Pub. 9 2014-2015 Issue 2

www.nebankers.org 14 Extraordinary Service for Extraordinary Members. SECURITY OFFICER’S BY-WORD Deposited Checks Don’t Get Caught Not Looking! Charles M. Towle, President, Kansas Bankers Surety Co. J OHN DOE OPENED AN ACCOUNT IN A Missouri bank as a sole proprietor of Executive Developer. The bank properly checked with the Mis- souri state treasurer and verified that “Executive Developer” was a registered name of John Doe. (Missouri is one of few states that requires “all doing busi- ness as” (d/b/a) names to be registered.) Three years later the bank received a letter from Executive Developer Inc., a corporation in Illinois, claiming that checks payable to the corporation had been stolen by its employee Jane Doe and deposited into her husband’s per- sonal account. The bank researched the account and determined that more than $700,000 had been deposited to the ac- count over the past three years. Under Section 3-405 of the Uniform Commercial Code, the bank should not have been liable because Executive De- veloper Inc. had entrusted its employee, Jane Doe, with the responsibility to process the checks it received. However, this defense is limited when a bank fails to use ordinary care in handling the checks. The bank reviewed the checks that had been deposited and foundmost of them were made payable to “Execu- tive Developer Inc.” Because the payee on the checks included the “Inc.” and the checks were deposited into a d/b/a sole proprietor account, which is a personal account, the bank had failed to use ordinary care in accepting the checks for deposit. The bankwas partially liable for those checks payable to “Executive Developer Inc.” In another matter, a bank had a cus- tomer who did accounting for his clients. Several of the clients had accounts at the bank and had intentionally chosen to use the accountant’s address on their ac- counts so the accountant would receive the bank statements directly. However, the accountant did not have signing authority on the clients’ accounts. Over the next year, the accountant included in his regular deposits to his own account many checks drawn on his clients’ accounts made payable to himself. The deposits were accepted by the bank without examination. Law enforcement arrested the ac- countant, who confessed that he had created stamps of his clients’ signatures, forged their names on the checks using the stamps, and stole their funds. His clients then made claims against the bank. Because the bank had properly sent the monthly statements, and the customers had a duty to examine their account statements and promptly re- port any forged checks as required by UCC § 4-406, the bank would have had a defense to liability. But in this case, the customers’ signature cards all spe- cifically stated, “No facsimile signatures allowed.” The customers argued that when the bank accepted checks with the stamped signatures for deposit, the bank was not using ordinary care. The bank contended that it did not need to look at the signatures on deposited checks because the definition of “ordi- nary care” under UCC § 3-103 does not require a bank to verify every signature. However, a close reading of the defini- tion shows that a bank need not look at signatures when a bank takes the checks for processing by automated means. The definition of ordinary care did not allow the bank to ignore the signatures