Bank Held Liable For Forged Checks Where Customer Acted Promptly

Bank Held Liable For Forged Checks Where Customer Acted Promptly

      In a recent decision from the Kentucky Court of Appeals, on the facts there presented, the bank was held liable on certain forged checks. In this instance, the customer against whose account the forged checks were drawn was prompt in advising the bank that the checks were not authorized. Forcht Bank, NA v. Gribbins, No. 2014-CA-000592-MR (Ky. App. July 2, 2015)  (not to be published).

      Rene Gribbins maintained her checking account at Forcht Bank. Eight checks, which had the effect of completely depleting her account, were prepared and presented by Andy Akers. When contacted by the bank and told that the account had been depleted, Gribbins completed and submitted affidavits of forgery for each of those eight checks. Gribbins was the only authorized signature on the account, and “the signature on the eight checks was clearly not Gribbins’s.”  Slip op. at 3-4.  Ultimately, Akers was charged with eight counts of criminal possession of a forged instrument, to which he pled guilty.

      When Forcht Bank did not return the improperly withdrawn funds to her account, Gribbins filed suit. The trial court granted her summary judgment, which was then appealed by Forcht to the Court of Appeals. Essentially:

The relationship between a customer and a bank is inherently contractual and, thus, it has been held that banks have a duty to act in good faith and to exercise ordinary care in dealing with their customers and accounts. [Citation omitted]. Furthermore, KRS 355.1-203 and KRS 355.4-103 of the Uniform Commercial Code (UCC) also impose a duty of good faith and fair dealing on banks.

Additionally, KRS 355.4-401(1) provides that “[a] an item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.” Here, it is not disputed that Forcht Bank improperly made payment on Gribbins’s account on eight forged checks. She established, under KRS 355.4-401, that she did not sign the eight checks and, thus, did not authorize the payment of the instrument. However, despite the forgery and the lack of proper authorization, Forcht Bank paid the checks without hesitation. In doing so, it failed to use ordinary care in the disbursement of Gribbins’s funds resulting in harm to her by the depletion of the deposited funds in the account over the course of 21 days.

The next step in our analysis is to consider Gribbins’s duties as a customer of the bank who had forged checks cashed in her account. The duties are found in KRS 355.4-406. Keep in mind, this statute applies only to claims based on checks with “unauthorized signatures.” [Citations omitted]. These duties are outlined in KRS 355.4-406(3), which elucidates that a customer has a duty to exercise reasonable promptness in examining the bank statement to ascertain whether any payment was unauthorized either because of an alteration or forged signature. If such a discovery is made by a bank customer, the customer must promptly notified the bank of the relevant facts. In the case at bar, Gribbins actually completed the appropriate affidavits of forgery prior to even receiving the bank statement. Thus, she exercised ordinary core as delineated by the statute.

In sum, Forcht Bank failed in its duty to exercise ordinary care to Gribbins when it honored eight forged checks drawn on her account. [Citation omitted]. Under KRS 355.4-406(4), the bank bears the burden of presenting evidence they Gribbins’s conduct, under KRS 355.4-406(3), substantially contributed to its payment or injury from the payment of the forged checks. It cannot do so - Gribbins notified the bank about the forged checks even before the bank statement was issued.

      The Court of Appeals also found that the request in the prayer for relief of Gribbins’s complaint for “all proper relief” encompassed a claim for the award of both prejudgment and postjudgment interest.