If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under Code Section 11-4-208 with respect to the unauthorized signature or alteration to which the preclusion applies.
(Code 1933, § 109A-4 - 406, enacted by Ga. L. 1962, p. 156, § 1; Ga. L. 1963, p. 188, § 13; Ga. L. 1996, p. 1306, § 13.)
Code Commission notes.- Pursuant to Code Section 28-9-5, in 1996, a comma was inserted following "indorsement" near the end of subsection (f).
Cross references.- Duty of state officials and employees to notify depositories of unauthorized signatures or alterations appearing on paid items, § 50-17-65.
Law reviews.- For article on the 1963 amendment (Ga. L. 1963, p. 188) to the Georgia Uniform Commercial Code, see 14 Mercer L. Rev. 378 (1963). For annual survey article on commercial law, see 50 Mercer L. Rev. 193 (1998). For note, "Drawers: Check for Missing Endorsements on Joint Payee Checks," in light of Trust Co. Bank v. Atlanta IBM Employees Fed. Credit Union, 245 Ga. 262, 264 S.E.2d 202 (1980), see 32 Mercer L. Rev. 407 (1980). For comment on Perini Corp. v. First Nat'l Bank, 553 F.2d 398 (5th Cir. 1977), see 27 Emory L.J. 393 (1978).
JUDICIAL DECISIONSANALYSIS
General Consideration
Editor's notes.
- In light of the similarity of the provisions, decisions under former Code 1933, § 13-2044 are included in the annotations for this section.
Public policy evidenced by this section.
- O.C.G.A. § 11-4-406 evidences public policy in favor of imposing upon customers the duty of prompt examination of their bank statements and notification to banks of forgeries and alterations and in favor of reasonable time limitations on responsibility of banks for payment of forged or altered items. Trust Co. Bank v. Atlanta IBM Employees Fed. Credit Union, 245 Ga. 262, 264 S.E.2d 202 (1980).
Bank's liability prior to section's enactment.
- Before former Code 1933, § 13-2044, liability of bank was absolute, but with enactment of § 13-2044 a duty was placed on all depositors to notify bank within given period of time of forged checks being charged against depositors' accounts. G. Franklyn Fischer & Assocs. v. First Nat'l Bank, 102 Ga. App. 567, 116 S.E.2d 902 (1960).
Section is punitive in nature and must be strictly construed.
- Former Code 1933, § 13-2044, is punitive in nature, penalizing depositor by depriving depositor of right, which depositor would otherwise have against the bank, to repudiate a forged check, and must be strictly construed. White v. Georgia R.R. Bank & Trust Co., 71 Ga. App. 78, 30 S.E.2d 118 (1944).
Endorsement required of all employees.
- It is duty of one who accepts and pays to comply with direction of maker to "pay to the order of" named payees, and to fulfill that requirement all payees must endorse. Atlanta IBM Employees Fed. Credit Union v. Trust Co. Bank, 150 Ga. App. 253, 257 S.E.2d 346 (1979), rev'd on other grounds, 245 Ga. 264, 264 S.E.2d 202 (1980).
A missing endorsement is equivalent to an unauthorized endorsement under O.C.G.A. § 11-4-406. Trust Co. Bank v. Atlanta IBM Employees Fed. Credit Union, 245 Ga. 262, 264 S.E.2d 202 (1980).
Time limits where bank fails to act in good faith.
- In absence of good faith by the bank, which ordinarily is an issue for jury consideration, depositor does not forfeit right of recovery by failing to give notice within prescribed time. Bank of Thomas County v. Dekle, 119 Ga. App. 753, 168 S.E.2d 834 (1969), overruled on other grounds, Decatur Fed. Sav. & Loan Ass'n v. Litsky, 207 Ga. App. 752, 429 S.E.2d 300 (1993).
Absence of good faith is not necessarily synonymous with negligence, and subsection (4) (now O.C.G.A. § 11-4-406(f)) expressly eliminates negligence as an issue on items not within time covered by customer's notice. Bank of Thomas County v. Dekle, 119 Ga. App. 753, 168 S.E.2d 834 (1969), overruled on other grounds, Decatur Fed. Sav. & Loan Ass'n v. Litsky, 207 Ga. App. 752, 429 S.E.2d 300 (1993).
Duty of depositor to minimize damages.
- A bank is liable for damages proximately caused by its wrongful handling of an item, but depositor has obligation to exercise reasonable care to rectify situation and minimize the damage done. If depositor fails in personal obligations once depositor has notice, the depositor is precluded from recovery against the bank. Donmoyer v. Columbus Bank & Trust Co., 151 Ga. App. 38, 258 S.E.2d 725 (1979).
Where the bank sent account statements to its customer, the customer could not recover for checks the bank improperly paid more than 60 days before the date it was notified of the improprieties, and no jury question existed regarding the "good faith" requirement of O.C.G.A. § 11-4-406. Vickers v. Broxton State Bank, 230 Ga. App. 170, 495 S.E.2d 645 (1998).
On plaintiff commercial checking account customer's suit against defendant, its payor bank, under O.C.G.A. § 11-4-401, alleging checks forged by it employee, although the reduced check images returned with the monthly statements were difficult to read, the customer reasonably should have detected the unauthorized payment by examining each check's payee information and the statements and thus, the customer failed to comply with its duties under O.C.G.A. § 11-4-406(c), (d)(2). Ownbey Enters. v. Wachovia Bank, N.A., 457 F. Supp. 2d 1341 (N.D. Ga. 2006).
Bank actions in failing to inform customers of a rule change on signature verification, allowing an employee of customer to place funds in a checking account from the customer's line of credit, and arranging personal loans for the employee were not evidence of a lack of good faith on the part of the bank in paying forged checks. Eason Publications, Inc. v. Nationsbank, 217 Ga. App. 726, 458 S.E.2d 899 (1995) (decided under former § 11-4-606).
Customer's failure to notify regarding improperly honored checks.
- A surety on a guardianship bond having joint control of a checking account under an agreement with the guardian was a customer of the bank by virtue of the agreement, and the surety's untimely failure to request statements or notify the bank of improperly honored checks barred its claims against the bank. Travelers Indemnity Co. v. Trust Co. Bank, 228 Ga. App. 893, 495 S.E.2d 296 (1998).
Cited in Indemnity Ins. Co. of N. Am. v. Fulton Nat'l Bank, 108 Ga. App. 356, 133 S.E.2d 43 (1963); Columbian Peanut Co. v. Frosteg, 472 F.2d 476 (5th Cir. 1973); Perini Corp. v. First Nat'l Bank, 553 F.2d 398 (5th Cir. 1977); National Bank v. Weiner, 180 Ga. App. 61, 348 S.E.2d 492 (1986); Dalton Point, L.P. v. Regions Bank, Inc., 287 Ga. App. 468, 651 S.E.2d 549 (2007).
Sixty-Day and One-Year Notice Requirements
Comparison with previous Code.
- There is no substantial difference in intent and purpose between Code 1933, § 13-2044 and O.C.G.A. § 11-4-406 in imposing upon depositor the duty of notifying bank of unauthorized signatures or alterations within specified time limits, and decisions under former law are applicable to provide guides as to what may constitute a jury question of whether depositor is to be excused from this duty. Bank of Thomas County v. Dekle, 119 Ga. App. 753, 168 S.E.2d 834 (1969), overruled on other grounds, Decatur Fed. Sav. & Loan Ass'n v. Litsky, 207 Ga. App. 752, 429 S.E.2d 300 (1993).
Applicability of subsection (f).
- Subsection (4) (now O.C.G.A. § 11-4-406(f)) is limited to two types of claims by a customer: (1) unauthorized signature and (2) any alteration. Georgia Motor Club, Inc. v. First Nat'l Bank & Trust Co., 137 Ga. App. 521, 224 S.E.2d 498, overruled on other grounds, Marietta Yamaha, Inc. v. Thomas, 237 Ga. 840, 229 S.E.2d 753 (1976).
Under the pre-July 1, 1996 version of this section, where the bank sent monthly statements including canceled checks or imaged copies of checks and made all items available to the customer, the customer's unauthorized payment claim was limited to those forged checks which it discovered and reported within the 60-day limit of paragraph (4) (now O.C.G.A. § 11-4-406(f)). Summit Transp. Servs., Inc. v. NationsBank, 232 Ga. App. 8, 500 S.E.2d 911 (1998).
On plaintiff commercial checking account customer's suit against defendant, its employee embezzler's depository bank, O.C.G.A. § 11-4-406's notice requirements applied to the embezzler's depository bank and the depository bank was not liable for the forged checks paid more than 60 days before the customer reported the forgeries to its payor bank. Ownbey Enters. v. Wachovia Bank, N.A., 457 F. Supp. 2d 1341 (N.D. Ga. 2006).
Customer's duties as to reporting discrepancies.
- As to items paid in good faith by a bank, the depositor must discover and report discrepancies to the bank within times prescribed by O.C.G.A. § 11-4-406 after bank furnishes or in a reasonable manner affords depositor an opportunity to examine items supporting debits to the account, or else show, at least by proof sufficient to create a jury issue, why depositor failed to notify the bank. Bank of Thomas County v. Dekle, 119 Ga. App. 753, 168 S.E.2d 834 (1969), overruled on other grounds, Decatur Fed. Sav. & Loan Ass'n v. Litsky, 207 Ga. App. 752, 429 S.E.2d 300 (1993).
Shortening of notice period by agreement.
- The trial court properly upheld an agreement between a customer and a bank under which the bank could not be charged with liability for negligence because the customer had not notified the bank of disputed checks within 30 days; under O.C.G.A. § 11-4-103(a), parties by agreement could change the 60-day notice period allowed for in O.C.G.A. § 11-4-406(f), and such an agreement was controlling unless it was manifestly unreasonable, which was not the case here, and shortening the time period did not excuse the bank from its duty of ordinary care or disclaim the bank's liability for negligence in the future inasmuch as the notice period started over again each time the bank sent a new statement to the customer. Freese v. Regions Bank, N.A., 284 Ga. App. 717, 644 S.E.2d 549 (2007), cert. denied, No. S07C1190, 2007 Ga. LEXIS 691 (Ga. 2007).
Effect of customer negligence.
- Under the pre-July 1, 1996 version of O.C.G.A. § 11-4-406, the trial court erred in holding that the customer's alleged negligence was relevant under former paragraph (2), because a bank could not insulate itself from liability if the customer established lack of ordinary care on the part of the bank in paying items. Summit Transp. Servs., Inc. v. NationsBank, 232 Ga. App. 8, 500 S.E.2d 911 (1998).
Absence of timely notice is absolute protection to bank.
- Even if bank is negligent in paying in good faith an item not covered by customer's notice of unauthorized signatures or alterations, and even if depositor is negligent in not preventing or in failing to discover the payment, absence of timely notice is absolute in protecting bank and excluding any right of recovery by depositor. Bank of Thomas County v. Dekle, 119 Ga. App. 753, 168 S.E.2d 834 (1969), overruled on other grounds, Decatur Fed. Sav. & Loan Ass'n v. Litsky, 207 Ga. App. 752, 429 S.E.2d 300 (1993).
Duty of bank to show it furnished depositor statement.
- With respect to 60-day provision of subsection (4) (now O.C.G.A. § 11-4-406(f)), and assuming payment in good faith, essential controlling fact which bank must show to eliminate liability, as movant for summary judgment, is that it furnished to depositor the items paid, or notified depositor that statements and items paid were available for examination, more than 60 days before the depositor notified it of unauthorized payment. Bank of Thomas County v. Dekle, 119 Ga. App. 753, 168 S.E.2d 834 (1969), overruled on other grounds, Decatur Fed. Sav. & Loan Ass'n v. Litsky, 207 Ga. App. 752, 429 S.E.2d 300 (1993).
Application of subsection (4) (now O.C.G.A.
§ 11-4-406(f)) where forgeries on front and back. - The rationale for allowing the drawer more time to report an unauthorized indorsement than an unauthorized signature is that there is little excuse for a customer not detecting an alteration of the customer's own check or a forgery of the customer's own signature. However, the customer does not know the signatures of indorsers and may be delayed in learning that indorsements are forged. Where both are present, the customer should discover and report the unauthorized payment within the shorter time period. Decatur Fed. Sav. & Loan Ass'n v. Litsky, 207 Ga. App. 752, 429 S.E.2d 300 (1993).
Good faith by bank as prerequisite to notice.
- There are circumstances wherein notice referred to in former Code 1933, § 13-2044, need not be given, and it is only when a bank has in good faith paid a forged check that it is entitled to such notice. G. Franklyn Fischer & Assocs. v. First Nat'l Bank, 102 Ga. App. 567, 116 S.E.2d 902 (1960).
Before bank is entitled to notice prescribed by former Code 1933, § 13-2044, it must appear that bank in good faith paid and charged to depositor's account money on a forged or raised check. White v. Georgia R.R. Bank & Trust Co., 71 Ga. App. 78, 30 S.E.2d 118 (1944).
Two circumstances where notice requirement of section inapplicable.
- There are two circumstances where notice requirement of former Code 1933, § 13-2044, is not a prerequisite to recovery: (1) where bank has not paid forged or raised check out of depositor's account in good faith, and (2) where depositor for other sufficient reason is relieved from giving such notice. G. Franklyn Fischer & Assocs. v. First Nat'l Bank, 102 Ga. App. 567, 116 S.E.2d 902 (1960).
Bank's payment to one it believes depositor authorized to obtain funds.
- To require of depositor the notice referred to in former Code 1933, § 13-2044, check paid must be a forgery as contemplated by criminal statutes, but where bank paid money from depositor's account because it believed person obtaining funds was authorized by depositor to do so, § 13-2044 is not applicable, and no notice is required to hold the bank liable. G. Franklyn Fischer & Assocs. v. First Nat'l Bank, 102 Ga. App. 567, 116 S.E.2d 902 (1960).
Conversion and negligence action barred.
- Bank account holder's conversion and negligence action against a bank for paying two checks on the holder's account without authorization was barred by O.C.G.A. § 11-4-406(f) of Georgia's Uniform Commercial Code, because the holder admitted receiving regular statements from the bank but did not open the statements until more than one year after the allegedly unauthorized checks had been paid. Ogundele v. Wachovia Bank, N.A., F. Supp. 2d (N.D. Ga. Dec. 6, 2004).
Forgeries committed and concealed by depositor's agent.
- Fact that forgeries were committed and concealed by one whom depositor entrusted to examine depositor statements and vouchers was not sufficient to excuse depositor from giving notice to the bank. G. Franklyn Fischer & Assocs. v. First Nat'l Bank, 102 Ga. App. 567, 116 S.E.2d 902 (1960).
Form of notification.
- Subsection (4) (now O.C.G.A. § 11-4-406(f)) contains no language either prescribing or proscribing the form in which the notification called for from a customer is to be made; the term "report" is a verb, not a noun, and does not require a written report. Trammell v. F & M Bank, 170 Ga. App. 347, 317 S.E.2d 323 (1984).
Effect of timeliness of suit.
- Bank's claim that plaintiff was estopped from asserting that bank had improperly collected and deposited check with a missing endorsement was not meritorious in that suit had been filed against the bank within one year from the time of the making of the checks involved. Horne v. C & S Bank, 167 Ga. App. 187, 305 S.E.2d 897 (1983).
Whether facts excuse depositor's failure to give notice is jury issue.
- It is jury issue to determine whether or not facts pleaded are such as to absolve depositor from penalty prescribed by former Code 1933, § 13-2044 (loss of funds paid by bank on forged check) for failure to give 60-day notice provided for therein. White v. Georgia R.R. Bank & Trust Co., 71 Ga. App. 78, 30 S.E.2d 118 (1944).
Jury question whether notice excused and whether bank paid in good faith.
- Under petition alleging that all of the defendants including the bank acted jointly in withdrawing money, that signature on check was mere scrawl and was not signature of depositor, that it was the only check drawn against the account in nearly 11 years, and that there was notation on the check which it was alleged showed that suspicions of bank were aroused, it was question for jury to determine whether or not plaintiff was or should have been excused from giving notice under former Code 1933, § 13-2044, and whether bank acted in good faith in cashing forged check. White v. Georgia R.R. Bank & Trust Co., 71 Ga. App. 78, 30 S.E.2d 118 (1944).
RESEARCH REFERENCES
Am. Jur. 2d.
- 10 Am. Jur. 2d, Banks and Financial Institutions, §§ 515-519, 631, 649. 12 Am. Jur. 2d, Bills and Notes, § 586.
6A Am. Jur. Pleading and Practice Forms, Commercial Code, § 4:212.
C.J.S.- 9 C.J.S., Banks and Banking, §§ 417, 418, 424, 434 et seq.
U.L.A.- Uniform Commercial Code (U.L.A.) § 4-406.
ALR.
- Right of drawee bank to charge back a credit given on a forged check, 5 A.L.R. 1566.
Right of drawee of forged check or draft to recover money paid thereon, 12 A.L.R. 1089; 121 A.L.R. 1056.
Payment of check upon forged or unauthorized indorsement as affecting the right of true owner against the bank, 14 A.L.R. 764; 69 A.L.R. 1076; 137 A.L.R. 874.
Examination of account, pass book, or canceled checks by bank depositor, 15 A.L.R. 159; 67 A.L.R. 1121; 103 A.L.R. 1147.
Altering receipt, canceled check, or other voucher as forgery, 26 A.L.R. 1058.
False pretense or confidence game through means of worthless check or draft, 35 A.L.R. 344; 174 A.L.R. 173.
Duty of bank to prior parties to the paper to apply deposit to credit of endorser on paper owned by bank, 37 A.L.R. 578.
Estoppel by delay after knowledge in disclosing forgery of commercial paper, 50 A.L.R. 1374.
Duty of depositor to turn over to bank forged checks, or checks with forged endorsements, which have been paid by bank, 60 A.L.R. 527.
Who must bear loss as between drawer induced by fraud of employee or agent to issue check payable to nonexisting person or a person having no interest in the proceeds thereof, and one who cashes or pays it on the forged indorsement by such employee or agent of the name of such ostensible payee, 99 A.L.R. 439.
Examination of accounts, pass books, or canceled checks by bank depositors, 103 A.L.R. 1147.
Necessity of pleading that maker or drawer of check was given notice of its dishonor by bank, 6 A.L.R.2d 985.
Negligence in drawing check which facilitates alteration as to amount as affecting drawee bank's liability, 42 A.L.R.2d 1070.
Construction and effect of statute relieving bank from liability to depositor for payment of forged or raised checks unless within specified time after return of voucher representing payment he notifies banks as to forgery or raising, 50 A.L.R.2d 1115.
Rights and liabilities of drawee bank, as to persons other than drawer, with respect to uncertified paid check which was altered, 75 A.L.R.2d 611.
Payee's prior negligence facilitating forging of endorsement as precluding recovery from bank paying check, 87 A.L.R.2d 638.
Right and remedy of drawer of check against collecting bank which receives it on forged endorsement and collects it from drawee bank, 99 A.L.R.2d 637.
Avoidance of bank's check certification secured by fraud, 100 A.L.R.2d 1197.
Bank's liability for payment or withdrawal on less than required number of signatures, 7 A.L.R.4th 655.
Construction and application of UCC § 4-406, requiring customer to discover and report unauthorized signature, in cases involving bank's payment of check or withdrawal on less than required number of signatures, 7 A.L.R.4th 1111.