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Forged Checks: Are You Leaving Money on the Table?
John S. Burnett, BOL Guru
Read any good court decisions lately?
We have. A recent decision by the Sixth U.S. Circuit Court of Appeals made us realize that once in a while, when the planets are aligned just right, a forged check case gets decided in favor of a bank! The prospect of a bank's winning one of these cases was so intriguing, we read the case carefully to figure out what US Bank (the winner in this case) did right.
Background
Fernando Tatis is a professional baseball player who opened a checking account with US Bancorp. Through a series of poor decisions on his part, a number of checks on his account were stolen and forged by one of his employees, and Tatis didn't notify the bank until more than four months after the first forgery was included in a statement of his account. Tatis brought suit against the bank in May 2003, alleging violations of the Ohio version of the UCC.
The UCC and a Bank Deposit Contract Provision
A repeat wrongdoer rule in the UCC (section 4-406(d) in the model statute) provided the bank some "cover" in this suit. Additionally, the bank had included in its deposit contract language limiting the statutory one-year limit on claims for unauthorized signatures to 60 days from when the statements reflecting the transactions were made available. Ohio courts had approved of the use of contract language altering UCC provisions (the model statute for the UCC specifically provides for such alterations, with constraints, in section 1-102), and the appeals court agreed.
The result? Tatis struck out.
Executive Steps:
- Read our analysis of the appellate court decision, "Bank Deflects Forged Check Claim," and the actual decision filed by the U. S. Court of Appeals for the Sixth Circuit in Fernando Tatis v. US Bancorp.
- Involve bank counsel in a review and revision of your deposit agreement language to provide for a balanced, equitable sharing of responsibility for unauthorized transactions between the bank and its depositors.
- Communicate with customers about their responsibility to review statements and make timely claims. Customer education, and particularly information targeted at businesses where losses tend to be both more frequent and larger, is critical.
- Establish guidelines for your staff for the handling of customer forgery claims. Include a balance between strict adherence to contract provisions and refunds made in spite of contract language in order to preserve customer relationships.
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First published on BankersOnline.com 2/08/07
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