The Illinois Appellate Court for the First District recently confirmed that the terms of a deposit account agreement between a bank and its customer supersede the UCC, and allowed the deposit account agreement's 30-day period of time for the customer to notify the bank of a forged check before his claim is barred.
A copy of the opinion is available at:
The plaintiff customer maintained a personal checking account with defendant Great Lakes Bank ("Great Lakes") since 1981. In October 2007, someone stole a personal check from the customer, forged the customer's signature, made it payable to a third-party company in the amount of $7,500, and presented it to Great Lakes for payment. Great Lakes paid the check and debited $7,500 from the customer's checking account. Although the forged check appeared on the customer's November 2007 monthly bank statement, the customer did not become aware of the forgery and the payment until March 2008, at which time he notified Great Lakes and asked it to credit his account in the amount of $7,500.
In May 2008, Great Lakes informed the customer that it would not credit his account because plaintiff had failed to timely notify the bank of the forgery pursuant to the terms of the Account Agreement, which provided that a customer who discovers unauthorized signatures must notify Great Lakes of the relevant facts within 30 days of the statement being available to the customer.
Additionally, the monthly statements sent to the customer also mentioned the 30-day notification requirement stating: "Please examine this statement at once. If no error is reported in 30 days, the account will be considered correct. If any discrepancies are noted, please contact our Customer Service Center ***."
Thereafter, the plaintiff customer filed a complaint alleging conversion and breach of contract seeking reimbursement of $7,500. Great Lakes filed a motion to dismiss, arguing that the conversion claim should be dismissed because Great Lakes did not convert the $7,500 for its own use, and that the breach of contract claim should be dismissed because section 4-406(d)(1) of the UCC did not apply because it was superseded by the terms of the Account Agreement. The trial court granted the motion and the matter was appealed.
In upholding the trial court's ruling, the appellate court first noted that the relationship between a bank and its customer is governed by the UCC. Section 4-406 of the UCC provides in relevant part that where "a bank sends or makes available a statement. . . the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized" and " the customer must promptly notify the bank of the relevant facts" where there is an unauthorized payment.
The UCC further provides that if the customer fails to comply with the duties imposed, he is precluded from asserting a claim against the bank related to an unauthorized signature "if the bank also proves that it suffered a loss by reason of the failure."
However, Section 4-103(a) of the UCC also provides that "this Article may be varied by agreement."
The customer acknowledged that, pursuant to the terms of the Account Agreement, the customer's duty to "promptly notify" the bank of any unauthorized charges was modified to mean 30 days from the date the monthly statement was mailed to the customer. The court noted that, although there were no Illinois cases on point, "such an alteration in the notification period is clearly permissible."
Still, the customer argued that the trial court erred in dismissing his complaint because Great Lakes failed to present evidence showing that it suffered a loss as a result of the untimely notification, as is required under Section 4-406(d)(1) of the UCC. Great Lakes argued that the UCC did not control because the parties contractually agreed, pursuant to the Account Agreement, that the customer would have no claim for reimbursement of an unauthorized check unless he notified the bank within 30 days of receiving his statement.
In ruling in favor of Great Lakes, the court again noted that there was no controlling Illinois law on the issue. Although both parties cited an unpublished federal district court case interpreting Illinois law to support their argument, the court found that "Supreme Court Rule 23(e) provides that unpublished orders are not precedential and has long prohibited their citation by any party 'except to support contentions of double jeopardy, res judicata, collateral estoppel[,] or law of the case.'" The court noted that since none of the exceptions applied, the parties should not have cited to the unpublished federal district court case and the court did not consider the opinion in its ruling.
However, the court found a Minnesota Supreme Court case persuasive, wherein the court found that a 20-day notice provision of the draft withdrawal agreement was not manifestly unreasonable.
The appellate court agreed with the Minnesota Supreme Court's reasoning and found that "plaintiff's failure to notify defendant of the forgery until four months later precluded him from bringing a complaint against defendant" was consistent with precedent from other jurisdictions.
The court noted that during oral argument, the customer asserted that the case should be remanded to the trial court for a determination as to whether the bank's conduct amounted to a lack of good faith or a failure to exercise ordinary care in violation of section 4-103(a) of the UCC, which permits the parties to vary the terms of the UCC by agreement but provides that the parties "cannot disclaim a bank's responsibility for its lack of good faith or failure to exercise ordinary care." However, because the customer "failed to present this issue in his initial complaint or in his briefs" the court found that it was "forfeited on appeal."
The customer further argued that if the terms of the Account Agreement were interpreted broadly to preclude any claim by a customer who fails to timely notify the bank of an unauthorized transaction, other provisions of the UCC would be rendered meaningless. The court disagreed, finding that Illinois courts have held that "[i]t is a fundamental principle of banking law that the relationship between a bank and its depositor is created and regulated by the express or implied contracts between them."
The court stated that "the parties agreed pursuant to the terms of the Account Agreement that plaintiff was required to timely discover any unauthorized transactions and notify the bank in order to preserve his claim," and therefore "because plaintiff failed to notify the bank of the forgery within 30 days, the trial court did not err in finding that plaintiff had no claim against defendant."
Ralph T. Wutscher
Kahrl Wutscher LLP
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