Court Opinion

ID: 9627625
Source: CourtListenerOpinion
Date Created: 2023-08-22 08:48:48.801918+00
Date Added: 2024-06-11T18:06:47.825035
License: Public Domain

Andree Layton Roaf, Judge, dissenting in part and concurring in part. I would reverse this case because I do not believe that the appellee, John G. Vowell, is entitled to recover any of his losses from appellant Mercantile Bank of Arkansas with regard to the forged checks, and would I reverse and remand with respect to the unauthorized cash withdrawals. First, regarding the checks, I agree with the concurring judge that the trial court erred in finding, pursuant to Ark. Code Ann. § 4-3-406(a) (Repl. 2001), that the Vowells exercised ordinary care in safeguarding their checks from their daughter and her companion while they resided in their home. It is not necessary to reiterate the sad circumstances this family found itself in during the time that the check forgeries took place, for they are set out in the majority opinion. However, I do not believe that simply placing a purse under a kitchen sink, in light of the daughter’s history, Ms. Vowell’s incapacities, and Dr. Vowell’s inattention to family banking matters, constitutes the exercise of ordinary care. Arkansas Code Annotated section 4-3-406 (Repl. 2001) is titled “Negligence contributing to forged signature or alteration of instrument,” and provides: (a) A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection. (b) Under subsection (a), if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss. (c) Under subsection (a), the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subsection (b), the burden of proving failure to exercise ordinary care is on the person precluded. Accordingly, Vowell should be precluded from asserting his losses regarding any of the forged instruments against Mercantile Bank pursuant to § 4-3-406(a). Because the bank did not fail to exercise ordinary care, Vowell is not entitled to allocation of any of his losses pursuant to § 4-3-406(b). Moreover, there is no need to further consider the applicability of Ark. Code Ann. § 4-4-406 (Repl. 2001) pertaining to Vowell’s duty to discover and report any unauthorized signatures or alteration of instruments. This is because the two statutes are alternative in nature, according to 6 Anderson on the Uniform Commercial Code (3rd ed. 1998), which provides in pertinent part: In the case of commercial paper that passes through the bank collection process, a preclusion of the drawer or maker of the paper may arise either by virtue of UCC § 3-406 or § 4-406. These sections are alternative in nature, the distinction between the two being made in terms of the time when the precluding conduct occurs. UCC § 3-406 typically relates to conduct prior to the original issue of the paper or contemporaneous therewith while UCC § 4-406 relates to conduct after the paper has been issued. Id. § 3-406:8, at 518. In 6C Anderson, supra, it provides: “Section 3-406 operates under certain conditions to prevent a purported maker of an instrument whose negligence has contributed to the creation or perpetration of a forgery from recovering against a good faith drawee. This relates to the maker’s conduct before the fact of forgery, whereas § 4-406(1) relates to the maker’s conduct afterwards. The two sections clearly involving and require different factual determinations.” While UCC § 3-406 and § 4-406 are limited to particular situations, they indicate a general policy which is to be followed in cases involving other kinds of deception. “The general pattern of these sections is to absolve a payer bank, which has been deceived by a third party, from liability to its customer if the customer’s negligence played a substantial part in making the deception possible. However, the bank is absolved from liability only if it has acted with reasonable care or in accordance with reasonable banking standards.” UCC § 4-406 is narrower than UCC § 3-406, as it applies only to the payor bank and its customer. Id. § 4-406:10, at 440-41. It is clear to me that the Vowells’ conduct before the forgery played a “substantial part” in making the deception possible. Consequendy, Mercantile Bank should be absolved from any liability with regard to the forged checks, and I dissent from the majority’s decision to the contrary. However, the cash withdrawals that were accomplished using the Vowells’s ATM card and pin number compel a different analysis. This is because such transfers are governed by federal law. Indeed, Ark. Code Ann. § 4-4A-108 (Repl. 2001), “Exclusion of consumer transactions governed by federal law,” provides: This chapter [Chapter 4] does not apply to a funds transfer any part of which is governed by the Electronic Fund Transfer Act of 1978 (Title XX, Public Law 95-630, 92 Stat. 3728, 15 U.S.C. 1693 et seq.) As amended from time to time. 15 U.S.C. § 1693a(6) defines “electronic fund transfer” as follows: [T]he term “electronic fund transfer” means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. Such term includes, but is not limited to, point — of-sale transfers, - automated teller machine transactions, direct deposits or withdrawals of funds, and transfers initiated by telephone. (Emphasis added.) Neither Vowell nor Mercantile Bank raised to the trial court the applicability of the federal statute to the cash withdrawals, and the trial court’s judgment treats the forged checks and cash withdrawals alike in its analysis of Vowells’s right to recover from the bank pursuant to Ark. Code Ann. §§ 4-3-406 and 4-4-406. Clearly, section 4-3-406 pertains to forged instruments and alteration of instruments only, and has no application to cash withdrawals, and section 4-4-406, contained in Chapter 4, excludes funds transfers from its purview. This court may generally affirm the trial court where it has reached the right result for the wrong reason. Jegley v. Picado, 349 Ark. 600, 80 S.W.3d 332 (2002). However, in this instance, it would be impossible to discern the “right result” without reviewing the federal statute. The statute generally limits a customer’s liability for unauthorized electronic-fund transfers to the lesser of $50 or the amount of money obtained prior to the time the financial institution was notified of such unauthorized transfer. 15 U.S.C. § 1693(g) (2001). Neither Vowell nor the bank raised this law to the trial court, so it was not a “reason” that the trial court was given the opportunity to consider. It is worth noting that there is no Arkansas appellate case construing this statute. However, at least one state court has held that a bank customer’s failure to notify the bank of an initial unauthorized withdrawal of funds using the customer’s ATM card releases the bank of liability for unauthorized transfers some months later. Kruser v. Bank of America, 230 Cal. App. 3d 741, 281 Cal. Rptr. 463 (1991). In Kruser, the California Court of Appeal held that the customers were put on notice when the first transfer appeared on their bank statement, that the wife’s illness did not excuse her failure to notify the bank of the unauthorized transfer, and that the husband’s understanding that his wife would review the bank statements did not excuse him from the obligation to notify the bank of any such transfer. These facts are remarkably similar to the case before us. Nevertheless, I cannot conclude that the finding with regard to the cash withdrawals from Vowell’s account should be affirmed based upon the trial court reaching the right result for the wrong reason. Moreover, bank customers receive notification of ATM withdrawals on their bank statements, and appear to have an obligation pursuant to federal regulation to notify the bank of unauthorized transactions appearing on the statements to avoid further liability. See 12 C.F.R. § 205.b. Consequently, I concur in the majority’s analysis of Vowell’s entitlement to allocation pursuant to Ark. Code Ann. § 4-4-406, only as to the cash withdrawals, and only as to those items paid prior to August 10, 1997, and appearing on the July statements. Neal, J., joins.