Glynda Prestridge v. the Bank of Jena

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

05-545

GLYNDA PRESTRIDGE, ET AL.

VERSUS

THE BANK OF JENA

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APPEAL FROM THE
NINTH JUDICIAL DISTRICT COURT
PARISH OF RAPIDES, NO. 215,078
HONORABLE GEORGE C. METOYER, JR., DISTRICT JUDGE

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JAMES T. GENOVESE
JUDGE

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Court composed of Ulysses Gene Thibodeaux, Chief Judge, Marc T. Amy, Elizabeth
A. Pickett, Billy H. Ezell, and James T. Genovese, Judges.

AFFIRMED IN PART AS AMENDED; REVERSED IN PART;
REMANDED WITH INSTRUCTIONS.

AMY, J., dissents and assigns reasons.

PICKETT, J., dissents for the reasons assigned by Judge Amy.

Donald R. Wilson
Gaharan & Wilson
Post Office Box 1346
Jena, LA 71342
(318) 992-2104
COUNSEL FOR DEFENDANT/APPELLANT:
Bank of Jena

S. Aaron Siebeneicher
Johnson & Siebeneicher, Inc.
Post Office Box 648
Alexandria, LA 71309
(318) 484-3911
COUNSEL FOR PLAINTIFFS/APPELLANTS:
Glynda Prestridge
Vera Prestridge

David J. Boneno
666 North Street
Baton Rouge, LA 70802
(225) 387-3282
COUNSEL FOR:
Louisiana Bankers Association, Amicus Curiae

GENOVESE, Judge.

The owners of a checking account brought suit against the bank which held the

account to recover sums paid on checks forged by a relative of the account owners.

The bank refused to restore the funds to the account, alleging that the forgeries could

have been discovered and prevented if the account owners had reviewed the account

statements during the six-month period in which the forgeries occurred. The trial

court found that both the Plaintiffs and the Bank were responsible for the loss. The

Plaintiffs were awarded $37,450.00 plus costs. Both parties appeal. For the

following reasons, we affirm in part as amended, reverse in part, and remand with

instructions.

Factual and Procedural Background

On October 18, 2002, sisters Glynda Prestridge (Glynda) and Vera Prestridge

(Vera) opened a checking account at the Libuse, Louisiana branch of Bank of Jena.

Glynda testified that each sister signed a signature card while opening the account

and that she took home a temporary checkbook that day, for use until she received her

personalized, pre-printed checks for the account.1 Glynda testified that she initially

deposited a sum of money given to her by her son, Larry Prestridge (Larry), to repay

a previous loan from Glynda and her husband. Glynda testified that her son

continued to give her similar payments thereafter, which she also deposited into the

account.

1
In her deposition, Vera Prestridge stated that her name was only included on the account
so that it could be accessed, if necessary, while Glynda and her husband were traveling. Vera stated
that she never made a deposit into the account or wrote a check on the account, nor did she ever
receive any correspondence at her home regarding the account.

1

The parties do not dispute that between October 29, 2002 and May 21, 2003,

Marye Prestridge (Marye), Glynda’s daughter-in-law,2 obtained numerous blank

checks on the account. The parties contend that Marye forged Glynda’s name on

them in order to take more than $60,000.003 from the account without the permission

of either Glynda or Vera. Glynda testified that she did not receive any statements on

the account until April 2003, when she found that the balance on the account was

significantly lower than she had thought it was. She stated that she called Bank of

Jena and learned that Marye had withdrawn money from the account twice that day.

Glynda immediately had the account frozen, but was only able to recover

approximately $5,700.00 of the missing money from Marye.

On November 3, 2003, Glynda and Vera brought suit against Bank of Jena,

claiming it should reimburse the funds withdrawn from the account because it had

breached its fiduciary duty and was negligent in paying on the forged instruments.

The trial court ruled in favor of the Plaintiffs and awarded them $37,450.00 plus

costs, which represented the amount of money they contend Marye withdrew from the

account prior to January 22, 2003. The court found that after that date, the Plaintiffs

were precluded from reimbursement due to their own negligence in not checking the

statements. Both parties have appealed the trial court’s decision. Although the

Plaintiffs did not specify any assignments of error in their brief, they state that “[t]he

result reached by the District Court was partially correct in finding for the Appellees,

but Appellees believe that the entire amount of Sixty-One Thousand Eight Hundred

2
Marye Prestridge was married to Glynda’s son, Larry Prestridge, during the period that the
checks were forged. However, Larry testified that he and Marye had divorced in 2003.
3
Our review indicates that the Plaintiffs requested $71,650.00 in damages in their Petition
for Damages. However, in his closing argument, counsel for the Plaintiffs stated that the Plaintiffs
had suffered losses in the amount of $61,800.00.

2

($61,800.00) Dollars should have been awarded.” In support of this assertion, the

Plaintiffs suggest in their appellate brief that Bank of Jena had not exercised ordinary

care in accordance with reasonable commercial banking industry standards in paying

the checks. The Plaintiffs also allege in their appellate brief that their claim for the

entirety of the lost money should not have been precluded because Glynda had not

contributed to the forged signatures made by Marye Prestridge.

In its appellate brief, Bank of Jena asserts that the trial court erred in “failing

to properly apply the provisions of [La.]R.S. 10:3-406 and [La.]R.S. 10:4-406 to the

facts of this matter, in that a proper application thereof would preclude any recovery

by Plaintiff[s].” Bank of Jena also asserts that the trial court erred in affording any

recovery to the Plaintiffs and “in determining, implicitly, that BANK OF JENA failed

to act in good faith, with ordinary care and in accordance with the reasonable

commercial banking standards in discharging its duties to [Plaintiffs as customers]

of the bank.”

Discussion

Generally, a person is not liable on an instrument unless that person or his

agent signed the instrument. La.R.S. 10:3-401. Furthermore, “the general rule is that

a bank is liable when it pays based upon a forged signature.” Marx v. Whitney Nat’l

Bank, 97-3213, p. 4 (La. 7/8/98), 713 So.2d 1142, 1145. The Louisiana Supreme

Court has defined the relationship between a bank and its depositor as a debtor-

creditor relationship whose nature is contractual. Id. Therefore, where a charge on

the account has been made due to a forged instrument, that order to pay was not

issued by the customer and cannot be considered a charge authorized pursuant to the

contract between the customer and the bank. Id.

3

Notwithstanding this general rule requiring the bank to bear the risk of loss for

a forged instrument, Louisiana law provides that in certain circumstances, a customer

may be precluded from asserting a claim against a bank that has paid on a forged

instrument. Id. “Pursuant to La. R.S. 10:3-406 and 10:4-406, a customer is precluded

from having funds paid out on a forged instrument restored to his account if his

failure to exercise reasonable care in handling the account, either before or after the

forgery, substantially contributed to the loss.” Id. at 1145. At trial and on appeal,

Bank of Jena asserts both of these statutory defenses as a bar to the Plaintiffs’ claims.

Customer Negligence Prior to Forgery

Louisiana Revised Statutes 10:3-406 precludes a bank’s customer from

asserting a claim against the bank in connection with a forged instrument where the

customer’s own conduct substantially contributed to the forgery.4 However, if the

person asserting the preclusion, i.e., the bank, fails to exercise ordinary care in paying

the instrument and that failure substantially contributes to the loss, La.R.S. 10:3-

406(b) indicates that “the loss is allocated between the person precluded and the

4
Louisiana Revised Statutes 10:3-406 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.

4

person asserting the preclusion according to the extent to which the failure of each

to exercise ordinary care contributed to the loss.”

A trial court’s findings as to whether the customer failed to exercise ordinary

care, and whether that negligence substantially contributed to the forgery, are

questions of fact that will be reviewed on appeal pursuant to the manifest error

standard of review. Med Data Serv. Bureau v. Bank of La. in New Orleans, 03-2754,

03-2755 (La.App. 1 Cir. 12/30/04), 898 So.2d 482. Because Bank of Jena has alleged

that Glynda, “albeit unknowingly, allowed her daughter-in-law access to the

checkbook for this account[,]” Bank of Jena bears the burden of proving that

Glynda’s handling of the account substantially contributed to Marye’s forgery.

The Louisiana Supreme Court considered a similar issue in Marx, 713 So.2d

1142. In Marx, a grandson forged checks on an account held by his grandfather,

father, and aunt. The grandson had stolen the checks on the account during visits to

his grandfather’s home. The Marx court stated:

No further facts were stipulated by the parties concerning where or how
the checkbook was kept, the manner in which the grandson obtained
blank checks of his grandfather, the frequency of his visits, or whether
the grandfather had reason to be suspicious that his checks might be
taken and his name forged on them. The mere fact that one family
member has access to checks at the residence of another family member,
without more, does not establish a failure to exercise ordinary care
substantially contributing to the making of a forged signature so as to
preclude recovery on a forged instrument.

Id. at 1146.

In the instant matter, Glynda testified that she kept all of her checkbooks and

business papers at home in a drawer in her desk. However, she also stated that she

did not necessarily write checks in sequential order, but instead used whichever book

of checks is near and then balances her accounts when she receives her account

5

statements. Glynda and her son both testified that he had been given a key to

Glynda’s house, which Marye may have had access to. However, they both also

testified that Larry was given the key for use in instances where Glynda was on

vacation or the like, but that Marye had not been given permission to freely enter the

home without the knowledge of Glynda or her husband.

Although Bank of Jena presented evidence that Marye may have had access to

the checkbook on the account at issue, the bank did not offer any evidence relating

to how or when the checks were stolen. Bank of Jena only established the possibility

that a relative may have had access to enter Glynda’s home without her permission.

Accordingly, we find that the Plaintiffs were not precluded from recovery pursuant

to La.R.S. 10:3-406 due to Glynda’s failure to exercise ordinary care in maintaining

her account information and checkbooks prior to the forgery.

Customer Negligence Subsequent to the Forgery

Louisiana Revised Statutes 10:4-406 states in relevant part:

(a) A bank that sends or makes available to a customer a statement
of account showing payment of items for the account shall either return
or make available to the customer the items paid or provide information
in the statement of account sufficient to allow the customer reasonably
to identify the items paid. The statement of account provides sufficient
information if the item is described by item number, amount, and date
of payment.

....

(c) If a bank sends or makes available a statement of account or
items pursuant to Subsection (a), the customer must exercise reasonable
promptness in examining the statement or the items to determine
whether any payment was not authorized because of an alteration of an
item or because a purported signature by or on behalf of the customer
was not authorized. If, based on the statement or items provided, the
customer should reasonably have discovered the unauthorized payment,
the customer must promptly notify the bank of the relevant facts.

6

(d) If the bank proves that the customer failed, with respect to an
item, to comply with the duties imposed on the customer by Subsection
(c), the customer is precluded from asserting against the bank:

(1) the customer’s unauthorized signature or any alteration on the
item, if the bank also proves that it suffered a loss by reason of the
failure; and

(2) the customer’s unauthorized signature or alteration by the
same wrongdoer on any other item paid in good faith by the bank if the
payment was made before the bank received notice from the customer
of the unauthorized signature or alteration and after the customer had
been afforded a reasonable period of time, not exceeding thirty days,
in which to examine the item or statement of account and notify the
bank.

(e) If Subsection (d) applies and the customer proves that the bank
failed to exercise ordinary care in paying the item and that the failure
substantially contributed to loss, the loss is allocated between the
customer precluded and the bank asserting the preclusion according to
the extent to which the failure of the customer to comply with
Subsection (c) and the failure of the bank to exercise ordinary care
contributed to the loss. If the customer proves that the bank did not pay
the item in good faith, the preclusion under Subsection (d) does not
apply. (Emphasis added.)

On appeal, both parties have asserted the provisions of La.R.S. 10:4-406 in

support of their respective positions. Bank of Jena asserts that the Plaintiffs should

be precluded from recovery because they also failed to exercise reasonable care after

the forgeries had been committed. Bank of Jena argues that Glynda had a duty to

examine the monthly account statements sent to her, and that she failed either to

examine them or to notify Bank of Jena that she had not received them before April

2003. The Plaintiffs, however, assert that Bank of Jena improperly paid on the

instruments because it failed to verify the signatures on any of the checks at the time

they were paid. The Plaintiffs suggest that Bank of Jena’s procedure “was not a

‘reasonable banking standard’ in the Rapides Parish area, and thus [Bank of Jena] did

not exercise ordinary care.”

7

We will first consider Bank of Jena’s argument relating to the application of

La.R.S. 10:4-406. The Louisiana Supreme Court considered the application of

La.R.S. 10:4-406 in Marx, 713 So.2d 1142, stating that “Subsection (d)(2) imposes

on the customer the risk of loss on all subsequent forgeries by the same wrongdoer

after the customer had a reasonable time to detect an initial forgery if the bank has

honored subsequent forgeries prior to notice.” Id. at 1146 (emphasis in original).

The Marx court considered the history of the law relating to the same wrongdoer rule,

including the language in the comments to the Uniform Commercial Code which

recognizes a public policy in favor of imposing a duty of prompt examination of bank

statements and notifications of forgeries or alterations in order to prevent a

wrongdoer from repeating wrongful activity. Id.

The defendant-bank in Marx asserted the same wrongdoer rule should have

precluded the plaintiffs from recovering ten thousand dollars for five checks drawn

without their permission from their account by the grandson of the primary account

holder. In Marx, the parties had stipulated that the grandfather had not looked at the

January account statement, which contained evidence of five forged checks. He also

did not review the statements for the months of February, March, or April, which

would have revealed to him seventeen additional forged checks. After the addition

of other joint owners onto the account in April, one of the new joint owners noticed

the discrepancies in the first statement that he received, which was in May, and

alerted the bank. The Louisiana Supreme Court found that the early detection of the

grandson’s forgeries could have prevented the subsequent losses, and that the

grandfather’s failure to review the January statement precluded the plaintiffs from

8

asserting all subsequent forgeries by that same unauthorized signatory, the grandson.

The word “subsequent” in the Marx decision and the case at bar is significant.

As previously stated, the relationship between a depositor and a bank is

contractual in nature. See Marx, 713 So.2d 1142. In the instant matter, the record

contains a copy of the signature card signed by the Plaintiffs, which contains the

terms and conditions of the contractual relationship. This document contains a

section entitled “Statements” which reads:

You must examine your statement of account with “reasonable
promptness.” If you discover (or reasonably should have discovered)
any unauthorized payments or alterations, you must promptly notify us
of the relevant facts. If you fail to do either of these duties, you will
have to either share the loss with us, or bear the loss entirely yourself
(depending on whether we exercised ordinary care and, if not, whether
we substantially contributed to the loss). The loss could be not only
with respect to items on the statement but other items forged or altered
by the same wrongdoer. You agree that the time you have to examine
your statement and report to us will depend on the circumstances, but
that such time will not, in any circumstance, exceed a total of 30 days
from when the statement is first made available to you.

You further agree that if you fail to report any unauthorized
signatures, alterations, forgeries or any other errors in your account
within 60 days of when we make the statement available, you cannot
assert a claim against us on any items in that statement, and the loss will
be entirely yours. This 60 day limitation is without regard to whether
we exercised ordinary care. The limitation in this paragraph is in
addition to that contained in the first paragraph of this section.
(Emphasis added.)

The thirty- and sixty-day time limitations contained in the “Statements” section of the

signature card are likewise significant. The thirty-day time limitation “dovetails”

with the thirty-day time limitation in La.R.S. 10:4-406(d)(2).

In his reasons for judgment, the trial judge applied the time periods as defined

by the “Statements” section of terms and conditions outlined on the signature card.

The trial judge noted that the account was opened on October 18, 2002, so that the

9

thirty-day period for the account holders to examine their statements for errors would

have been November 18, 2002. The trial court then noted that the date of the first

available account statement was November 22, 2002. The trial judge further noted

that the sixty-day additional period would have ended on January 22, 2002. He stated

that “January 22 would be the last possible date that this court would rule that she

would have had to complain that her account had been defrauded.” Based on this

analysis, the court found that the nine checks that were dated between October 29,

2002 and January 17, 2003 could all be considered as having been paid during the

time period allowed by the contract between the parties. The trial court then granted

the Plaintiffs an award in the amount of those nine checks, which totaled $37,450.00.

Bank of Jena argues on appeal that the trial court should not have awarded the

Plaintiffs any damages due to their failure to notify the bank of the forgeries within

the time periods allotted in the account terms and conditions, or in an otherwise

reasonably prompt manner. We disagree.

Our review of the record indicates that the account was opened on October 18,

2002. Glynda testified that she did not remember how much money had been

originally deposited in the account, and that she knew that there were subsequent

deposits, but that she did not know how many. She also stated that her son had made

deposits into the account on her behalf. She stated that she had not noticed that she

did not receive any statements on the account until April because she did not write

checks on the account, and generally did not use it except to deposit money given to

her by her son. However, in her testimony she also stated that she gave her son one

signed, blank, temporary check and that she gave a signed blank check to Marye to

use for the purchase of a truck for her grandson. Glynda also testified that she gave

10

a signed blank check to Marye in October 2002 for Marye to use to pay a medical bill.

Glynda stated that she did not know the amount of the medical bill. Glynda also

stated that she gave Marye a check in the amount of $8,000.00 on April 30, 2003 for

Marye to use to pay a bill.

Glynda further testified that she had maintained another checking account with

another bank for more than forty years and that she had balanced the checkbook on

that account each month with the statement sent to her by the bank. With regard to

the Bank of Jena account at issue, she stated that she did not read the account terms

and conditions when she opened the account. Glynda testified that she did not realize

that she had not received any statements on the Bank of Jena account because it was

not her primary checking account. Raymond Shrock, who had worked as a vice-

president and a branch manager for Bank of Jena at the time the Plaintiffs opened

their account, testified that it was the bank’s policy to send out monthly account

information statements to all customers regardless of whether the account had

experienced any activity during the preceding month, and that he had not received

any communication from Glynda regarding her failure to receive them. Tom Griffin,

who works for the financial data processing company employed by Bank of Jena,

testified that his company sent monthly statements to Glynda’s address. Mr. Griffin

described his company’s verification system, which ensures that each customer is sent

their statement. William Tweedy, the president of Bank of Jena, testified that the

bank’s general policy, upon timely learning of a forgery from a customer, is to repay

the stolen money to the customer and seek legal remedies against the person who

committed the forgery.

11

Our review of the evidence supports a determination that Bank of Jena, as

required by La.R.S. 10:4-406(a), made statements available to the Plaintiffs by

sending Glynda the account information monthly. Further, the record supports a

finding that Bank of Jena also proved that Glynda had not examined the statements

that were sent to her, or alternatively, had not notified anyone at Bank of Jena that

such statements were not received, for more than six months after the account had

been opened. The evidence in the record demonstrates that the first check drawn on

the account bears Glynda’s own signature and was dated October 29, 2002. The

account terms and conditions, as well as La.R.S. 10:4-406, required Glynda to verify

the transactions on her monthly account statement within thirty days from said

statement. Glynda would likewise be responsible for timely notifying the bank if and

when she did not receive any monthly account statements.

Our review further indicates that the first forged check is dated November 5,

2002, which was within three weeks of the date that the account was opened, and

would have also appeared on that first account statement. Therefore, with regard to

this first check and the checks reflected on the first account statement, the record

supports a determination that the Plaintiffs failed to timely satisfy the duties imposed

upon them by La.R.S. 10:4-406(d)(2) and the “Statements” section of the deposit

account terms and conditions contained on the signature card. As set forth above, this

contractual provision required that the Plaintiffs examine their statement with

“reasonable promptness,” and, upon discovering unauthorized payments or

alterations, to “promptly notify” the bank of the relevant facts. This duty applies to

both items on a particular statement, as well as other items forged by the same

wrongdoer.

12

In the event a statement is made available, as in the case at bar, La.R.S. 10:4-

406(c) requires that “the customer must exercise reasonable promptness in examining

the statement . . . to determine whether any payment was not authorized because of

an alteration of an item or because a purported signature by or on behalf of the

customer was not authorized.” If an unauthorized payment is discovered, “the

customer must promptly notify the bank of the relevant facts.” Here, the Plaintiffs

failed to do so within thirty days after the November 2002 statement; therefore, they

cannot recover from the Bank of Jena for the amount of forged checks that would

have appeared more than thirty days after the first statement, which the trial court

found to have been issued November 22, 2002, as set forth in La.R.S. 10:4-406(d)(2).

Had the Plaintiffs reported the forgeries appearing within the legally allowed

thirty-day period following the initial statement, it is likely that any subsequent

forgeries could have been prevented. Both parties contend that all of the forgeries

were committed by Marye Prestridge. Compliance with the duty imposed on the

Plaintiffs to timely discover and report the initial forgeries thirty days after the

November 20, 2002 bank statement would have given Bank of Jena the opportunity

to seek prompt restitution for those sums of money and to prevent anyone other than

the Plaintiffs, especially Marye, from accessing the account. Therefore, as provided

by La.R.S. 10:4-406(d)(2), the Plaintiffs may not recover from Bank of Jena for the

losses due to the subsequent forgeries committed by Marye Prestridge thirty days

after the November 22, 2002 bank statement. Therefore, under La.R.S. 10:406(d)(2)

and the Marx decision, Plaintiffs can only recover for forgeries up through December

22, 2002, which is thirty days after the first bank statement of November 22, 2002.

13

Plaintiffs’ failure to report any forgeries thereafter preclude recovery by them after

December 22, 2002.

However, because we find that the record supports a determination that the

preclusion of La.R.S. 10:4-406(d) applies, the remainder of the statute must be

considered in order to determine whether any apportionment of fault is required. See

La.R.S. 10:4-406(e). Accordingly, we next consider Bank of Jena’s assertion that the

trial court erred in its further determination that it failed to exercise reasonable or

ordinary care in paying on the forged checks.

In support of their counter-argument that Bank of Jena failed to exercise

ordinary care, and that apportionment of fault is therefore appropriate, the Plaintiffs

point out that the signatures which appear on the signature lines of the forged checks

clearly do not match Glynda’s signature as it appears on the signature card that she

signed with Bank of Jena when she opened the account. The signatures on the forged

checks are printed, whereas Glynda’s signature on her signature card is written in

cursive. The Plaintiffs contend that this failure to verify Glynda’s signature was

below the level of ordinary care and substantially contributed to their loss.

The trial court found that although the signatures on the checks at issue

“appeared to be obvious frauds,” Bank of Jena contributed to the loss by not checking

the signatures on the checks against the signature card for the account during the

check-clearing process. The trial court’s finding that Bank of Jena did not exercise

ordinary care in paying the forged checks is a finding of fact that this court will

consider on appeal pursuant to the manifest error standard of review. See Gulf States

Section, PGA, Inc. v. Whitney Nat’l Bank of New Orleans, 96-0844 (La.App. 4 Cir.

2/12/97), 689 So.2d 638.

14

According to La.R.S. 10:4-406, the customer bears the burden of proving that

the bank failed to exercise ordinary care in paying on the fraudulent instruments and

that the failure substantially contributed to the loss. “Ordinary Care” is defined

within the Louisiana Revised Statutes Chapter relating to Commercial Laws -

Negotiable Instruments as follows:

(7) “Ordinary care” in the case of a person engaged in business
means observance of reasonable commercial standards, prevailing in the
area in which the person is located, with respect to the business in which
the person is engaged. In the case of a bank that takes an instrument for
processing for collection or payment by automated means, reasonable
commercial standards do not require the bank to examine the instrument
if the failure to examine does not violate the bank’s prescribed
procedures and the bank’s procedures do not vary unreasonably from
general banking usage not disapproved by this Chapter or Chapter 4.

La.R.S. 10:3-103(a)(7).

Comment 4 to La.R.S. 10:4-406 also discusses “ordinary care,” providing in

relevant part:

The term “ordinary care” used in subsection (e) is defined in
Section 3-103(a)(7), made applicable to Article 4 by Section 4-104(c),
to provide that sight examination by a payor bank is not required if its
procedure is reasonable and is commonly followed by other comparable
banks in the area. The case law is divided on this issue. The definition
of “ordinary care” in Section 3-103 rejects those authorities that hold, in
effect, that failure to use sight examination is negligence as a matter of
law. The effect of the definition of “ordinary care” on Section 4-406 is
only to provide that in the small percentage of cases in which a
customer’s failure to examine its statement or returned items has led to
loss under subsection (d) a bank should not have to share that loss solely
because it has adopted an automated collection or payment procedure in
order to deal with the great volume of items at a lower cost to all
customers.

Our review of the record in the instant case reveals that Bank of Jena had

adopted an automated means of clearing its checks, by sending them to Computer

Services, Inc (“CSI”). Tom Griffin, who is a regional manager for CSI for Texas,

Louisiana, and Arkansas, stated that his company clears checks for Bank of Jena as

15

well as more than five hundred other banks nationally. Mr. Griffin explained this

process as relevant to the instant case as follows: the foreign bank5 would receive the

forged instrument from Marye; that night the foreign bank would send the checks to

the Federal Reserve to be credited for the availability of funds; the next day CSI

would receive all checks payable from Bank of Jena and charge the amount due to

those respective accounts at Bank of Jena. Mr. Griffin stated that CSI then

electronically photographed the checks and kept the original paper checks for ninety

days before destroying them. Mr. Griffin stated that, as long as there is not a hold for

insufficient funds on the check, Bank of Jena never sees the paper check and can only

view the checks electronically. Mr. Griffin testified that he did not know which other

banks in the parish also sent their checks to a company similar to CSI to be cleared,

or which had an in-house process for clearing them. However, he did state that

“[w]ho does it, how [the checks] go out and how they come back, they’re all the same,

the clearing process.”

Mr. Tweedy also discussed the system for clearing checks drawn from Bank

of Jena accounts but deposited in other banks. He stated that it was necessary for a

bank of that size to contract out the clearing of checks and mailing of statements to

a data processing company like CSI because Bank of Jena was too small to spare the

personnel for those tasks. He also stated that “some other banks and the Bank of Jena

joined together to form an L.L.C. to where we could get a multibank discount with

CSI to handle the processing.” Similar to Mr. Griffin, he described the same system

by which checks are cleared through CSI, and Bank of Jena never receives the paper

5
With the exception of the one check cashed at Bank of Jena on April 8, 2003, our review
of the record indicates that the other checks entered into evidence were taken to BankOne, where
Larry testified that Marye had an account. The checks were either presented for payment at BankOne
or were deposited into a checking account, and the funds withdrawn at a later time.

16

checks, which he stated is consistent with an overall trend toward electronic banking.

Mr. Tweedy also testified that even the largest forged check for $15,000.00 would not

have required checking the signature card due to the high balances in Glynda’s

accounts.

The Plaintiffs argue in their appellate brief that Bank of Jena’s failure to verify

signatures on the instruments did not meet the reasonable banking standard and refer

to the testimony of Richard Starling, who they presented as an expert witness in the

field of local and general banking practices in Rapides Parish. Mr. Starling stated

that Mr. Griffin’s description of data processing was accurate. He stated that during

his experience in the banking industry he had dealt with many forgeries and that the

printed signatures on the checks in the instant matter would have been “a red flag”

which would have prompted him to check the signature card and request

identification from the person presenting the check. He also stated that he believed

that checks in large amounts, for example the check in the instant matter for

$15,000.00, should have been brought to the attention of Bank of Jena for

verification.

The Plaintiffs point to Mr. Starling’s testimony in support of their argument

that Bank of Jena had not exercised ordinary care in managing the Plaintiffs’ account.

They also note that Bank of Jena did not present any expert witnesses to rebut Mr.

Starling’s testimony to that effect. However, this court held that “uncontradicted

expert testimony should be accepted as true in the absence of circumstances in the

record that cast suspicion on the reliability of the testimony.” Arnold v. Town of Ball,

94-972, p. 8 (La.App. 3 Cir. 2/1/95), 651 So.2d 313, 319. Furthermore, in discussing

the discretion due a trial court’s acceptance or rejection of expert witness testimony,

17

the fourth circuit has remarked that “[t]he weight to be given to the testimony of

experts is largely dependent upon their qualifications and the facts upon which their

opinions are based. Even uncontradicted expert testimony is not binding on the

factfinder.” Penton v. Healy, 04-1470, p. 4 (La.App. 4 Cir. 1/26/05), 894 So.2d 537,

540 (quoting, Gulf Outlet Marina, Inc. v. Spain, 02-1589 (La.App. 4 Cir. 6/25/03),

854 So.2d 386, writ denied, 03-2075 (La. 11/7/03), 857 So.2d 497), writ denied, 05-

975 (La. 6/3/05), 903 So.2d 463). See also Fernandez v. Pizzalato, 04-1676 (La.App.

4 Cir. 4/27/05), 902 So.2d 1112.

In the instant matter, we note that Mr. Starling stated that he had not worked

in a bank for ten years and that he was familiar with general banking principles, but

not with new banking technology. Further, although he was accepted as an expert in

local banking practices, he stated that he was not familiar with the internal practices

of the banks in Rapides Parish regarding signature verification. When asked his

opinion about the practice of not verifying signatures by Bank of Jena and CSI , Mr.

Starling stated:

Well, my opinion is I’d want to know more about their operation
or somebody’s got to be responsible for looking at these checks. I don’t
care where, some banks don’t look at every signature. The technology
of banking has changed. If they looked at every check, we would never
get it through. We’ve got to go with technology. But when you go into
that bank to cash that check, I don’t care if you gave me your check and
I went to your bank to cash it, banks like Bank One, probably Hibernia,
mostly likely Regions, they’re going to have on a screen something,
maybe where they can look at the signature if they want to. I don’t
know, but that’s technology.

The record indicates that the present circumstances cast suspicion on the reliability

of Mr. Starling’s testimony as an expert regarding the requirements of current

banking standards in Rapides Parish. Specifically, Mr. Starling’s lack of recent

experience within the banking industry, in addition to his admission that he did not

18

know the internal practices of other local banks, or what information would be

available to tellers making a transaction, suggests that more information would have

been necessary to form an expert opinion regarding the banking standards in Rapides

Parish at the time of the forgeries.

After review, we do not find that overall the record supports a determination

that the Plaintiffs have proven that Bank of Jena failed to adhere to a reasonable

commercial standard, prevailing in the area, when paying on the instruments at issue.

The information available in the record regarding the procedure followed by Bank of

Jena in paying checks drawn on its accounts indicates that Bank of Jena instituted a

reasonable procedure, as contemplated by the legislative pronouncement of La.R.S.

10:3-103(a)(7), in maintaining this account. Testimony was provided that other area

community banks use data processing companies like CSI to process their checks

using a similar check-clearing process. Accordingly, because the Plaintiffs have not

proven that Bank of Jena failed overall to exercise ordinary care, as that term is

defined in the law, in handling their account, the loss due to the forgeries should not

be allocated between the parties. Additionally, the preclusion pursuant to La.R.S.

10:4-406(d) applies to the Plaintiff’s claims against Bank of Jena thirty days after the

statement of November 22, 2002 as hereinabove set forth.

Summary of Claims and Disposition

Plaintiffs want Bank of Jena to credit their account $61,800.00 for paying on

indisputably forged instruments. Bank of Jena wants to be absolved of any liability

to Plaintiffs because of Plaintiffs’ failure to timely check their monthly account

statements, and because more than sixty days had elapsed since the issuance of the

19

monthly statements reflecting the forged instruments, as set forth in the signature card

agreement.

Plaintiffs allege that Bank of Jena failed to follow reasonable banking

standards by not verifying signatures on any of the checks at the time paid. Bank of

Jena claims that it employed acceptable electronic banking practices by adopting an

automated means of clearing its checks as do five hundred other banks nationally and,

therefore, exercised ordinary care in paying on the fraudulent instruments.

As stated herein, both the contract on the reverse side of the signature card and

La.R.S. 10:4-406(d)(2) allow Plaintiffs a thirty-day period from the issuance of their

monthly account statement to identify any forged instrument and notify the bank

accordingly. A person is not liable on an instrument unless that person or his agent

signed the instrument. See La.R.S. 10:3-401. The general rule is that a bank is liable

when it pays based upon a forged signature. Marx, 713 So.2d 1142. Neither the facts

nor the record in this case negates that general rule up through said thirty-day time

period. Therefore, Bank of Jena is liable unto Plaintiffs for paying on fraudulent

instruments up through December 22, 2002, which is thirty days after the trial court

found the first bank statement to have been issued. The trial court judgment is

affirmed in that regard, but amended to allow Plaintiffs to recover only for forged

instruments up through thirty days after the first bank statement, i.e., December 22,

2002, and no further.

We reverse the trial court judgment that Bank of Jena failed to exercise

ordinary care in the handling of Plaintiffs’ account after December 22, 2002, and find

that the Plaintiffs did not meet their burden of proving that Bank of Jena failed to

adhere to a reasonable commercial standard, prevailing in the area, when paying on

20

fraudulent instruments at issue after December 22, 2002. Certainly, a bank is allowed

to employ “electronic banking” and other state of the art technology, but that does not

excuse a bank from following the general rule that it is liable when it pays upon a

fraudulent instrument within the time constraints of the contract, and particularly

La.R.S. 10:4-406(d)(2). A bank cannot simply avoid all liability to its customers by

pleading the self-serving defense of “electronic banking” at any time after the account

is opened, and not protect its customers from fraudulent instruments during the

aforementioned thirty-day period. “Electronic banking” does not negate the legal

duty of a bank. Any check-clearing technological advance relied upon and

implemented by a bank must be of such a nature that it will protect bank customers

against fraudulent instruments; otherwise, signature cards are rendered useless, and

the bank can simply claim “electronic banking” as a defense to a forgery occurring

during the thirty-day period set forth herein.

In the instant matter, Bank of Jena was “outsourcing” its check clearing and no

one was verifying signatures on checks. Mr. Tweedy, the President of the Bank of

Jena, testified that even a $15,000.00 check would not have required checking the

signature card for a valid signature. This banking procedure, automated or not, does

not protect the customer against fraudulent instruments, violates the contractual

obligation between the bank and its customer, and therefore makes the bank liable for

paying on said fraudulent instruments during that thirty-day period.

Bank of Jena strongly relies on the “60 day limitation” set forth in the

“Statements” section of the terms and conditions on the reverse side of the signature

card signed and agreed to by Plaintiffs. Bank of Jena claims that once this sixty-day

period lapses, that Plaintiffs are entirely precluded from recovering on all claims

21

against the bank for paying on fraudulent instruments. By arguing this concept of

preclusion, Bank of Jena is actually raising the defense of prescription, or peremption,

against Plaintiffs’ claims. Bank of Jena alleges that it is not liable unto Plaintiffs for

any damages as a result of paying on the forged instruments because more than sixty

days have lapsed from the issuance of the bank statement without notification by

Plaintiffs to the bank of any discrepancy, as set forth in the signature card agreement.

Neither negotiable instruments law nor the law of contract has any such sixty-day

prescriptive or peremptive period. Bank of Jena is not permitted to contractually

establish its own prescriptive or peremptive period. As stated previously in Marx, our

law defines the relationship between a bank and its depositor as a debtor-creditor

relationship whose nature is contractual. Id, 713 So.2d 1142. When a bank pays on

a forged instrument, it breaches its contract with the depositor. By contract, Bank of

Jena attempted to limit its liability by establishing a sixty-day preclusionary period

after which no recovery could be had against it. However, the law limits contractual

freedom. Louisiana Civil Code article 3471 states: “A juridical act purporting to

exclude prescription, to specify a longer period than that established by law, or to

make the requirements of prescription more onerous, is null.” In Contours Unlimited,

Inc. v. Board of Commissioners of the Port of New Orleans, 93-1269 (La.App. 4 Cir.

12/30/93), 630 So.2d 916, writ denied, (La. 3/18/94), 634 So.2d 863, a contractual

provision which specified only a thirty-day prescriptive period was declared a nullity

because it established a more onerous prescriptive period than that provided by law.

The sixty-day preclusionary period set forth in Bank of Jena’s signature card

agreement attempts to shorten the legal prescriptive period, making it more onerous;

22

therefore, it is null as set forth in La.Civ.Code art. 3471. Bank of Jena’s sixty-day

preclusion argument is without merit.

Therefore, we conclude that the trial court erred in allowing Plaintiffs to

recover any of the funds paid by the Bank of Jena on the checks forged by Marye

after December 22, 2002, which is the date thirty days after the November 22, 2002

statement. Pursuant to La.R.S. 10:4-406(d), the Plaintiffs’ failure to comply with

their duties to examine their account statements, or to notify Bank of Jena that they

had not received such statements with reasonable promptness, precludes them from

asserting claims against Bank of Jena related to subsequent or other forgeries on the

account after December 22, 2002. Further, the losses on the account after December

22, 2002 may not be allocated between the parties because the Plaintiffs did not meet

their burden of proving that Bank of Jena failed to exercise the standard of care

required by law in paying on these subsequent or other forged instruments. Because

we cannot determine from the record the exact amount of the forgeries up through

December 22, 2002, we remand this matter to the trial court for a hearing to determine

said amount and to grant a judgment in favor of the Plaintiffs in accordance therewith.

DECREE

For the foregoing reasons, the judgment of the trial court in favor of the

Plaintiffs, Glynda Prestride and Vera Prestridge, is affirmed in part as amended,

reversed in part, and remanded to the trial court for a hearing to determine the exact

amount of any forgeries up through December 22, 2002. All costs of this proceeding

are assessed equally among the parties.

AFFIRMED IN PART AS AMENDED; REVERSED IN PART;

REMANDED WITH INSTRUCTIONS.

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NUMBER 05-545

COURT OF APPEAL, THIRD CIRCUIT

STATE OF LOUISIANA

GLYNDA PRESTRIDGE, ET AL.

VERSUS

THE BANK OF JENA

AMY, J ., dissenting.

I respectfully dissent from the majority opinion. Chiefly, I disagree that the

plaintiffs are entitled to any recovery given the present circumstances. Rather, the

terms and conditions of the plaintiffs’ contract with the bank and La.R.S. 10:4-406,

when coupled with the plaintiffs’ failure to timely report irregularities with the

account, precludes recovery.

The evidence supports a determination that Bank of Jena made monthly

statements available to the plaintiffs, see La.R.S. 10:4-406(a), and that the plaintiffs

neither examined the statements nor notified it that statements were not received for

more than six months after the account was opened. Significantly, the terms and

conditions contained on the account signature card reveal the following contractual

agreement between the parties:

You must examine your statement of account with “reasonable
promptness.” If you discover (or reasonably should have discovered)
any unauthorized payments or alterations, you must promptly notify us
of the relevant facts. If you fail to do either of these duties, you will
have to either share the loss with us, or bear the loss entirely yourself
(depending on whether we exercised ordinary care and, if not, whether
we substantially contributed to the loss). The loss could be not only
with respect to items on the statement but other items forged or altered
by the same wrongdoer. You agree that the time you have to examine
your statement and report to us will depend on the circumstances, but
that such time will not, in any circumstance, exceed a total of 30 days
from when the statement is first made available to you.

You further agree that if you fail to report any unauthorized
signatures, alterations, forgeries or any other errors in your account
within 60 days of when we make the statement available, you cannot

assert a claim against us on any items in that statement, and the loss
will be entirely yours. This 60 day limitation is without regard to
whether we exercised ordinary care. The limitation in this paragraph is
in addition to that contained in the first paragraph of this section.

(Emphasis added.)

The plaintiffs failed to report the initial irregularities within the periods

specifically provided for by contract. This contractual period is significant in light

of La.R.S. 10:4-406(c) which states that “the customer must exercise reasonable

promptness in examining the statement . . . to determine whether any payment was

not authorized because of an alteration of an item or because a purported signature

by or on behalf of the customer was not authorized.” It further provides that, if an

authorized payment should have been discovered, “the customer must promptly notify

the bank of the relevant facts.” (Emphasis added). As the plaintiffs failed to do so

within the period of “reasonable promptness,” required by La.R.S. 10:4-406(c) and

further defined by the parties’ contractual agreement, the plaintiffs cannot recover for

the initial forgeries.

With regard to subsequent forgeries, La.R.S. 10:4-406 provides:

(d) If the bank proves that the customer failed, with respect to
an item, to comply with the duties imposed on the customer by
Subsection (c), the customer is precluded from asserting against the
bank:

....

(2) the customer’s unauthorized signature or alteration by the
same wrongdoer on any other item paid in good faith by the bank if the
payment was made before the bank received notice from the customer
of the unauthorized signature or alteration and after the customer had
been afforded a reasonable period of time, not exceeding thirty days, in
which to examine the item or statement of account and notify the bank.

Again, the plaintiffs failed to notify the bank of the irregularities within this time

frame. Finally, pursuant to La.R.S. 10:4-406(e), and because the plaintiff did not

establish that the bank failed to exercise ordinary care, the loss cannot be allocated.

2

See also La.R.S. 10:3-103(a)(7); La.R.S. 10:4-406, comment 4.

In short, I conclude that the trial court erred in allowing the plaintiffs to recover

any funds paid by the Bank of Jena on the checks forged by Marye Prestridge.

Pursuant to the contractual terms and conditions of the account and La.R.S. 10:4-

406(d), the plaintiffs’ failure to comply with their duties to examine their account

statements, or to notify Bank of Jena that they had not received such statements with

reasonable promptness, precludes them from asserting claims against Bank of Jena

related to the forgeries on the account.

I respectfully dissent.

3