-In this proceeding, the poser is whether or not a collecting bank which cashes a check bearing a forged endorsement and collects the proceeds from a drawee bank is liable to both the drawee bank and the drawer of the check for the amount thereof. The case was instituted by the Commonwealth of Pennsylvania to recover the sum of $21,138.07 with appropriate interest. The complaint sets forth that defendant, National Bank & Trust Company of Central Pennsylvania (hereinafter referred to as “National Central”), accepted 136 checks drawn by the Commonwealth with the names of the payees fraudulently endorsed. Prior hereto,. National Central filed preliminary objections which were overruled October 18, 1968. The opinion backing the court’s order is recorded at 46 D. & C. 2d 141, 90 Daúph. 71 (1968). Subsequently, National Central answered the complaint asserting new matter to which the Commonwealth replied. Trial was held in May of 1971 and a jury verdict returned on May 26, 1971, in favor of National Central. The matter is now before the court on motions by the Commonwealth for judgment non obstante verdicto and for a new trial.

The checks here are not in dispute. The Department of Highways (now the Department of Transportation and hereinafter referred to as the “department”) of the Commonwealth of Pennsylvania in the course of its business mails checks for named payees to its various highway district and county offices. The Commonwealth does not maintain a single account in a single bank but has a number of accounts in numerous banks situated throughout the State. Its checks in payment of labor performed and for material and services supplied are prepared in Harrisburg through the com*3bined efforts of personnel of the department and of the Auditor General and State Treasury. These checks are then forwarded to the several outlying offices of the department for distribution. For a variety of reasons, such as death of the payee, errors in names and amounts, issuance to individuals on leave without pay status, erroneous rental agreements, etc., many of these checks are returned to the department offices in Harrisburg. During 1963 and 1964, a person who was serving in the position of supervisor of the payroll section of the department obtained 136 of the returned checks and forged the names of payees as endorsements. Of these checks drawn on 20 different drawee banks, 132 were presented by the dishonest employe at the office of National Central in Harrisburg where he received the face amount in cash and the remaining four were deposited by him to the credit of his account with National Central. Through normal banking channels, National Central collected on all the checks from the 20 drawee banks. These drawee banks, in turn, debited the accounts of the Commonwealth. The employe was found guilty of multiple counts of forgery and was sentenced to prison. He was ordered to make restitution but, having dissipated the funds, was not able to do so; hence, this controversy ensued.

The posture of this litigation is somewhat tortuous. The principal defense of National Central is based on the negligence of the Commonwealth, a factual issue which was presented to the jury. But despite the favorable jury verdict, National Central has also filed an instrument which it has labeled motion for judgment n.o.v., for lack of a more fitting title, to preserve its legal positions previously submitted to this court on preliminary objections in the form of a demurrer.

Defendant’s motion comes about by reason of the following circumstances. Because the Commonwealth *4had each drawee bank assign its rights against the collecting bank, National Central, the action was brought by the Commonwealth not only in its own right but also as the legal assignee of the drawee banks to recover the loss. By this procedure, the Commonwealth urges a multiplicity of law suits was avoided. However, National Central contends where a check is paid upon a forged endorsement, the drawee bank has no assignable cause of action against a collecting bank until it establishes that it suffered a loss to its depositor. Here, defendant says the drawee banks have not recredited plaintiff’s accounts and thus sustained no loss to the depositor as a result of cashing the forged checks. Further, defendant protests against the assignment as a means of permitting the avoidance of any defenses a drawee bank may have against the claim of a drawer. In addition to the assignment problem, National Central argues the drawer of a check has no cause of action against a collecting bank which pays upon a forged endorsement, because an action in assumpsit must be based on some contractual or quasi-contractual grounds, and there was no contractual relationship between the Commonwealth and National Central. Thus, it contends the Commonwealth must seek its remedy against the drawee banks upon the contracts of deposit. Moreover, it is reasoned if any losses were sustained by the Commonwealth, it resulted from its voluntary action in failing to assert its contractual rights against the drawee banks. It is acknowledged that a drawee bank may have a cause of action against the collecting bank. As an additional defense, it is argued that the Commonwealth of Pennsylvania was paid by its bonding company, and the equitable rights of this real party in interest were inferior to those of the innocent defendant bank.

*5The contractual relationship between a bank and its depositor and the various legal theories bearing upon the rights and remedies of a drawer of a check against a collecting bank which receives it on a forged endorsement are discussed in some detail in the aforementioned opinion which disposed of the demurrer. While a division of legal opinion does exist, it appears that a majority of cases have held an intermediate collecting bank is liable to the drawer in cashing a check carrying a forged endorsement. See Annotation in 99 A. L. R. 2d 637. A California court, faced with the problem, after considering the provisions of the Uniform Commercial Code held privity of contract is no longer a bar to suit and said that the modern trend of procedure looks on circuity of action with disfavor. It extended third-party beneficiary principles to the check drawer: Allied Concord Financial Corporation v. Bank of America National Trust and Savings Association, 80 Cal. Rep. 622 (1969). In any event, as our previous opinion seeks to explain, the Commonwealth in this case is the legal assignee of the drawee banks and even though it may be logicized that these drawees have incurred no loss to the depositor, because they have not recredited plaintiff’s account, there is neither case law nor any section in the Uniform Commercial Code of April 6, 1953, P. L. 3, sec. 1-101, et seq., 12A PS §1-101, et seq., which would preclude the assignments. Thus, it must be concluded that the right to assign the cause of action is extant.

In connection with the claim that the Commonwealth was paid in full by its bonding company, defendant relies on the principles set forth in Bank of Fort Mill v. Lawyers Title Insurance Corporation, 268 F. 2d 313 (1959), where an attorney working for a title insurance company forged the name of the owner of real estate on a mortgage. A building and *6loan association received the title insurance policy and drew a check for the amount of the mortgage loan against funds in a defendant bank, making the check payable both to the order of the purported borrower and the attorney. The attorney then forged the borrower’s name as endorser and misappropriated the proceeds. When the title defect became known, the title company paid the building and loan association for the loss and took an assignment of the claim of the building and loan association arising out of the fraudulent transaction. The Fourth Circuit Court of Appeals held that the title corporation which claimed to be subrogated to the building and loan association’s cause of action had an equitable rather than an absolute right and upon the balancing of the equities, a paid surety could not prevail over an innocent bank since the surety company is paid to assume the specific risk. A similar result was reached in Washington Mechanics’ Sav. Bank v. District Title Ins. Co. et al., 65 F. 2d 827 (1933), and Meyers v. Bank of America Nat. Trust & Savings Assn. et al., 77 P. 2d 1084 (Calif., 1938).

The difficulty in this case in attempting to balance the equities between parties who are not guilty of culpable negligence arises not only because there is no Pennsylvania law imposing, as in some other jurisdictions, any obstructions to recovery by a surety company — indeed Pennsylvania Rule of Civil Procedure 2002(d) authorizes a subrogated carrier to sue in the name of the insured — but it appears that National Central is also protected in this suit by two surety companies which have been paid premiums by National Central to cover a potential loss. Consequently, whatever merit there is to the judicial thinking in the opinions cited by defendant on this point is simply not prevalent in the current situation.

*7So much for those particular legal positions advanced by National Central in its defense. Consideration must now be directed to the real bone of this controversy, and this is the question whether the negligence of the Commonwealth barred it from making any recovery against National Central. The jury in this case found there was evidence of negligence on the part of the Commonwealth. National Central argues this verdict should be upheld. The Commonwealth says it should be overturned.

The legal aspects involved require attention to be given to section 3-406 of the Uniform Commercial Code, 12A PS §3-406, which 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.”

Prior to the present code, the general law did not preclude the drawer of a check by reason of negligence from recovery from a bank which cashed it on a forged endorsement unless the drawer’s negligence was such as to directly and proximately affect the conduct of the bank in the performance of its duties. See Land Title Bank & Trust Company v. Cheltenham National Bank et al., 362 Pa. 30 (1949). In Cheltenham, the court adopted a rather strong line, at page 35:

“The applicable rule of law is so firmly settled that it needs no elaborate citation of authorities to support it. If a check is made payable to the order of a person named therein the absolute duty of a bank honoring the check is to pay only to that payee or according to his order, and no amount of care to avoid error will *8protect it from liability if it pays to a wrong person; it must ascertain and act upon the genuineness of the indorsement at its peril.”

National Central argues that section 3-406 of the Uniform Commercial Code materially altered the preexisting law and places its reliance upon Thompson Maple Products, Inc. v. Citizens National Bank, 211 Pa. Superior Ct. 42 (1967), where the Superior Court affirmed the action of the trial court in finding that Thompson s own negligent activities had contributed to a series of forged instruments. The majority of the court reasoned, at page 47:

“Had the legislature intended simply to continue the strict estoppel doctrine of the pre-Code cases, it could have employed the term precluded,’ without qualification, as in §23 of the old Negotiable Instruments Law, 56 P.S. §28 (repealed). However, it chose to modify that doctrine in §3-406, by specifying that negfigencewhich'substantially contributes to . . . the making of an unauthorized signature . . .’ will preclude the drawer from asserting a forgery. (Emphasis supplied.) The Code has thus abandoned the language of the older cases (negligence which ‘directly and proximately affects the bank in passing the forgery’) and shortened the chain of causation which the defendant bank must establish. ‘ [N] o attempt is made,’ according to the Official Comment to §3-406, ‘to specify what is negligence, and the question is one for the court or the jury on the facts of the particular case.’

“In the instant case, the trial court could readily have concluded that plaintiff’s business affairs were conducted in so negligent a fashion as to have ‘substantially contributed’ to the . . . forgeries, within the meaning of §3-406.”

The Commonwealth does argue at some length that National Central did not pay on the forged checks “in *9accordance with reasonable commercial standards” of the banking business in violation of section 3-406 of the Commercial Code. This contention is based, for the most part, on the failure of the bank’s tellers to require the endorsement by the person who presented the checks. Thus, it said, if the provisions of the code are not applicable, the prior case law as expressed in Cheltenham, supra, must pertain, and this places a heavy burden of proof on National Central which it did not meet at the trial. In rebuttal, National Central points out that the only testimony in this regard showed the bank for convenience of the State employes permitted customers, as was the forger who was known to the tellers, to present a second Commonwealth check drawn to another payee without requiring a second endorsement. No other testimony or evidence of commercial standards in this area was introduced. It must be deemed, therefore, that the jury’s findings resolved the question of the practices by National Central and found them to be reasonable.

The Commonwealth cannot seriously disagree with the principle that a collecting bank which pays a check bearing a forged endorsement may escape liability to the drawer by establishing that the drawer has been guilty of negligence which contributed to the payment, but it denies negligence on its part as delineated in section 3-406 of the code. In this particular, the court’s charge was vexing. The instructions did recite a point for charge submitted by the Commonwealth requiring a finding of negligence by the Commonwealth which would “directly and proximately” affect the bank’s conduct. This, of course, was the pre-code rule. And while this statement would benefit the Commonwealth which lost the verdict, a reading of the whole charge reveals a submission to the jury of an inquiry into ordinary or conventional neglience. To so find would *10be improper under the statutory provision. The jury should have specifically been told that there must be a finding of negligence which “substantially contributed” to the fraudulent act to preclude the Commonwealth from recovering its loss.

Looking at the record there was extensive testimony from several witnesses concerning the procedure of the payroll section of the Department of Highways with regard to the handling of checks. The forger was the supervisory employe in charge of this particular department and of the entire office. In his testimony, he explained how checks were sent to the field and why some checks were returned. The checks came back to his payroll section and were accounted for and eventually returned to the State Treasury for crediting to the Motor License Fund. The testimony of others confirmed his explanation of the various procedures of the payroll section. In this situation, checks were not handled by a great many people nor were they disregarded. This forgery scheme was executed by the supervisory employe in charge of the office and, conceivably, another employe of the payroll section could not have carried out the scheme. From this evidence, a jury might find ordinary negligence but might not find negligence within the statutory meaning.

An analysis of Thompson, supra, clearly reveals that the court, at page 47, regarded the negligence doctrine as it appears in section 3-406 of the code as a change in the prior law (i.e. negligence which “directly and proximately affects the bank in passing the forgery”) by shortening “the chain of causation which the defendant bank must establish.” But the opinion also implies that more than conventional negligence must exist. While the court does not define the degree of negligence, it points to the official comment in the statute which states the question should be left to the *11court or jury upon the circumstances of the case. The facts in Thompson showed plaintiff-drawer adopted a business method which placed the forger in a position to perpetrate the fraud. The scheme which led to the forgeries was described by the court as follows, at page 45:

“Albers was an independent log hauler who for many years had transported logs to the company mill. For a brief period in 1952, he had been employed by the plaintiff, and he was a trusted friend of the Thompson family. After procuring blank sets of scaling slips, Albers filled them in to show substantial, wholly fictitious deliveries of logs, together with the names of local timber owners as suppliers. He then delivered the slips to the company bookkeeper, who prepared checks payable to the purported owners. Finally, he volunteered to deliver the checks to the owners. The bookkeeper customarily entrusted the checks to him for that purpose.

“Albers then forged the payee’s signature and either cashed the checks or deposited them to his account at the defendant bank, where he was well known.”

The Commonwealth’s conduct in the instant case was surely not on the same level with the negligent activities of the drawee present in the Thompson case.

National Central certainly feels as the verdict winner that the jury has already determined that the Commonwealth “substantially contributed” to the forgeries in the instant case, and the evidence was sufficient to reach such conclusion. It points out a number of safeguards the Commonwealth may have taken to stop the negotiability of the checks after they were returned. However, hindsight alone is not sufficient if the dishonesty was not reasonably or perhaps substantially foreseeable. The Commonwealth argues that even by applying concepts of ordinary negligence, one *12cannot, in a legal sense, find the Commonwealth committed any act of negligence which enabled this employe, apart from the fact of his employment, to forge these checks. The Commonwealth believes the evidence, by no means, could sustain a finding of the Commonwealth “substantially” contributing to the fraudulent deed. The case is troublesome but in the interest of justice and fairness, the case should be retried and the jury correctly and clearly instructed as to the nature of the negligence required and a decision reached based on the circumstances of this particular case.

Consistent with the foregoing discussion, we enter the following

ORDER

And now, April 10, 1972, the motion of plaintiff, Commonwealth of Pennsylvania, for a new trial is granted.