Opinion ID: 2308522
Heading Depth: 2
Heading Rank: 1

Heading: Unauthorized Checks.

Text: Articles 3 and 4 of D.C. Code, Commercial Law and Transactions (U.C.C.) apply to negotiable instruments, including checks. See D.C.Code § 28:3-102(a) (2001); D.C.Code § 28:3-104 (2001). Thus, the U.C.C. governs the disposition of the unauthorized checks in this case. Under the U.C.C., a person is not liable for a negotiable instrument unless he or she signed it. See D.C.Code § 28:3-401 (2001). However, D.C.Code § 28:4-406 imposes upon bank customers a duty to discover and report unauthorized signatures or alterations to the bank. [5] D.C.Code § 28:4-406(f) establishes an absolute notice requirement for customers as a pre-requisite to bringing any claim against the bank: Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer (subsection (a) of this section) discover and report the customer's unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under section 28:4-208 with respect to the unauthorized signature or alteration to which the preclusion applies. D.C.Code § 28:4-406(f). [6] Other jurisdictions have consistently characterized this U.C.C. provision as a statute of repose, as opposed to a statute of limitations. See Jensen v. Essexbank, 396 Mass. 65, 483 N.E.2d 821, 822 (1985) (The one-year period in § 4-406(4) [precursor to 4-406(f)] is not a statute of limitations. . . . It is a statutory prerequisite of notice); Indiana Nat'l Corp. v. FACO, Inc., 400 N.E.2d 202, 205 (Ind.Ct.App. 1980) (calling the provision substantive law). Other courts have noted that the provision constitutes a condition precedent to the customer's right to file claims against a bank. See National Title Insur. Corp. Agency v. First Union Nat'l Bank, 263 Va. 355, 559 S.E.2d 668, 671 (2002). According to this court, [a] statute of repose . . . establishes an absolute time period within which legal proceedings must be initiated, regardless of when a cause of action accrues. Sandoe v. Lefta Assoc., 559 A.2d 732, 736 n. 5 (D.C.1989). Based on the clear statutory language of D.C.Code § 28:4-406(f)[A] customer who does not . . . discover and report . . . is precluded from asserting against the bank the unauthorized signature or alterationwe hold that D.C.Code § 28:4-406(f) is a statute of repose. We must next determine whether Riggs Bank permissibly shortened the length of the statute of repose from D.C.Code § 28:4-406(f)'s provision of one-year to a period of sixty days. The U.C.C. establishes that contracting parties may vary U.C.C. terms by contract: The effect of the provisions of this article may be varied by agreement, but the parties to the agreement cannot disclaim a bank's responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank's responsibility is to be measured if those standards are not manifestly unreasonable. D.C.Code § 28:4-103(a) (2001). Further, this court has noted that `[t]he relationship between a bank and a depositor is a contractual relationship that is governed by the written agreement between the parties.' Geiger v. Crestar Bank, 778 A.2d 1085, 1090 (D.C.2001) (quoting Isaac v. First Nat'l Bank of Maryland, D.C., 647 A.2d 1159, 1161 (D.C.1994)). Here, Riggs Bank and Ms. Graves entered into a contractual agreement providing, inter alia: Your statement is considered correct, and we [Riggs Bank] will not be liable for payments made and charged to your account . . . unless you notify us of an error, including . . . unauthorized payment or other irregularity within (a) sixty (60) calendar days . . . of the mailing date of the earliest statement describing the charge or deposit to your account. Thus, following the terms of the contract, Ms. Graves had sixty days from the mailing of her account statements to discover and report unauthorized transactions. Appellant contends that Riggs's shortening of the period to sixty days is invalid as it provides too short a period of time for a person to discover and report problems in their account, or alternatively, it effectively excuses the bank from exercising due care. However, a review of other jurisdictions reveals that courts have consistently upheld the contractual shortening of the notice provision to periods of sixty days or shorter. See, e.g., National Title Ins. Corp. Agency, supra, 559 S.E.2d at 672 (upholding a sixty day notice provision); American Airlines Employees Fed. Credit Union, supra, 29 S.W.3d at 96 (same); Jamison v. First Georgia Bank, 193 Ga. App. 219, 387 S.E.2d 375, 376-77 (1989) (same). The contractual shortening does not alter the bank's duty to exercise ordinary care or good faith; it merely varies the U.C.C.'s contractual notice provision. See National Title Ins. Corp. Agency, supra, 559 S.E.2d at 671. Neither has appellant shown the sixty day time period to be unconscionable, as he has not demonstrated both that Ms. Graves lacked a meaningful choice in entering the contract and that the contract terms unreasonably favor Riggs Bank. See Riggs Nat'l Bank of Washington, D.C. v. District of Columbia, 581 A.2d 1229, 1251 (D.C.1990) (citing Williams v. Walker-Thomas Furniture Co., 121 U.S.App. D.C. 315, 319, 350 F.2d 445, 449 (1965)). Because the U.C.C. provision allocates the duty of discovering forgeries or unauthorized transactions to the customer, a reasonable contraction of the discovery and notice period encourages due diligence by the customer in inspecting account statements; it also promotes the U.C.C.'s goal of finality. See Silvia v. Indus. Nat'l Bank of Rhode Island, 121 R.I. 810, 403 A.2d 1075, 1077 (1979) (discussing the policy underlying the U.C.C. statutory notice provision as one that promotes finality of transactions). Accordingly, we agree that contracting parties may permissibly shorten the notice period to sixty days. [7] Appellant, however, contends that the statutory notice provision should be tolled in this case because of Ms. Graves's incapacitation and subsequent death and because appellant did not discover the unauthorized transactions until months after his mother's death. In essence, appellant asks this court to read a discovery rule into D.C.Code § 28:4-406(f) that would permit equitable tolling of the provision. Appellant's position is untenable: equitable tolling cannot apply to statutes of repose. Under the discovery rule, a particular cause of action accrues when the plaintiff knows or through the exercise of due diligence should have known of the injury. Ehrenhaft v. Malcolm Price, Inc., 483 A.2d 1192, 1201 (D.C.1984) (internal quotation omitted). However, [a] statute of repose . . . establishes an absolute time period within which legal proceedings must be initiated, regardless of when a cause of action accrues.  Sandoe, supra, 559 A.2d at 736 n. 5 (emphasis added). Therefore, if a statute of repose applies regardless of when the cause of action accrues, and the discovery rule merely alters when the cause of action accrues, then the discovery rule cannot apply to a statute of repose. [8] This logic is consistent with holdings from other jurisdictions. See, e.g., Estate of Decker v. Farm Credit Servs. of Mid-America, ACA, 684 N.E.2d 1137, 1139 (Ind.1997) (While equitable principles may extend the time for commencing an action under statutes of limitation, nonclaim statutes impose a condition precedent to the enforcement of a right of action and are not subject to equitable exceptions.); Brighton, Inc. v. Colonial First Nat'l Bank, 176 N.J.Super. 101, 422 A.2d 433, 437 (App. Div.1980) (The one-year period limitation in § 4-406(4) is not merely a statute of limitations, but a rule of substantive law barring absolutely a customer's untimely asserted right to make such a claim against the bank.). Courts have applied this statutory bar even in cases where the result is harsh. In Siecinski v. First State Bank of East Detroit, 209 Mich.App. 459, 531 N.W.2d 768, 769 (1995), an account holder suffered a head injury, fell into a coma, and died around a month later. Prior to her death, someone presented the incapacitated woman's bank with a forged power of attorney and ultimately withdrew everything in the account (around $175,000, most of it after the woman had died). Id. The appellant in the case had been appointed personal representative and had eventually discovered the wrongful withdrawals. Id. The Michigan Court of Appeals concluded that its version of § 4-406(4) [the predecessor to 4-406(f)] barred the action despite the fact that no one was in a position to discover the forgery. See id. at 770. The court concluded that the statutory language created an absolute bar and that actual receipt of customer bank statements was not required: Courts of other jurisdictions have held that the subsection is not a limitation statute subject to tolling under compelling circumstances but is a statutory prerequisite of notice that absolutely bars a customer's right to make a claim against the bank after one year without regard to the care or lack of care of either the customer or the bank. Id. The court further concluded that the statutory provision barred all causes of action-thus, appellant's negligence claim failed as well. Id. at 770-71. Courts have applied this reasoning against mentally incompetent plaintiffs as well. In Brown v. Cash Mgmt. Trust of Am., 963 F.Supp. 504, 504-05 (D.Md.1997) (applying N.Y. law), the U.S. District Court in Maryland barred the plaintiff's claim in a case where a woman had opened a checking account as a co-signor with plaintiff, a mentally incompetent woman, before forging the incompetent plaintiff's signature and looting the account. Further, the bank sent statements to either the co-signor or the plaintiff's agent, but never to the plaintiff. Id. at 505. Nevertheless, the court held that the provision was an unalterable condition precedent to suit and declined to make an exception due to the plaintiff's mental state: The certainty which the Uniform Commercial Code seeks to achieve in respect to commercial transactions would quickly dissipate if ad hoc exceptions to its commands were too eagerly crafted to accommodate the occasional `hard case.' Id. at 506. The North Carolina Court of Appeals reached the same conclusion. See Union v. Branch Banking & Trust Co., 176 N.C.App. 711, 627 S.E.2d 276, 279 (2006) ([F]ailure of a customer or his representative to report his unauthorized signature within one year after the bank makes account statements available precludes a claim against the bank, even if the customer is incompetent (whether adjudicated or unadjudicated) during the one-year period for providing notice.). These principles have also been applied in a number of fraud cases where the party forging checks intercepted bank statementsthus preventing the account holder from actually receiving the statements and reporting any errors. In Stowell v. Cloquet Co-op Credit Union, 557 N.W.2d 567, 569-70 (Minn.1997), a man forged his neighbor's signature on fifty checks, misappropriated a total amount of $22,000, and stole his neighbor's credit union statements every month. In concluding that § 4-406(f) applied to bar the plaintiff's claims, the court explained that the U.C.C. provision assigns the risk of non-receipt to the bank customer: The modern U.C.C. case law of other jurisdictions is virtually unanimous in holding that, once account statements are mailed to the account holder's proper address, the risk of nonreceipt falls on the account holder and interception of the statements by a wrongdoer does not relieve the account holder of the duty to examine the statements and report unauthorized items to the bank. Id. at 571-72; see also id. at 568-69 (pointing out that the credit union processed roughly one million transactions a day, and thus provided monthly account statements, rather than manually checking individual signature cards). The court further noted that requiring actual receipt of the statements (which would be the result of placing the risk of non-receipt on the bank) would place unreasonable financial burdens on banks and other financial institutions by forcing them to prove receipt either through the use of certified mail or by individually contacting each account holder to confirm that they had, in fact, received their account statement. Id. at 572. Other courts have reached the same conclusion. See, e.g., Borowski v. Firstar Bank Milwaukee, N.A., 217 Wis.2d 565, 579 N.W.2d 247, 252-53 (Ct.App.1998) (concluding that notice provision still barred claims even where plaintiff's girlfriend forged checks (totaling around $150,000) and intercepted bank statements); PTA, Pub. Sch. 72 v. Mfrs. Hanover Trust Co., 138 Misc.2d 289, 295, 524 N.Y.S.2d 336, 340 (N.Y.CityCiv.Ct.1988) (upholding bar of claim despite fact that forger intercepted statements, meaning that account holder had no actual receipt). These courts based their decisions on the underlying policies of the Uniform Commercial Code: encouraging the efficiency and finality of transactions through a uniform and predictable application of the law. See, e.g., Brown, supra, 963 F.Supp. at 506 n. 4 ([T]he U.C.C. has the objective of promoting certainty and predictability in commercial transactions.) (internal quotation omitted); Fundacion Museo de Arte Contemporaneo de Caracas-Sofia Imber v. CBI-TDB Union Bancaire Privee, 996 F.Supp. 277, 291 (S.D.N.Y.1998) (declining to impose actual receipt requirement because it would require banks to send account statements by certified mail); Silvia, supra, 403 A.2d at 1077 (discussing the policy underlying § 4-406(4) as one that promotes finality of transactions). According to the U.C.C. itself, U.C.C. provisions shall be liberally construed and applied to promote its underlying purposes and policies, including a policy to make uniform the law among the various jurisdictions. D.C.Code § 28:1-102 (2001). Appellant urges the court to accept an exception carved out by a California appellate court. In Mac v. Bank of Am., 76 Cal.App.4th 562, 567-68, 90 Cal.Rptr.2d 476 (Cal.Ct.App.1999), the court found that § 4-406(f) did not apply and did not bar the claim of a personal representative to recover for unauthorized transactions that cleared after the account holder's death because § 4-406(a) requires that statements be made available to the customer, and in that case, there was no customer because the customer had died. We decline to adopt Mac; it functionally imposes a discovery rule inconsistent with the principles underlying statutes of repose, as well as the policies of uniformity and predictability espoused by the U.C.C. Its application to other cases would create the type of ad hoc exception that other jurisdictions have avoided. Further, it would impose upon banks the duty of ensuring actual receipt-a logistical problem whose extra costs would undoubtedly be passed on to the consumer. Therefore, consistent with other jurisdictions and in promotion of the underlying policies of the U.C.C., we hold that D.C.Code § 28:4-406(f) is not subject to equitable tolling. Because it is undisputed that neither Ms. Graves nor appellant timely notified Riggs Bank of the unauthorized transactions, appellant's claims are barred.