Travelers Cas. & Sur. Co. v. Wash. Trust Bank ( 2016 )

SUSANL:\ARUfcSN
SUPREME COURT CLERK
IN THE SUPREME COURT OF THE STATE OF WASHINGTON
CERTIFICATION FROM THE )
UNITED STATES DISTRICT )
COURT FOR THE EASTERN )
DISTRICT OF WASHINGTON )
IN ) No. 92483-0
)
TRAVELERS CASUALTY & ) EnBanc
SURETY CO., )
As Assignee and Subrogee ) Filed
"nv
i~t) . o" n.,
.!) ll
.J
of Skils'Kin, )
)
Plaintiff, )
v. )
)
WASHINGTON TRUST BANK, )
)
Defendant. )
)
GONZALEZ, J.-An employee of a nonprofit serving disabled adult client~
used her position to embezzle more than half a million dollars held by the
nonprofit for its clients. She did this by drawing checks from the nonprofit's
account payable to its clients, signing the back of those checks with her own
signature, and cashing them at the nonprofit's local bank. After the embezzlement
was discovered, Travelers Casualty & Surety Company, the nonprofit's insurance
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
company, made the nonprofit whole. Travelers now seeks contribution from the
bank in federal court. By submitting certified questions, that court has asked us to
decide, among other things, whether a nonpayee's signature on the back of a check
is an indorsement. We are also asked whether claims based on unauthorized
indorsements that are not discovered and reported to a bank within one year of
being made available to the customer are time barred. We answer yes to both
questions.
FACTS & PROCEDURAL HISTORY
Travelers insured Skils'Kin, a nonprofit agency providing services to
disabled adult clients in Spokane. Skils'Kin was the representative payee for many
of its clients' Social Security benefits, which were deposited into a single business
checking account at Washington Trust Bank (Bank). Skils'Kin wrote checks as
representative payee and agent for its clients' use. Checks were written either to
the clients directly or to those who provided services to the clients. Clients and
Skils'Kin entered into a '"Financial Service Agreement"' in which clients
"'authorize SKILS KIN staff to act as agent/payee on [their] behalf."' Doc. No.
191-1, at 2. Skils'Kin managed the monthly income and living expenses for about
1,000 clients. Shannon Patterson was a Skils'Kin employee who oversaw
Skils'Kin's bank account and was a signatory on the account. Skils'Kin adopted
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
and delivered a corporate resolution to the Banlc, authorizing Patterson to open
deposit and checking accounts and to indorse checks. 1
From 2008 to 2013, Patterson embezzled hundreds of thousands of dollars
from Skils'Kin by drawing over 300 checks from Skils'Kin's account payable to
its disabled clients or to third party service providers, signing the back of each
check with her own name, cashing the checks at the Banlc, and keeping the money.
Patterson was not the named payee on any of the checks at issue, and no named
payee indorsed the checks to Patterson. Patterson's bad acts were not discovered
until she admitted them in a suicide note.
The Bank sent Skils'Kin monthly banlc statements during Patterson's
embezzlements. These statements included copies of the fronts of the checks that
had been cashed at the Banlc. The statements did not include copies of the backs of
the checks, which would have readily revealed Patterson's signature. Each
'See Doc. No. 90-3. In relevant part, Skils'Kin's 2009 corporate resolution states:
(4) Any of the persons named below, so long as they act in a representative capacity as
agents of this corporation, are authorized to make any and all other contracts, agreements,
stipulations and orders which they may deem advisable for the effective exercise of the
powers indicated below, from time to time with this Financial Institution, concerning
funds deposited in this Financial Institution, moneys borrowed from this Financial
Institution or any other business transacted by and between this corporation and this
Financial Institution subject to any restrictions stated below.
!d.
The resolution also gave each of the named individuals the power to:
(2) Open any deposit or checking account(s) in the name of this corporation .
. . . (3) Endorse checks and orders for the payment of money and withdraw funds on
deposit with this Financial Institution.
!d.
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
statement contained contact information for the bank and listed cleared checks by
check number, date, and dollar amount. Skils'Kin's bookkeeper used these
statements to reconcile the accounts. Beginning in 2011, Skits 'Kin could access its
checking account online at any time to view both the front and backs of checks that
cleared its account. The online process required clicking an account to view,
clicking a link for the front of the check, clicking a link for the back of the check,
closing the check, and repeating as necessary.
After Patterson's confession, Travelers covered Skils'Kin's losses and sued
the Ban1( for contribution. Travelers alleges that the Bank breached its duty of care
as a matter of law by cashing checks to Patterson-who was not the named
payee-and that the checks at issue are not "properly payable" under RCW 62A.4-
40l(a). 2 Thus, it reasons, the time bar under RCW 62A.4-406(t) 3 does not apply.
2
A banlc may charge against the account of a customer an item that is properly payable
from that account even though the charge creates an overdraft. An item is properly
payable if it is authorized by the customer and is in accordance with any agreement
between the customer and banlc.
RCW 62A.4-401(a).
3
Without regard to care or lack of care of either the customer or the banlc, a natural person
whose account is primarily for personal, family, or household purposes who does not
within one year, and any other customer who does not within sixty days, from the time
the statement and items are made available to the customer (subsection (a)) discover and
report the customer's unauthorized signature or any alteration on the face or back of the
item or does not within one year from that time discover and report any unauthorized
indorsement is precluded from asserting against the banlc such unauthorized signature or
indorsement or such alteration. If there is a preclusion under this subsection, the payor
banlc may not recover for breach of warranty under RCW 62A.4-208 with respect to the
unauthorized signature or alteration to which the preclusion applies.
RCW 62A.4-406(f).
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
Washington Trust Bank argues that an oral agreement between the Bank and
Patterson allowed tellers to cash the checks signed on the back by Patterson. The
parties dispute whether an oral agreement existed. The Banl( also contends the
"Terms and Conditions" contract for Skils'Kin's pooled account at Washington
Trust Bank gave Patterson authority to indorse checks on behalf of the named
payees. 4 Additionally, the Bank argues that Skils'Kin's corporate resolution
allowed Patterson to make an agreement with the Bank and that Skils'Kin clients
were unable to personally sign the checks at the banl( because they were
homebound, disruptive, and/or lacked proper identification. As an affirmative
defense, the Banl( contends RCW 62A.4-406(f) precludes Travelers's claims as
time barred, while Travelers denies that Patterson's signature qualifies under RCW
62A.4-406(f) and argues the statute does not apply.
Both the banl( and the insurance company filed for summary judgment.
Neither prevailed. Sometime afterward, the district court found that the case
raised unresolved questions of Washington state law and certified three questions
to us, as follows:
4
The "Terms and Conditions" state, in part:
Unless clearly indicated otherwise on the account records, any of you, acting alone, who
signs in the space designated for signatures on the signature card may withdraw or
transfer all of any part of the account balance at any time. Each of you (until we receive
written notice to the contrary) authorizes each other person signing the signature card to
indorse any item payable to you or your order for deposit to this account or any other
transaction with us.
Doc. No. 90-1, at24, 29, 31.
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
CERTIFIED QUESTIONS
1. When a check (i) is presented for payment, (ii) bears no signature in the
name of the payee on the back, and (iii) the drawee/payor ban1c pays the
check over the counter, in cash, to an individual who is not the payee but
who is an authorized signer on the account and who signs the back of the
check in her own name, is the signature on the back of the check an
"unauthorized signature," "alteration," or "unauthorized indorsement" as
a matter oflaw imposing on the customer the notice requirement ofRCW
62A.4-406( t)?
2. If the Answer to Question #1 is "Yes," does providing a ban1c customer
with a listing of the front of the checks and electronic access to images of
the front and back of the checks via on-line banking make the "statement
of account" and "items" reasonably available as required by 4-406(a)?
3. Does a bank fail to exercise ordinary care as a matter oflaw if it pays a
check to a person other than the payee when the check contains no
indorsement in the name of the payee?
Order Certifying Local Law Questions to the Wash. Supreme Ct., Travelers Cas.
& Sur. Co. v. Wash. Tr. Bank, No. CV-13-0409-JLQ, at 9-10 (E.D. Wash. Nov. 10,
2015).
STANDARD OF REVIEW
Certified questions present questions of law, and this court reviews them de
novo. Parents Involved in Cmty. Schs. v. Seattle Sch. Dist. No. I, 149 Wash. 2d 660,
670, 72 P.3d 151 (2003) (citing Rivett v. City of Tacoma, 123 Wash. 2d 573, 578, 870
P.2d 299 (1994)). We consider the legal issues not in the abstract but based on the
certified record provided by the federal court. Bradburn v. N. Cent. Reg'l Library
Dist., 168 Wash. 2d 789, 799, 231 P.3d 166 (2010) (citing RCW 2.60.030(2)).
6
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
We review questions of statutory interpretation de novo. State v. Wentz, 149
Wash. 2d 342, 346, 68 P.3d 282 (2003) (citing City ofPasco v. Pub. Emp 't Relations
Comm 'n, 119 Wash. 2d 504, 507, 833 P .2d 381 (1992)). On matters of statutory
interpretation, our "fundamental objective is to ascertain and carry out the
Legislature's intent." Dep'tofEcologyv. Campbell & Gwinn, LLC, 146 Wash. 2d 1,
9, 43 P.3d 4 (2002). "[I]fthe statute's meaning is plain on its face, then the court
must give effect to that plain meaning as an expression oflegislative intent." !d. at
9-10. A statute's "meaning is discerned from all that the Legislature has said in the
statute and related statutes which disclose legislative intent about the provision in
question." !d. at 11.
ANALYSIS
We decline to answer the first certified question as written because part of
the original question asks us to make factual determinations regarding Patterson's
authority to cash the checks. Instead, we exercise our inherent authority to
reformulate question 1 into two questions of law. See Danny v. Laidlaw Transit
Servs, Inc., 165 Wn.2d 200,205 n.l, 193 P.3d 128 (2008) (plurality opinion)
(citing Broad v. Mannes mann Anlagenbau A G, 196 F .3d 1075, 1076 (9th Cir.
1999)). First, is the signature of someone other than the named payee an
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
indorsement if that signature is located on the back of a check5 that is presented for
payment, lacks the payee's signature on the back, and is cashed by a bank?
Second, are Travelers's claims time barred under RCW 62A.4-406(f)? We answer
both in the affirmative. We conclude that Patterson's signature is an indorsement
as a matter of law. RCW 62A.3-204(a). But whether Patterson's signature is
"unauthorized" for purposes of the latter half of the first question will depend on
whether Patterson had the authority to cash checks as an agent for Skils'Kin's
customers. We recognize that whether Patterson had that authority is disputed and
decline to reach that issue.
Certified question 2 essentially asks us to decide whether the time bar
provision ofRCW 62A.4-406(f) has been triggered. To enjoy the benefit ofRCW
62A.4-406(f)'s time bar on claims, a bank must make a statement of account
available to its customer that meets certain statutory requirements. We find as a
matter of law that the Bank's statement of account met those requirements and
answer this question in the affirmative.
Finally, in this case, we answer certified question 3 in the negative.
Generally, a bank fails to exercise ordinary care as a matter of law if it cashes a
check for a person other than the payee when the check contains no payee's
5
A check is one type of negotiable instrument. A "check" is a draft, or order, that is payable on
demand and drawn on a bank. RCW 62A.3-104(f).
8
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
indorsement. However, whether in fact the bank exercised ordinary care will tum
on unresolved factual issues regarding Patterson's authority to indorse checks on
behalf of the named payees, and her agreement, if any, with the bank. 6
Question l(A). Is the signature of an authorized signer who is not the named
QID:'§e an indorsement if that signature is located on the back of a check that
is presented for payment, bears no signature in the name of the payee on the
back, and is cashed by a bank?
We answer the reformulated question in the affirmative. Patterson's
signatures constitute indorsements under Washington law.
Patterson's signature is an indorsement
Washington law defines "indorsement" in RCW 62A.3-204(a). The parties
in this case urge us to apply different portions of subsection (a)'s definition.
Travelers focuses on the first half of subsection (a), arguing a signature must
negotiate, restrict payment, or incur indorser's liability to be an indorsement.
Travelers contends that Patterson's signatures do not meet any of the three
alternatives in subsection (a) and are instead receipts that document '"proof of who
cashed the check[s]."' Pl. Travelers Cas. & Sur. Co. of Am.'s Opening Br. at 33
(Travelers Br.). Travelers argues this proves unambiguously that Patterson's
signatures were not indorsements. The Bank emphasizes the last half of subsection
6
We do not opine on whether, given our resolution of the certified questions, those factual issues
will need to be resolved.
9
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
(a). The Bank argues that state law presumes a signature on the back of a check is
an indorsement.
RCW 62A.3-204(a) states:
"Indorsement" means a signature, other than that of a signer as maker, drawer,
or acceptor,Pl that alone or accompanied by other words is made on an
instmment for the purpose of (i) negotiating the instrument, (ii) restricting
payment of the instrument, or (iii) incurring indorser's liability on the
instrument, but regardless of the intent of the signer, a signature and its
accompanying words is an indorsement unless the accompanying words,
terms of the instrument, place of the signature, or other circumstances
unambiguously indicate that the signature was made for a purpose other than
indorsement.
Chapter 62A.3 RCW was modeled on the Uniform Commercial Code (UCC)
and official comment to the parallel UCC provision, article 3 's "Negotiable
Instruments." "Courts in Washington have relied on the Official Comments to
U.C.C." Bank ofAm. NT & SA v. David W Hubert, PC, 153 Wash. 2d 102, 113 n.9,
101 P.3d 409 (2004) (citing Jones v. Allstate Ins. Co., 146 Wash. 2d 291, 313, 45
P.3d 1068 (2002)). The comment elaborates that in some cases, an indorsement
may serve more than one purpose. The "intent of the signer" may be determined
by words accompanying the signature, the place of the signature, or other
circumstances. See RCWA 62A.3-204(a) U.C.C. cmt. 1, at 69. As an example, the
comment states that if a signature is not qualified and appears in the place normally
7
RCW 62A.3-1 03 defines "acceptor" as a drawee who has accepted a draft. It does not include
the indorsers in this case because the drawee here is the Bank itself.
10
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
used for indorsements, it may be an indorsement even though the signer intended
the signature to be a receipt. Id. "The general rule is that a signature is an
indorsement if the instnunent does not indicate an unambiguous intent of the
signer not to sign as an indorser." Id. Put another way, "[a] signature on the back
of an instrument is an indorsement unless it says that it is not. If the instrument
does not indicate any clear intent on the part of the signer to sign as anything other
than an indorser, the signature is an indorsement." Chi. Title Ins. Co. v. Allfirst
Bank, 394 Md. 270, 284, 905 A.2d 366 (2006).
Washington's definition of"indorsement" is technical and somewhat
counterintuitive-indeed, a Maryland court has described its own identical version
of the stahlte and official comment as "somewhat unnecessarily obtuse." See id.
Webster's Dictionary's definition reflects the common understanding of the term.
Webster's defines "indorsement" as (1) the process of"sign[ing] one's name as
payee on the back of (a check) in order to obtain the cash or credit represented on
the face" or (2) "inscrib[ing] (one's signature) on a check, bill, or note."
WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 1154, 749 (1993) (noting
"indorse" as a variant spelling of "endorse" and defining the terms "endorsement"
and "endorse"). Carefully read in context, the meaning of"indorsement" under
Washington statutes is plain and controls in this case. If a statute's meaning is
plain on its face, we "must give effect to that plain meaning as an expression of
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
legislative intent." Campbell & Gwinn, 146 Wash. 2d at 9-10. RCW 62A.3-204(a)
does not expressly require the "named payee" to sign or indorse the instrument.
Instead, the statute essentially provides four alternatives under which a signature
may qualify as an indorsement. Under the fourth alternative, any signature
operates as an indorsement unless it is unambiguously something else.
Additionally, while the UCC does not define "indorsement," secondary sources
suggest any person's signature could act as an indorsement, not just the payee or
holder. 8 For example, Black's Law Dictionary defines "indorsement" as (1) "[t]he
placing of a signature, sometimes with an additional notation, on the back of a
negotiable instrument to transfer or guarantee the instrument or to acknowledge
payment" or (2) "[t]he signature or notation itself." BLACK's LAW DICTIONARY 893
(lOth ed. 2014). Definition (2) supports the conclusion that a signature or notation
itself is an indorsement.
We conclude Patterson's signatures are indorsements as a matter of law.
Under a plain reading ofRCW 62A.3-204(a) and its UCC official comment, a
signature qualifies as an "indorsement" if it meets one of four alternatives: (1) it
was made to negotiate the instrument, (2) it was made to restrict payment, (3) it
was made to incur signer's liability, or (4) it was a signature and not
8"Indorsement" is generally understood to mean writing one's signature on the back of the
commercial paper. See 5A RONALD A. ANDERSON & LARY LAWRENCE, ANDERSON ON THE
UNIFORM COMMERCIAL CODE §§ 3-202 to 3-202.33 (3d ed. 1994).
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
unambiguously something other than an indorsement. Patterson's signatures
arguably fit the first alternative and plainly fit the fourth-she signed the top area
on the back of checks at issue where an indorsement would normally appear, she
presented the checks for payment, and she did nothing that would indicate
unambiguously that her signature was anything but an indorsement.
The UCC exhibits a strong presumption in favor of the legitimacy of
indorsements, which protect the transfer of negotiable instruments by giving force
to the information presented on the face of the instrument. See In re Foreclosure
of Deed ofTr. Executed by Bass, 366 N.C. 464,468, 738 S.E.2d 173 (2013) (citing
LAWRENCE'S ANDERSON ON THE UNIFORM COMMERCIAL CODE § 3-204 (3d ed.
2003)). Treating Patterson's signatures as indorsements aligns with this
presumption. Likewise, committing to the jury the factual question of Patterson's
authority to indorse checks promotes uniformity of commercial law, as a multitude
of jurisdictions follow this procedural trajectory. See JAMES J. WHITE, ROBERTS.
SUMMERS & ROBERT A. HILLMAN, UNIFORM COMMERCIAL CODE § 19:4 n.8 (6th
ed. 2013) (listing cases that have found and not found authorization). 9
'Authorization was f01md in In re McMullen Oil Co., 251 B.R. 558 (Bankr. C.D. Cal. 2000)
(depository bank was not liable for a missing indorsement where the depositor was an authorized
agent of the payee).
Authorization was not found in Seattle-First National Bank v. Pacific National Bank of
Washington, 22 Wash. App. 46, 55, 587 P.2d 617 (1978) (finding no agency relationship existed
between depository bank and indorser); Gallery Garage Mgmt. Corp. v. Chemical Bank, 226
A.D.2d 305, 642 N.Y.S.2d 217 (1996) (bank liable for checks where no actual, apparent, or
implied agency authority existed and it was commercially unreasonable to accept them); Gen.
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
Travelers argues that Patterson's signatures were receipts of"'who cashed
the check[s],"' not indorsements. Travelers's Br. at 33. Accepting this argument
would require us to give RCW 62A.3-204 a strained reading. It would also require
us to put aside the comment that explains that if an indorsed signature "is not
qualified in any way and appears in the place normally used for indorsements, it
may be an indorsement even though the signer intended the signature to be a
receipt." RCWA 62A.3-204 U.C.C. cmt. 1, at 69. Patterson signed in the upper
area of the checks in the place normally used for indorsements. See, e.g., SA
RONALD A. ANDERSON & LARY LAWRENCE, ANDERSON ON THE UNIFORM
COMMERCIAL CODE§ 3-202:47 (3d ed. 1994) ("[o]rdinarily and following the
literal meaning of the term, an indorsement is written on the back of the
instrument"). Even if Patterson intended her signature to be a receipt, it is still an
indorsement for statutory purposes. 10
We conclude that the signature of an authorized signer who is not the named
payee is an indorsement if that signature is located on the back of a check that is
Am. Life Ins. Co. v. AmSouth Bank, 100 F.3d 893 (11th Cir. 1996) (bank liable to payee of check
for conversion when it allowed an authorized indorser to deposit the check into his own account;
agent did not have that apparent authority); Kenerson v. F.D.I.C., 44 F.3d 19 (1st Cir. 1995)
(agent was authorized to receive checks but not to indorse them).
10
Anderson on the Uniform Commercial Code further explains that an indorsement need not be
on any particular part of the instmment provided the intention to indorse can be determined or
provided the signing is not clearly in some other capacity. See 6 RONALD A. ANDERSON & LARY
LAWRENCE, ANDERSON ON THE UNIFORM COMMERCIAL CODE § 3-202:47 (3d ed. 1998) (citing
U.C.C. § 3-402, which was adopted by Washington in RCW 62A.3-204 and elaborates on fonner
section 3-402).
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
presented for payment, bears no signature in the name of the payee on the back,
and is cashed by a bank and answer the first part of the reformulated certified
question 1 in the affirmative .
.Whether Patterson's signature is "unauthorized" is a question for the trier of
fact
Because we have determined that Patterson's signatures are indorsements as
a matter of law, we may, but need not, address this issue. However, because the
federal district court has certified this question to us, we will address it briefly.
An unauthorized signature is a "signature made without actual, implied, or
apparent authority." RCW 62A.l-201(b)(41). This applies to "indorsements."
RCWA 62A.1-201 U.C.C. cmt. 43, at 43. UCC comments attached to chapter
62A.3 RCWA explain that the former version of the statute was unclear as to
whether an '"unauthorized signature"' in articles 3 and 4 applied to indorsements.
Id. Thus, lawmakers deleted the words "or indorsement" so that references to
"unauthorized signature" in RCWA 62A.3-406 and in articles 3 and 4 as a whole
"unambiguously refer to any signature." I d.
The legislature has directed us to construe the UCC in light of agency law,
and learned treatises direct us to resolve questions of authorization under the UCC
through agency law principles. RCW 62A.1-1 03(b ); 5A ANDERSON & LAWRENCE,
supra,§ 3-202:35 (citing U.C.C. § 1-103). Under agency principles, an
indorsement may be made by an agent; it is not necessary that an indorsement be
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
made by the holder personally because it could be written on behalf of the holder.
See RCW 62A.3-402 (signature by representative); see also SA ANDERSON &
LAWRENCE, supra,§ 3-202:35 (citing Pazol v. Citizens Nat'! Bank of Sandy
Springs, 110 Ga. App. 319,321, 138 S.E.2d 442 (1964)). "Courts have handled
authorization determinations on a case by case basis and looked to agency law to
determine whether there was actual or apparent authorization." WHITE ET AL.,
supra, at 332-33 (6th ed. 2013); see also Summerlin v. Nat'! Serv. Indus., Inc., 72
N.C. App. 476, 478-80, 325 S.E.3d 12 (1985) (existence of authority to sign on
behalf of another is a question of fact when reasonable inferences from evidence
conflict). Whether an agency relationship exists is generally a question of fact.
Unruh v. Cacchiotti, 172 Wash. 2d 98, 114, 257 P.3d 631 (2011) (citing 0 'Brien v.
Hafer, 122 Wash. App. 279, 281, 93 P.3d 930 (2004)); see Hudson v. Pac. Truck &
Tractor Co., 151 Wash. 46, 50, 274 P. 789 (1929) (contention that money
payments were made without authority is a question of fact). The record is unclear
on whether Skils'Kin had the authority to authorize Patterson to act as an agent for
its clients and if so, whether it did authorize her to so act, or whether those clients
had given her that authority. We decline to reach this portion of the certified
question.
Q_uestion 1(B). Are claims based on unauthorized indorsements that are not
discovered and reported to a bank within one year of being made available to
the customer time barred under RCW 62A.4-406(0Z
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
Assuming without deciding that the indorsements are unauthorized, we must
decide whether the RCW 62A.4-406(f) time bar applies to claims made based on
unauthorized indorsements. RCW 62A.4-406(f) states:
Without regard to care or lack of care of either the customer or the banlc, a
natural person whose account is primarily for personal, family, or household
purposes who does not within one year, and any other customer who does
not within sixty days, from the time the statement and items are made
available to the customer (subsection (a)) discover and report the customer's
unauthorized signature or any alteration on the face or back of the item or
does not within one year from that time discover and report any
unauthorized indorsement is precluded from asserting against the bank such
unauthorized signature or indorsement or such alteration. If there is a
preclusion under this subsection, the payor bank may not recover for breach
of warranty under RCW 62A.4-208 with respect to the unauthorized
signature or alteration to which the preclusion applies.
(Emphasis added.)
The Banlc argues that Travelers's claim is time barred under this statute.
Travelers contends that RCW 62A.4-406(t) does not apply because its claim is not
based on "unauthorized alterations, indorsements or customer signatures."
Travelers's Br. at 26. Instead, Travelers contends its claim rests on RCW 62A.4-
40 I (a), which states that "[a] bank may charge against the account of a customer an
item that is properly payable from that account even though the charge creates an
overdraft. An item is properly payable if it is authorized by the customer and is in
accordance with any agreement between the customer and bank." (Emphasis
added.) Travelers contends that the statute creates a requirement that the check be
properly payable for it to be paid and that the checks at issue were not properly
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Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
payable because they were not indorsed by the named payee. Travelers relies on
RCW 62A.4-40l(a)'s language stating something is properly payable "if it is
authorized by the customer and is in accordance with any agreement between the
customer and bank." But this is a section concerning overdrafts, not a statement of
the general principles governing payability. Cf 6C RONALD A. ANDERSON & LARY
LAWRENCE, ANDERSON ON THE UNIFORM COMMERCIAL CODE§ 4-401:5 (3d. ed.
2000) (when a bank pays an item which is not properly payable, it may not debit its
customer's account); id. § 4-401:55 (collecting cases). 11
Under the plain language ofRCW 62A.4-406(f), the time bar applies to
unauthorized indorsements. The adjective "unauthorized" modifies signature,
indorsement, and alteration in RCW 62A.4-406(f). Fidelity & Deposit Co. of
Maryland v. Dally appears to be the only Washington case that has addressed
specifically the one-year time bar in RCW 62A.4-406(f). 12 148 Wash. App. 739, 747-
48,201 P.3d 1040 (2009). Other jurisdictions have found that RCW 62A.4-
406(f)'s requirement that customers notify banks of unauthorized signatures,
alterations, or indorsements is a condition precedent to bringing suit. See Euro
11
We note in passing that Travelers does not suggest an alternative statute of limitations or other
species of time bar that would apply. We find it unlikely that the UCC would have no time bar
on this category of claims.
12
Other Washington cases have referenced RCW 62A.4-406 but have not analyzed the time bar.
See Seattle-First Nat'/ Bankv. Pacific Nat'/ Bank of Wash., 22 Wash. App. 46, 587 P.2d 618
(1978) (did not address time limitations imposed by RCW 62A.4-406); Parsons Travel, Inc. v. ·
Haag, 18 Wash. App. 588, 570 P.2d 445 (1977) (stands for same proposition as Seattle-First).
18
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
Motors, Inc. v. Sw. Fin. Bank & Tr. Co., 297 Ill. App. 3d 246, 251-52, 696 N.E.2d
711, 231 Ill. Dec. 415 (1998) (citing other jurisdictions reaching the same
conclusion); 6C ANDERSON & LAWRENCE, supra, at 490 (RCW 62A.4-406 relates
only to the time for notice and is not a statute of limitations specifying the time
within which a suit must be brought). 13
Accordingly, we conclude that claims based on unauthorized indorsements
that are not discovered and reported to a bank within one year of being made
available to the customer are time barred under RCW 62A.4-406(f) and answer the
second part of the reformulated certified question 1 in the affirmative.
Question 2. Does a "statement of account" listing ofthe front of checks and
online access to images ofthe front and backs of checks make the back of
the checks "reasonably available"?
We also answer certified question 2 in the affirmative. The Bank provided
sufficient information to Skils'Kin to identify the items paid through monthly
statements listing check numbers, amounts, and dates. The statement also
provided a telephone number for Skils'Kin to call and request the items that
cleared a customer's account. This is sufficient under RCW 62A.4-406(a), which
concerns customer statements of account and states:
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, copies of the items paid, or provide
13
See also Brown v. Cash Mgmt. Tr. ofAm., 963 F. Supp. 504 (D. Md. 1997); Gerber v. City
Nat' I Bank ofF/a., 619 So. 2d 328 (Fla. Dist. Ct. App. 1993) (citing cases from numerous
jurisdictions in accord).
19
Travelers Casualty & Surely Co. v. Washington Trust Bank, No. 92483-0
information in the statement of account sufficient to allow the customer
reasonably to identify the items paid. The statement of account provides
sufficient information ifthe item is described by item number, amount, and
date of payment. If the bank does not return the items paid or copies of the
items paid, it shall provide in the statement of account the telephone number
that the customer may call to request an item or copy of an item pursuant to
subsection (b )[ 141 of this section.
(Emphasis added.)
The language ofRCW 62A.4-406(a) gives a banlc multiple ways to satisfy
the statute. A bank that makes available a statement of account may return or
make available those items to a customer. I d. Providing a check number, amount,
and date of payment is sufficient information under the statute. Id. Moreover, a
bank is not required to return items paid but if it does not, it must provide
customers with a telephone number to request paid items. I d.
Travelers urges this court to hold that the Bank did not make statements
"reasonably available" because Skils'Kin did not agree to receive electronic copies
14
RCW 62A.4-406(b) provides:
If the items are not returned to the customer, the person retaining the items shall either
retain the items or, if the items are destroyed, maintain the capacity to furnish legible
copies of the items until the expiration of seven years after receipt of the items. A
customer may request an item from the bank that paid the item, and that bank must
provide in a reasonable time either the item or, if the item has been destroyed or is not
otherwise obtainable, a legible copy of the item. A bank shall provide, upon request and
without charge to the customer, at least two items or copies of items with respect to each
statement of account sent to the customer. A bank may charge fees for additional items or
copies of items in accordance with [ ]RCW 30.22.230. Requests for ten items or less shall
be processed and completed within ten business days.
(Reviser's note omitted.)
20
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
of its monthly statements and the Bank did not send copies of the backs of the
cleared checks. Travelers notes that Skils'Kin's statement of account did not give
instmctions on obtaining original or copies of canceled checks.
We find Travelers's argument unpersuasive. The Bank satisfied RCW
62A.4-406(a) because it complied with the language of the statute. It provided
sufficient information to Skils'Kin to reasonably identify the items paid through
monthly statements listing check numbers, amount, and dates. RCW 62A.4-406(a)
contains no language requiring a bank to return copies of checks to its customers.
See also RCWA 62A.4-406 U.C.C. cmt. 1, at 345 (customer's duties to timely
review and report errors triggered if bank sends a statement of account complying
with safe harbor rule without returning the paid items). Nevertheless, the Bank
sent copies of the items with images ofthe fronts of the paid checks and language
on the first page directing customers to call a telephone number for assistance. A
customer could call that number to request copies of cancelled checks.
Other jurisdictions have held that statements with images of the face of all
cleared checks satisfies the notice requirement mirroring RCW 62A.4-406(f).
Ownbey Enters., Inc. v. Wachovia Bank, NA, 457 F. Supp. 2d 1341 (N.D. Ga.
2006) (Ga. Code Ann. § 11-4-406(c), a statute paralleling ours, barred customer's
claim despite providing images of only front of checks where customer could
obtain copies affront and back of checks); Red/and Co. v. Bank ofAm. Corp., 568
21
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
F.3d 1232, 1236 (11th Cir. 2009). In Redland, a corporate employee wrote checks
payable to a specific company and the employee indorsed the checks, writing the
company's name on the back. 568 F.3d at 1234. The depositing bank sent the
corporation monthly account statements including copies of the fronts of all
checks. !d. The United States Court of Appeals for the Eleventh Circuit held
statements and copies of check fronts were sufficient to trigger customer's duty to
report. Jd. at 1236. However, the court noted that if the customer had the
opportunity to review the backs of checks, it was unlikely the customer would have
discovered the employee's scheme because the employee did not use his own
name--he signed the specific company's name. I d. Despite Redland's factual
differences from this case, it is clear that the language ofRCW 62A.4-406(a) sets
out the requirements for a satisfactory statement of account. Even if providing the
copies of only the front of checks is insufficient standing alone, the Bank's
statement of account still satisfies RCW 62A.4-406(a) because it provided
sufficient information (numbers, amount, and dates of cleared checks) and a
telephone number for Skils'Kin to call for assistance. If the Bank had provided
only the numbers, amount, and dates of the checks plus assistance telephone
number to request copies, it would have minimally satisfied the statute. Here, the
Banlc exceeded its obligations under the statute by providing Skils'Kin with online
banking services that included electronic viewing of the fronts and backs of all
22
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
cleared checks. See also WHITE ET AL., supra, at 429 ("We see no reason why a
listing of these checks and the debits to the account together with digital ima&es of
checks would not fully satisfy the 'statement of account' requirement in [U.C.C.]
4-406(a)."); see also Tatis v. US Bancorp, 473 F.3d 672, 675-76 (6th Cir. 2007)
(bank satisfied '"made available"' requirement by keeping statements at bank
instead of providing them to customer); Grubaugh v. Cent. Progressive Bank, No.
13-3045, 2014 WL 794141 (E.D. La. 2014) (court order) (bank satisfied statute
because customer could access statements at the bank).
Question 3. Does a bank fail to exercise ordinary care as a matter of law if it
IlliY§_a check to a person other than the payee when the check contains no
indorsement in the name ofthe payee?
Generally, a bank fails to exercise ordinary care as a matter oflaw in paying
a check to a person other than a named payee when the check lacks a payee's
indorsement. However, we stress that questions of fact remain as to Patterson's
authorization to act as an agent on behalf of the named payees. Based on the
record before us, a trier of fact could find that Patterson was or was not authorized
to indorse checks in the name of the payees. Therefore, the resolution of certified
question 3 also turns on unresolved factual questions and should not be determined
as a matter oflaw. Determination of this question does not affect the application
of RCW 62A.4-406(f), which applies with or"[ w ]ithout regard to ... lack of care."
23
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
See also 6C ANDERSON & LAWRENCE, supra, at 519 (collecting cases). Whether
the Bank exercised ordinary care relates to RCW 62A.4-406(d) and (e).
We stress that what constitutes a proper degree of care for a bank and a
depositor is ordinarily a question of fact for the trier of fact. See 6C ANDERSON &
LAWRENCE, supra, at 446-48. RCW 62A.3-402(a) allows binding signatures on
checks made by individuals "acting, or purporting to act, as a representative." A
payee's authorized agent may sign in that agent's name or in the payee's name.
RCW 62A.3-402(a) ("either the name of the represented person or the name of the
signer[;] the represented person is bound by the signature"); see Domestic Constr.,
LLC v. Bank ofAm., NA, No. C07 -5357BHS, 2009 WL 2710244 (W.D. Wash.
2009) (court order). If a jury determines Patterson had authority as an agent of the
payee's to indorse the checks at issue, the signatures are binding as a matter oflaw
on the principals/payees under RCW 62A.3-402(a).
A bank does not exercise ordinary care if it fails to exercise "reasonable
commercial standards, prevailing in the area in which the person is located, with
respect to the business in which the person is engaged." RCW 62A.3-103(a)(7).
Certain "egregious practices by banks" violate reasonable commercial standards as
a matter of law. See Cont'l Cas. Co. v. Fifth/Third Bank, 418 F. Supp. 2d 964, 978
(N.D. Ohio 2006); Govoni & Sons Constr. Co. v. Mechs. Bank, 51 Mass. App. Ct.
35, 742 N.E.2d 1094 (2001). Examples of a bank's '"clearly unreasonable
24
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
conduct"' are payment of checks with missing indorsements, ignoring a restrictive
indorsement, and failure to inquire into the authority to sign of one purporting to be
an agent. Govoni & Sons, 51 Mass. App. Ct. at 45 (quoting WHITE ET AL., supra,
at 761-62).
The record in this case does not establish the Bank exercised "clearly
unreasonable conduct" and therefore failed to exercise reasonable care as a matter
oflaw. Travelers argues that a bank fails to exercise ordinary care under
Washington law when a transaction is "'suspect on its face."' Travelers's Br. at 42
(quoting Bank ofW v. Wes-Con Dev. Co., 15 Wash. App. 238, 241, 548 P.2d 563
(1976)). Bank of West concerns the payment of a check with a forged payee's
indorsement. Bank ofW, 15 Wash. App. at 240-41. Unlike here, the parties in Bank
of West did not dispute that the signature at issue was an indorsement. See id. at
238-40. Similarly, Travelers's reliance on Govoni & Sons to argue the Bank acted
commercially unreasonable is inapposite. Govoni & Sons concerns missing
indorsements. 51 Mass. App. Ct. at 50-51. In the case at hand, the checks cashed
by the Bank contained Patterson's signatures, which constitute indorsements. See
supra Question l(A). Additionally, evidence was presented regarding the Bank's
inquiry into Patterson's authority.
25
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
Whether a bank exercises ordinary care when it pays a check to a person
other than the named payee, when the payee has not indorsed the check, will turn
on the facts of the individual case.
CONCLUSION
We hold that Patterson's signatures are indorsements under Washington law.
Whether she had authority to sign on behalf of the named payees on the checks at
issue is properly decided by the trier offact. In addition, we note that Skils'Kin's
failure to discover and notify the Bank of Patterson's embezzlement scheme within
one year bars Travelers's claims under RCW 62A.4-406(f).
We conclude that the Banlc satisfied RCW 62A.4-406(a) because it provided
sufficient information to Skils'Kin to reasonably identif'y the items paid through
monthly statements listing check numbers, amounts, and dates; and provided a
phone number to call to request items or copies of items paid. See RCW 62A.4-
40l(a). Sending the fronts of checks satisfies the statute.
Finally, whether a bank exercises ordinary care when it pays a check to a
person other than the payee, when the check lacks that payee's indorsement, is a
factual determination that requires deciding whether the person was an authorized
agent of the payee. The parties in this case dispute Patterson's authority as an
agent to indorse checks for the named payees. This is a question for the trier of
fact.
26
Travelers Casualty & Surety Co. v. Washington Trust Bank, No. 92483-0
WE CONCUR:
27