While we all receive an account agreement when we open a bank account, very few of us, whether businesses or individuals, take the time to read the agreement or the countless updates to those procedures. However, these agreements control our relationship with our chosen bank and set forth our rights and responsibilities in the event of improper account activity. A recent court decision highlights how an account holder could be seriously impacted by the failure to follow proper procedures.
In Weiser v. Citigroup, Inc., the New York Appellate Division First Department decided a case involving a cardiologist who was victimized by a criminal bookkeeper. Over the course of 7 years, the bookkeeper would provide the Plaintiff with checks for signature for “business expenses.” After they were signed, she would then modify the checks and use them to pay her personal credit card expenses. In the Plaintiff’s suit against the bank, the bank sought dismissal of the claim based on a provision in the Uniform Commercial Code (UCC) which protects a bank that acts in good faith upon the fraudulent endorsement of an employee who had “responsibility” over financial matters. Essentially, the bank said it was not liable because it acted in good faith in accepting the endorsement of the bookkeeper who was responsible for handling the checks. However, the Plaintiff alleged that the bank at some point had actual knowledge of the fraud and delayed in telling Plaintiff. The court found the allegation could potentially sustain a claim of commercial bad faith against the bank and refused to dismiss the case on that basis. This was a significant victory for Plaintiff, given the high burden of proof required to successfully allege that a bank violated its UCC obligations.
Nonetheless, the story does not have a happy ending for the Plaintiff. The trial court dismissed the action because the Plaintiff failed to give proper notice of the improper transactions and the Appellate Division affirmed the dismissal on this ground. Although the Plaintiff verbally informed bank personnel that the fraudulent checks were unauthorized immediately after being informed of the same, he did not provide a timely written notification. The Plaintiff’s account agreement required written notification within 30 days of receiving a statement showing an erroneous or unauthorized transaction. Because that was not done, all of the Plaintiff’s claims were dismissed.
The takeaway for account holders is to consult with counsel in the event of a dispute over significant improper account activity. An attorney can help ensure that the terms of the account agreement are followed and take any legal action necessary to protect your rights. If you are facing such an issue, contact us.