Neiman Marcus] by means of unauthorized checks drawn on the personal bank account of [plaintiff]. [Young] would personally deliver on a regular basis, fraudulent and forged checks clearly identified as being drawn on [plaintiff’s Union Bank of California checking account to pay down her various [Neiman Marcus] credit card bills at the Customer Service Center in [Neiman Marcus’s] San Francisco store.”4 [484]Neiman Marcus presented the fraudulent and forged checks for payment and received funds from plaintiff’s personal checking account.
According to plaintiff, “Young employed at various times, at least three different methods of fraudulently presenting [p]laintiff’s checks for payment of her personal [Neiman Marcus] credit card accounts: [f] (a) by theft of [plaintiff’s checks and the forging of [plaintiff’s signature thereon; (b) by theft of [plaintiff’s checks with no signature whatsoever; and (c) by theft of [p]laintiff’s checks with [plaintiff’s signature presumed by plaintiff to be for payment towards [plaintiff’s own [Neiman Marcus store] credit card account, but which was diverted by [Young] for payment towards [Young’s] personal [Neiman Marcus] credit card account(s).”
Plaintiff alleged that he was not aware of Young’s unauthorized activity for the following reasons. “[W]hen [Young] received [plaintiff’s bank statements, she would destroy the checks reflecting the payments made to her [Neiman Marcus] credit card accounts. She would then alter [plaintiff’s ledger account records to reflect payments made to third parties other than [Neiman Marcus] to account for the missing money.” Plaintiff did not learn of the actions of Young and Neiman Marcus until April 2006.
The second amended complaint contains four causes of action, only two of which are at issue on this appeal.5 The first cause of action is labeled “Negligence—Breach of Ordinary Care, Commercial Code §§ 3103(a)(7) and 3406(b).” The second cause of action is labeled “Negligence—Breach of Ordinary Care, Commercial Code §§ 3103(a)(7) and 3405(b).” Despite the reference to the California Uniform Commercial Code sections in the titles of the two causes of action, both are based on a claim of common law negligence.
As to both causes of action, plaintiff alleges that “with respect to the business of luxury retailing in which [Neiman Marcus] is engaged, there is a prevailing, reasonable commercial standard to observe the practice of taking additional steps when presented with third-party checks so to prevent the unauthorized use of the third-party’s checking account, and to prevent the harm that would result to the third party from such unauthorized activity.” [485]“Based on all the circumstances as set forth above, when confronted with the unusual habit of [Young] in paying down her massive [Neiman Marcus] credit card debt in person, by third-party checks drawn on the personal account of [p]laintiff, [Neiman Marcus] owed a duty of ordinary care to [p]laintiff to ascertain whether [Young] was authorized to take such actions, or, at the least, to alert [p]laintiff of [Young’s] practice.” “[D]espite having a duty to do so, and upon information and belief a policy requiring it, no one in [Neiman Marcus’s] Customer Service Center ever asked [Young]: (i) why she was paying with [plaintiff’s] checks and/or (ii) whether she had authority to make payments to her account with [plaintiff’s] funds. Further, no one from [Neiman Marcus] ever contacted [plaintiff] to ascertain whether [Young] had authority to pay her [Neiman Marcus] credit card account with checks drawn on his personal . . . checking account or even alerted [plaintiff] that such payments were being made from his personal checking account.” According to plaintiff, Neiman Marcus knew, should have known, or acted with reckless disregard of facts showing that Young was not authorized to pay her credit card bills with checks drawn on plaintiff’s personal checking account because the store knew that Young was charging large monetary amounts that exceeded her monthly income, and the store’s employees failed to ask Young whether she had authority to pay her bills with plaintiff’s personal checks and failed to alert plaintiff that Young was using his personal checks to pay her credit card bills. “As a direct result of [Neiman Marcus’s] failure to exercise that degree of ordinary care found in the retail industry in circumstances such as these with respect to the acceptance and processing of credit card payments, as well as [Neiman Marcus’s] failure to follow its own corporate procedure with respect to payment on credit card accounts using third-party checks, [Neiman Marcus] failed to observe ordinary care in taking the checks,” resulting in a loss to plaintiff exceeding $100,000.6
In sustaining Neiman Marcus’s general demurrer to the second amended complaint, the trial court ruled as follows: “The [demurrer to the] first cause of action for negligence under [California Uniform] Commercial Code Section[s] 3103(a)(7) and 3406(b) is sustained without leave to amend. The text and official comments for Section 3406(b) make it clear that section does not create a cause of action, but allows for a defense of comparative [486]negligence. Section 3103(a)(7) provides the definition for ordinary care, but this section does not create a negligence claim. Plaintiff relies on Sun 'N Sand[, Inc. v. United California Bank (1978) 21 Cal.3d 671 [148 Cal.Rptr. 329, 582 P.2d 920]], and Joffe [v. United California Bank (1983) 141 Cal.App.3d 541 [190 Cal.Rptr. 443]] to support his negligence claim. . . . These cases allowed negligence claims not directly based on a [California Uniform] Commercial Code statute. In both cases, the bank cashing the check was put on notice of a potential fraud by what was on the face of the check and in what account the check was deposited. Here, the fact that an account payment came from a third party is not enough to put [Neiman Marcus] on notice of a potential fraud. The Court will not extend the holding of Sun TV Sand and Joffe to the facts of this case. [][] The [demurrer to the] second cause of action for negligence under [California Uniform] Commercial Code Section[s] 3103(a)(7) and 3405(b) is sustained without leave to amend. Section 3405(b) applies when an employee makes a fraudulent indorsement. . . . Plaintiff has alleged various situations where, he claims that the secretary used [his] checks to pay off her account with [Neiman Marcus]. None of these situations fall[s] under the definition of fraudulent indorsement as defined in Section 3405(a)(2).” A judgment of dismissal was entered from which plaintiff filed a timely notice of appeal.
DISCUSSION
On appeal, plaintiff argues that he has alleged a cause ■ of action for common law negligence that is not barred by the California Uniform Commercial Code. Alternatively, he asserts if he has no common law negligence claim, he has nevertheless alleged sufficient facts to support a cause of action under section 3406, subdivision (b), for breach of the duty of “ordinary care.” We conclude that plaintiffs’ arguments are unavailing.
Our review of the trial court’s ruling sustaining the general demurrer is de novo. We independently evaluate the complaint, construing it liberally, giving it a reasonable interpretation, reading it as a whole, and viewing its parts in context. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].) Treating as true all material facts properly pleaded, we determine de novo whether the factual allegations of the complaint are adequate to state a cause of action under any legal theory, regardless of the title under which the factual basis for relief is stated. (Id. at p. 318.) Because [487]plaintiff does not contend he should be allowed a further opportunity to amend the factual allegations in his latest complaint, we review whether the demurrer was well taken.7
A. Common Law Negligence Claim Does Not Lie in This Case
“ ‘[N]egligence is conduct which falls below the standard established by law for the protection of others.’ [Citation.] ‘Every one is responsible, not only for the result of his willful acts, but also for an injury occasioned to another by his want of ordinary care or skill in the management of his property or person, except so far as the latter has, willfully or by want of ordinary care, brought the injury upon himself.’ ([Civ. Code], § 1714, subd. (a).)” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 396-397 [11 Cal.Rptr.2d 51, 834 P.2d 745] (Bily).) Related to the concept of negligence is the tort law that a person is “ordinarily not liable for the actions of another and is under no duty to protect another from harm, in the absence of a special relationship of custody or control.” (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 293 [253 Cal.Rptr. 97, 763 P.2d 948].)
“The threshold element of a cause of action for negligence is the existence of a duty to use due care toward an interest of another that enjoys legal protection against unintentional invasion. [Citations.] Whether this essential prerequisite to a negligence cause of action has been satisfied in a particular case is a question of law to be resolved by the court.” (Bily, supra, 3 Cal.4th at p. 397.)
“California courts have explicitly rejected the concept of universal duty. ‘ “ ‘It must not be forgotten that “duty” got into our law for the very purpose of combatting what was then feared to be a dangerous delusion . . . viz., that the law might countenance legal redress for all foreseeable harm.’ ” ’ [Citation.] Instead, whether to recognize a new ‘legal wrong’ or ‘tort’ is often governed by policy factors. [Citation.] In making these determinations, both the courts and the Legislature must weigh concepts of ‘public policy,’ as well as problems inherent in measuring loss, and ‘floodgates’ concerns, in addition to the traditional element of foreseeability.” (The Mega Life and Health Ins. Co. v. Superior Court (2009) 172 Cal.App.4th 1522, 1527 [92 Cal.Rptr.3d 399].)
In determining whether it is appropriate to impose a legal duty for which the law will authorize redress, Rowland v. Christian (1968) 69 Cal.2d 108 [70 Cal.Rptr. 97, 443 P.2d 561] (Rowland), “enumerates a number of [488]considerations . . . that have been taken into account by courts-in various contexts . . . : ‘the major [considerations] are the foreseeability of harm to the plaintiff, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, the policy of preventing future harm, the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and the availability, cost, and prevalence of insurance for the risk involved.’ ” (Ballard v. Uribe (1986) 41 Cal.3d 564, 572, fn. 6 [224 Cal.Rptr. 664, 715 P.2d 624] (italics added by Ballard) (Ballard), quoting Rowland, supra, 69 Cal.2d at p. 113.) “The foreseeability of a particular kind of harm plays a very significant role in this calculus [citation], but a court’s task—in determining ‘duty’—is not to decide whether a particular plaintiff’s injury was reasonably foreseeable in light of a particular defendant’s conduct, but rather to evaluate more generally whether the category of negligent conduct at issue is sufficiently likely to result in the kind of harm experienced that liability may appropriately be imposed on the negligent party.” (Ballard, supra, 41 Cal.3d at pp. 572-573, fn. 6.)8 In other words, “[examining whether a legal duty exists and whether a particular defendant was negligent [are not] coterminus .... Fulfilling the court’s responsibility to determine if a legal duty exists necessarily requires consideration and balancing of sometimes competing public policies which may be irrelevant to the factual determination of whether the challenged conduct fell below the prevailing standard of care.” (Adams v. City of Fremont (1998) 68 Cal.App.4th 243, 265 [80 Cal.Rptr.2d 196].)
Guided by these well-honed principles of tort law, we agree with the trial court that the focus of our analysis of duty is on the acceptance of a third party check, by a retail merchant, to pay another person’s credit card account. For the reasons we will now discuss, a consideration of the Rowland factors leads us to conclude that a retailer merchant’s acceptance of a third party check to pay another person’s credit card account is not sufficiently likely to result in the kind of harm that plaintiff experienced so that liability should appropriately be imposed on Neiman Marcus in this case.
The foreseeability of harm to plaintiff, the degree of certainty that plaintiff would suffer harm, and the connection between Neiman Marcus’s conduct [489]and the injury plaintiff suffered, all weigh in favor of not imposing a duty on the retail merchant in this case. Plaintiff contends that Neiman Marcus owed him a duty to inquire before it accepted his checks because the following circumstances should have alerted the store to a potential fraud: Young made numerous and frequent purchases in relation to her known limited income; Young’s personal shopper encouraged purchases beyond Young’s financial means; and Young personally delivered checks to the store, sometimes on successive days, and the checks were drawn on plaintiff’s personal bank account, and not a corporate account. But, plaintiff’s contention—that Neiman Marcus’s conduct of ignoring “ ‘red flags’ ” occasioned by Young’s unusual conduct in using plaintiff’s checks—improperly frames the relevant inquiry regarding the question of whether a legal duty of inquiry exists. Plaintiff’s factual allegations regarding Neiman Marcus’s conduct, which are extrinsic to the presentation of the checks, concern the fact-specific concept of foreseeability that would be considered by a trier of fact after a determination by a court that a duty of inquiry exists.9 His argument also ignores that, for Neiman Marcus to foresee injury to him, it would have to foresee that any unauthorized checks “would go undetected for long enough that the drawer bank could escape responsibility” to plaintiff for the payment of those checks. (Simmons v. Lennon (2001) 139 Md.App. 15, 42 [773 A.2d 1064].) To accept plaintiff’s argument would stretch the concept of foreseeability of harm in determining duty beyond recognition.
Even assuming the Rowland foreseeability of harm factor in determining duty properly includes the “red flags” alleged by plaintiff, the other Rowland factors militate against imposing a new duty of inquiry on the retail merchant. Specifically, the policy of preventing future harm and the burden to the defendant and consequences to the community do not weigh in favor of imposing a duty of inquiry in this case. Regardless of the internal policies that a merchant might have in place to verify third party checks, there are [490]practical problems with imposing a duty of inquiry on a retail merchant before he can accept a person’s payment for goods and services. Because the retail merchant could not rely upon anything told to him by the person tendering the third party check, the presumed wrongdoer—in the usual situation, a retail merchant—would have to stop his business every time he received such a check in order to make an independent inquiry of the drawer. Assuming the retail merchant could readily locate the drawer of the check, he would then have to ascertain what would constitute a reasonable inquiry so as to avoid liability. Would one or two attempts to reach the drawer by telephone be sufficient; or would a letter have to be written? The scope of this proposed—yet ill-defined—duty of inquiry is boundless, and would impose a significant and unwarranted burden on retail merchants to ascertain the veracity of a third party check any time the instrument is proffered in payment for goods and services, which would far outweigh any resulting benefit in detecting the isolated instance of embezzlement. (See Gino’s of Capri v. Chem. Bank (N.Y.App.Div. 1993) 187 A.D.2d 71, 75 [592 N.Y.S.2d 682] (Gino’s of Capri).)10
In considering the other Rowland factors, we note that plaintiff has apparently suffered great monetary losses as a consequence of Young’s misconduct. Nevertheless, the person deserving of moral blame is Young, not Neiman Marcus. There is no allegation that Neiman Marcus actively participated in Young’s alleged embezzlement of funds from plaintiff. Also, our rejection of plaintiff’s invitation to impose a duty of inquiry on Neiman Marcus under the circumstances of this case “assigns losses by the relative responsibility of the parties, allocating liability to the party best able to prevent them.” (Hartford v. American Express (1989) 74 N.Y.2d 153, 165 [544 N.Y.S.2d 573, 542 N.E.2d 1090] (Hartford).) The retail merchant’s acceptance of a check for payment of goods and services is not risk free. “[A] check is simply an order to the drawee bank to pay the sum stated, signed by the maker and payable on demand.” (Barnhill v. Johnson (1992) 503 U.S. 393, 398 [118 L.Ed.2d 39, 112 S.Ct. 1386]; see §§ 3103, subd. (a)(3), 3104, subd. (f), 3108.) The store “may present the check, but, if the drawee bank refuses to honor it,” the store may not receive payment. (Barnhill v. Johnson, supra, 503 U.S. at p. 398; see § 3409, subd. (a).) And, under the circumstances here, Neiman Marcus’s legal recourse would be only against its customer Young, and not plaintiff who was not legally responsible for Young’s store credit card charges. Alternatively, however, if the drawer’s [491]bank pays an unauthorized check, the bank’s liability to the drawer “is absolute; that is, [liability is imposed] without regard to whether the bank exercised due care or was negligent or worse.” (Roy Supply, Inc. v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1062 [46 Cal.Rptr.2d 309] (Roy Supply).) Plaintiff, as a bank customer acting in a timely manner, could have recovered any losses incurred as a consequence of his bank’s payment of any check on an altered, forged, or missing signature. (Id. at pp. 1062-1064.)11 Plaintiff’s failure to detect Young’s alleged embezzlement within the statute of limitations timeframe should not be the impetus for imposing liability on other persons in the chain of custody of the checks. To the extent plaintiff alleges that Young used some of his checks to pay her store credit card accounts that were intended to be applied to plaintiff’s store credit card account, any loss is appropriately attributed to plaintiff. “As among the parties to this dispute [plaintiff]—whose misplaced trust or inattention enabled [Young] to misappropriate funds, undetected, for several years—was plainly the party best able to prevent the losses and to protect [himself] by insurance.” (Hartford, supra, 74 N.Y.2d at p. 165.) “Had plaintiff properly reviewed [his bank] statements” and store credit card statements over the 12 years, he “would, of course, have realized that [his] checks were being diverted.” (Gino’s of Capri, supra, 187 A.D.2d at p. 76.) “While that may well have been the faithless [Young’s] obligation, which, for obvious reasons, [she] would not have diligently performed, the loss ensuing from such failure cannot be shifted to [Neiman Marcus].” (Ibid.)
Finally, we reject plaintiff’s argument that Neiman Marcus has a duty of inquiry based on Sun ’n Sand, Inc. v. United California Bank, supra, 21 Cal.3d 671 (Sun ’n Sand), and its progeny, including Joffe v. United California Bank, supra, 141 Cal.App.3d 541 (Joffe), and E. F. Hutton & Co. v. City National Bank (1983) 149 Cal.App.3d 60, 67-68 [196 Cal.Rptr. 614]. At issue in Sun ’n Sand was “a variation of the recurring theme ... of the rights of an employer to recover funds embezzled by a faithless employee through the manipulation of company checks.” (21 Cal.3d at p. 678, citation omitted.) In Sun ’n Sand, the court upheld the employer’s cause of action against the bank on a theory of negligence, imposing upon the bank a “narrowly circumscribed” duty “activated only when checks, not insignificant in amount, are drawn payable to the order of a bank and are presented to the payee bank by a third party seeking to negotiate the checks for his own benefit.” (Id. at p. 695.)
[492]Significant to our analysis here, in Sun ’n Sand, there was no discemable reason for the bank’s action in allowing checks, payable to the bank, to be deposited into the employee’s personal account. In this case, we are presented with Neiman Marcus’s acceptance of third party checks, payable to Neiman Marcus, in satisfaction of a customer’s legitimate debt to the store for the purchase of goods. The circumstances attendant to the submission of the checks here are clearly distinguishable from those present in Sun ’n Sand. Plaintiff alleges, however, that some of the checks diverted by Young were to be credited to his own store account. According to our dissenting colleague, Neiman Marcus could have readily determined that plaintiff was its customer and the holder of a Neiman Marcus charge account. (Dis. opn., post, at p. 503.) However, there is no contention that when Young proffered the checks for payment of her accounts there was anything appearing on the checks that would lead the store cashier to question whether plaintiff also had a Neiman Marcus store account. Thus, we shall not extend Sun ’n Sand beyond its specific facts, and accordingly, we reject plaintiff’s invitation to impose a duty upon Neiman Marcus based upon Sun ’n Sand,12
In light of our determination that a negligence cause of action does not lie, we do not reach Neiman Marcus’s alternative argument that a negligence cause of action is preempted by the California Uniform Commercial Code.
B. Section 3406, Subdivision (b), Does Not Create a Cause of Action in Favor of Drawer of Fraudulently Altered or Forged Check
Section 3407 allows a person who pays a fraudulently altered or forged instrument or takes such an instrument for value, in good faith and without notice of the alteration or forgery, to enforce the instrument according to the instrument’s original terms.13 “If negligence of the obligor [493]substantially contributes to an alteration, . . . section [340614] gives the holder ... the alternative right to treat the altered instrument as though it had been issued in the altered form.” (U. Com. Code com., 23A pt. 2 West’s Ann. Cal. Com. Code (2002 ed.) foil. § 3406, p. 436.) Thus, section 3406, together with section 3407, outlines the rights to enforce and collect on altered or forged checks while precluding the obligor whose negligence contributed to the alteration or forgery from asserting the alteration or forgery as a defense to payment.
Plaintiff contends that subdivision (b) of section 3406 creates a statutory cause of action against Neiman Marcus. We disagree. “In the construction of statutes, the primary goal of the court is to ascertain and give effect to the intent of the Legislature. [Citations.] The court looks first to the language of the statute; if clear and unambiguous, the court will give effect to its plain meaning. [Citations.] [][] Where the court must construe the statute, it ‘ “turns first to the words themselves for the answer.” [Citation.]’ [Citation.] The words used should be given their usual, ordinary meanings and, if possible, each word and phrase should be given significance. [Citations.] The words used ‘must be construed in context, and statutes must be harmonized, both internally and with each other, to the extent possible.’ ” (Young v. Gannon (2002) 97 Cal.App.4th 209, 223 [118 Cal.Rptr.2d 187].) “Literal construction should not prevail if it is contrary to the legislative intent apparent in the statute. The intent prevails over the letter, and the letter will, if possible, be so read as to conform to the spirit of the act. [Citations.] An interpretation that renders related provisions nugatory must be avoided [citation]; each sentence must be read not in isolation but in the light of the statutory scheme [citation]; and if a statute is amenable to two alternative interpretations, the one that leads to the more reasonable result will be followed [citation].” (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735 [248 Cal.Rptr. 115, 755 P.2d 299].)
We conclude that when section 3406, in its entirety, is carefully read, the statutory language indicates that subdivision (b), itself, does not create a cause of action. Contrary to plaintiff’s contention, subdivision (b) cannot be [494]read in isolation, but must be read in conjunction with subdivision (a). As noted, subdivision (a) gives a person who takes a check the right to treat a fraudulently altered or forged check as it is written if the drawer “contributes to the alteration of an instrument or to the making of a forged signature on an instrument.” (§ 3406, subd. (a); see U. Com. Code com., 23A pt. 2 West’s Ann. Cal. Com. Code, supra, foil. § 3406, p. 436.) In the absence of a claim under subdivision (a) of section 3406, subsection (b) of section 3406 is inapplicable.
Plaintiff acknowledges that the Supreme Court of Virginia, analyzing the Virginia Uniform Commercial Code sections 8.3A-406, as well as sections 8.3A-404 and 405 (its essentially identically worded versions of our §§ 3404, 3405, and 3406) declined to recognize that a drawer of a check has a statutory right of action under section 8.3A-406. (Halifax Corporation v. Wachovia Bank (2004) 268 Va. 641 [604 S.E.2d 403] (Halifax).) The Supreme Court of Virginia explained its reasons as follows: “In the first place, the term ‘cause of action’ or ‘may recover’ or anything remotely resembling either term nowhere appears in Code § 8.3A-406. And this Court cannot supply the language that would have created an affirmative cause of action under the circumstances of this case. ‘Courts are not permitted to rewrite statutes. This is a legislative function. The manifest intention of the legislature, clearly disclosed by its language, must be applied. . . .’ [][] Second, Official Comment 1 to [the Uniform Commercial] Code . . . states that subsection (a) [of section 3-406] ‘adopts the doctrine’ that a ‘drawer who so negligently draws an instrument as to facilitate its material alteration [or its forgery] is liable to a drawee who pays the altered [or forged] instrument in good faith.’ (Emphasis added [by Halifax].) But statutory language making a drawer liable to a drawee cannot possibly be taken as showing an intention to create a cause of action in favor of a drawer against a depositary bank. . . . [][] Third, Official Comment 1 further states: ‘Section 3-406 does not make the negligent party liable in tort for damages resulting from the alteration. If the negligent party is estopped from asserting the alteration the person taking the instrument is fully protected because the taker can treat the instrument as having been issued in the altered form.’ We will assume Halifax is correct in saying the comment means ‘3-406 is not intended to make the negligent drawer subject to preclusion liable in tort.’ But Halifax is incorrect in saying ‘the comment shows the converse was intended, that 3-406 makes the bank liable in tort.’ This is not only a non sequitor but it is also contrary to the provision in the very next sentence of the Comment, which states that ‘the person taking the instrument is fully protected because the taker can treat the instrument as having been issued in the altered [or forged] form.’ It is difficult to imagine how something that is designed to protect the taker can logically be turned on its head and used to create a cause of action against the taker, [f] Finally, and of overriding importance, . . . [s]trikingly absent from [495]Code § 8.3A-406 is the specific language contained [elsewhere] in Code §§ 8.3A-404 and -405 that ‘the person bearing the loss may recover from the person failing to exercise ordinary care.’ The [Legislature] knows how to create a cause of action when that is its intention, and the omission of the ‘may recover’ or similar language from Code § 8.3A-406 represents an unambiguous manifestation of a contrary intention.” (Halifax, supra, 604 S.E.2d at p. 408.)
Contrary to plaintiff’s contention, the decision in Halifax is based on well-established principles of statutory interpretation, often applied in California courts. (See, e.g., Murillo v. Fleetwood Enterprises, Inc. (1998) 17 Cal.4th 985, 993, 999 [73 Cal.Rptr.2d 682, 953 P.2d 858]; In re Chantal S. (1996) 13 Cal.4th 196, 206-208 [51 Cal.Rptr.2d 866, 913 P.2d 1075].) Goehring v. Chapman University (2004) 121 Cal.App.4th 353 [17 Cal.Rptr.3d 39], cited by plaintiff, is distinguishable. In Goehring, the statute at issue provided that a school shall make a full refund of all fees paid by students if the school did not provide the student with a required disclosure statement. (Id. at p. 377.) The Court of Appeal held that because the Legislature unquestionably intended to bestow students or former students with individual monetary claims by the refund language in the statute, it must have intended to give them a private right of action to pursue such claims. (Id. at p. 378.) Otherwise, the refund provision would be rendered nugatory. (Id. at p. 379.)
We conclude by noting that we are mindful that plaintiff has sustained substantial losses as a consequence of the fraud by his employee over a number of years. But, we must reject the arguments of plaintiff and our dissenting colleague to impose a duty of inquiry and the resulting liability for breach on Neiman Marcus in this case. As we have stated, the scope of this proposed—yet ill-defined—duty of inquiry is boundless, and would impose a significant and unwarranted burden on retail merchants to ascertain the veracity of third party checks received for payment of goods and services, which burden would far outweigh any resulting benefit in detecting the isolated instance of fraud.
DISPOSITION
The judgment is affirmed. Defendant is awarded costs on appeal.
McGuiness, P. J., concurred.
Further unspecified statutory references are to the California Uniform Commercial Code.
Because plaintiff’s action was resolved by demurrer, we set forth the facts as alleged in the second amended complaint, the operative pleading. (Shvarts v. Budget Group, Inc. (2000) 81 Cal.App.4th 1153, 1156 [97 Cal.Rptr.2d 722].)
Young was not identified by name in the initial complaint, but she is so identified in the second amended complaint.
In the complaint, plaintiff proffered the following examples of Young’s conduct: “[0]n January 5, 2006, [Young] made a payment in the amount of $13,898.72 on her [Neiman [484]Marcus] account with [plaintiff’s] personal check . . . upon which his signature had been forged. Subsequently, [Young] returned to [Neiman Marcus’s] San Francisco store on January 6, 2006, and made another payment on her [Neiman Marcus] credit card account in the amount of $9,486.85 using another forged check bearing [plaintiff’s] name. . . .”
The second amended complaint also alleges causes of action for conversion and for an accounting. On appeal, plaintiff does not seek to reinstate his conversion cause of action and acknowledges that the request for an accounting is dependent on the sufficiency of the negligence claims.
Under the first cause of action, citing to sections 3103, subdivision (a)(7) and 3406, subdivision (b), plaintiff sought to recover for Neiman Marcus’s acceptance of checks that Young acquired “by theft of [plaintiff’s checks and the forging of [plaintiff’s signature thereto, and by theft of [plaintiff’s checks with no signature whatsoever.” Under the second cause of action, citing to sections 3103, subdivision (a)(7), and 3405, subdivision (b), plaintiff sought to recover for Neiman Marcus’s acceptance of checks involving payments on Young’s credit card accounts “by theft of [plaintiff’s checks with [plaintiff’s signature presumed by [pjlaintiff to be for payment toward [his] own [Neiman Marcus] credit card account, but which w[ere] diverted by [Young] for payment toward [Young’s] personal [Neiman Marcus] credit card account(s).”
Plaintiff seeks leave to amend the latest complaint only to eliminate references to the California Uniform Commercial Code in the first cause of action, not to add additional factual allegations. In light of our determination, the request to amend is moot.
As further explained by the Ballard court, the concept of foreseeability of risk of harm in determining whether a duty should be imposed is to be distinguished from the concept of “ ‘foreseeability’ in two more focused, fact-specific settings” to be resolved by a trier of fact. (Ballard, supra, 41 Cal.3d at p. 573, fn. 6.) “First, the [trier of fact] may consider the likelihood or foreseeability of injury in determining whether, in fact, the particular defendant’s conduct was negligent in the first place. Second, foreseeability may be relevant to the [trier of fact’s] determination of whether the defendant’s negligence was a proximate or legal cause of the plaintiff’s injury.” (Ibid)
Indeed, our dissenting colleague concedes as much because he does not “suggest that under all circumstances a duty of inquiry arises upon the presentation of a third party check.” (Dis. opn., post, at p. 503.) Instead, he argues, “That the check is presented by one who is neither the maker nor the payee is indeed one important factor that must be considered. However, the amended complaint alleges numerous additional circumstances that a reasonable fact finder could find would alert a reasonable person to the likelihood that Young had no right to apply the third party checks to her personal account.” (Ibid.) After numerating the additional circumstances, he then concludes that “[wjhether these circumstances were sufficient to cause a reasonable person to question Young’s right to apply plaintiff’s personal checks to the payment of her own obligations is a question of fact that plaintiff is entitled to have a jury determine.” (Ibid., fn. omitted.) However, the argument misconstrues our task—as mandated by Ballard— that in determining duty, we are not to decide “whether a particular plaintiff’s injury was reasonably foreseeable in light of a particular defendant’s conduct.” (Ballard, supra, 41 Cal.3d at p. 573, fn. 6.) Rather, our determination of whether a legal duty of inquiry exists must precede any determination by the jury as to Neiman Marcus’s liability for a breach of that duty.
Thus, we cannot agree with our dissenting colleague that a retail merchant’s duty of inquiry could be “ ‘narrowly circumscribed,’ ” and “ ‘minimal.’ ” (Dis. opn., post, at p. 501.) He suggests a number of ways that the merchant might meet this proposed duty, including an explanation from the person presenting the check, i.e., the purported defrauder. (Ibid.) He then contends that whether the steps taken are reasonable may well be a jury question. (Ibid) However, in balancing the Rowland factors, we see no basis to impose a duty of inquiry whose scope is to be determined as a question of fact by a jury.
“Section 4406 imposes a duty upon a customer to act promptly in discovering and reporting forgeries and alterations [of checks]. If the customer fails to fulfill this duty then [his] bank is relieved from absolute liability and for an initial one-year period the loss may be imposed upon the bank only if it was negligent in the matter. After one year the statute bars the customer from asserting a forgery or alteration against [his] bank unless it has been earlier discovered and reported to the bank.” (Roy Supply, supra, 39 Cal.App.4th at p. 1065.)
Neither Karen Kane, Inc. v. Bank of America (1998) 67 Cal.App.4th 1192 [79 Cal.Rptr.2d 712] (Kane) nor Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4th 472 [56 Cal.Rptr.2d 756] (Software Design) supports the extension of the duty found in Sun ’n Sand to the facts alleged in this case. To the contrary, in both Kane and Software Design, the courts, consistent with our analysis here, declined to apply Sun ’n Sand on the records before them. (Kane, supra, 67 Cal.App.4th at pp. 1200-1202; Software Design, supra, 49 Cal.App.4th at pp. 479-481.)
Section 3407 reads: “(a) ‘Alteration’ means (1) an unauthorized change in an instrument that purports to modify in any respect the obligation of a party, or (2) an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. [<¡[] (b) Except as provided in subdivision (c), an alteration fraudulently made discharges a person whose obligation is affected by the alteration unless that party assents or is precluded from asserting the alteration. No other alteration discharges a party, and the instrument may be enforced according to its original terms. [][] (c) A payor bank or drawee paying a fraudulently altered instrument or a person taking it for value, in good faith and without notice of the alteration, may enforce rights with respect to the instrument (1) according [493]to its original terms, or (2) in the case of an incomplete instrument altered by unauthorized completion, according to its terms as completed.”
Section 3406 reads: “[ft] (a) A person whose failure to exercise ordinary care contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection, [ft] (b) Under subdivision (a), if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss, [ft] (c) Under subdivision (a), the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subdivision (b), the burden of proving failure to exercise ordinary care is on the person precluded.”