Currently pending before this court is the motion by defendant Main Line Federal Savings Bank (‘‘Main Line’’) for judgment on the pleadings * * * or for partial summary judgment * * * on the crossclaim filed by codefendant Merrill, Lynch, Pierce, Fenner & Smith (‘‘Merrill Lynch’’). In dispute is the ultimate liability for pecuniary losses incurred by plaintiff The Travelers Indemnity Company (‘‘Travelers’’) when defendants Main Line, as depositary and collecting bank, and Merrill Lynch, as drawee bank, honored seventeen checks unlawfully drawn on the account of the American Lung Association by codefendant Nancy Stedman. * * * In addition, Merrill Lynch advanced a claim for breach of presentment warranties against Main Line pursuant to [UCC] §3–417. The instant motion by Main Line seeks judgment in its favor with regard to twelve of the seventeen checks. Merrill Lynch concedes that Main Line is entitled to judgment on the pleadings with regard to the six checks that were neither deposited nor cashed at Main Line, but Merrill Lynch argues that Main Line is not entitled to judgment on the pleadings with regard to the other six checks at issue. 

Factual Background and Procedural History 

In November 1988, plaintiff Travelers issued a comprehensive crime insurance policy to the American Lung Association (the ‘‘ALA’’), thereby insuring the ALA against financial losses due to employee fraud or dishonesty. Shortly thereafter, in October of 1989, the ALA hired defendant Nancy Stedman as the Director of Bureau Affairs. In her capacity as Director of Bureau Affairs, Stedman possessed the authority to draw checks on a Working Capital Management Account (the ‘‘WCMA’’), an account established by the ALA with defendant Merrill Lynch for the sole purpose of paying the ALA’s operating expenses. * * * 

   From approximately August 12, 1990 to March 13, 1992, Stedman embarked on a scheme of defalcation, misappropriating $129,624.23 of ALA funds from the WCMA. The ALA finally discovered the scheme in late April, 1992, and subsequently received compensation for its losses under the terms of its insurance policy with Travelers. Asserting its rights as the subrogee of the ALA, Travelers filed this civil action on July 9, 1993 against defendants Nancy Stedman, Merrill Lynch, and Main Line.

   Merrill Lynch and Main Line agree that the seventeen checks misappropriated by Stedman can be divided into three groups based on the combination of forged or unauthorized [drawer] and payee signatures. Group One is comprised of six checks totalling $5,343.00, each bearing a forged cosignatory’s signature, or [codrawer’s] signature, and forged indorsements. Main Line and Merrill Lynch agree that the Group One checks were neither deposited at nor cashed by defendant Main Line. * * * Group Two is comprised of six checks totalling $85,241.01, each payable to either ‘‘American Lung Association’’ or ‘‘American Lung Association/Stedman.’’ Each Group Two check bore two forged [drawer’s] signatures and at least one forged indorsement. All Group Two checks were accepted for deposit into the personal checking account of Stedman by Main Line, and subsequently presented to and honored by Merrill Lynch. Finally, Group Three is comprised of five checks totalling $39,030.22, each payable to ‘‘American Lung Association’’ and bearing only a forged indorsement. * * * The Group Three checks are not the subject of the instant motion.

Discussion
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Loss Allocation under the Uniform Commercial Code

Liability, or loss allocation, under the Uniform Commercial Code (‘‘UCC’’) for honoring negotiable instruments containing forged or unauthorized signatures is governed by whether the forgery at issue is that of a [drawer’s] signature or of the indorsement of a payee or holder. [Citations.] Generally, a drawee bank is strictly liable to its customer, the drawer, for payment over either a forged [drawer’s] signature or a forged indorsement. [Citation.] * * * Moreover, when a drawee bank honors an instrument bearing a forged [drawer’s] signature, that payment is final in favor of a holder in due course or one who has in good faith changed his position in reliance on the payment. UCC §3–418. As a result, where the only forgery is of the signature of the [drawer] and not of the indorsement, the negligence of a holder in taking the forged instrument will not allow a drawee bank to shift liability to a prior collecting or depositary bank, unless such negligence amounts to a lack of good faith, or unless the payee bank returns the instrument or sends notice of dishonor within the limited time provided by §4–301 of the UCC. [Citation.] But where the only forged signature is an indorsement, the drawee normally may pass liability back through the collection chain to the depositary or collecting bank, or to the forger herself if she is available, by a claim for breach of presentment warranties. [Citation.]

   Regrettably, the drafters of the UCC failed to address the allocation of liability for honoring instruments containing both a forged [drawer’s] signature and a forged indorsement, so called ‘‘double forgeries.’’ [Citation.] Nor have the state courts of Pennsylvania addressed this issue. Based on a thorough examination of the rationales behind the allocation of liability in ‘‘single forgery’’ cases, however, the Court of Appeals for the Fifth Circuit concluded that double forgeries should be treated as though only containing forged [drawer’s] signatures. [Citations.] * * * Therefore, this court concludes that under Pennsylvania’s adoption of the UCC, checks containing both a forged [drawer’s] signature and a forged indorsement should be treated, for loss allocation purposes, as though bearing only a forged [drawer’s] signature. As a result, the negligence of a holder in taking a double forgery will not allow a drawee bank, such as Merrill Lynch, to shift liability to a prior collecting or depositary bank, such as Main Line, unless such negligence amounts to a lack of good faith, or unless the drawee bank returns the instrument or sends notice of dishonor within the limited time provided by §4–301 of the Pennsylvania adoption of the UCC. [Citation.]

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Breach of Presentment Warranties
The final count of the crossclaim by Merrill Lynch is a claim for an alleged breach of presentment warranties under [UCC] §3–417. As the court illustrated above, the loss allocation rules of the UCC permit a payee bank to shift liability to a depositary bank via a claim for breach of presentment warranties if, and only if, the checks at issue contain only forged indorsements. Should the checks in fact also bear forged [drawer’s] signatures, then a depositary or collecting bank is immunized from liability for having honored such checks unless the depositary or collecting bank failed to meet the requirements of the final payment rule codified in [UCC] §3–418. [Citation.] Moreover, checks bearing dual forgeries are treated as though containing only forged [drawer’s] signatures. Thus, because it is uncontested that all Group Two checks bear forged [drawer’s] signatures, liability for honoring these checks may only be assessed under the loss allocation rules relevant to checks bearing only forged [drawer’s] signatures. See discussion supra part II.B. In other words, Merrill Lynch is precluded by the operation of law from asserting a claim for breach of presentment warranties under the loss allocation scheme of the UCC. As a matter of law, therefore, Merrill Lynch can prove no set of facts in support of this claim that would entitle it to the relief demanded, and this court will accordingly also grant judgment on the pleadings to Main Line on the claim for breach of presentment warranties as it relates to the Group Two checks.