The district court granted summary judgment to a bank on a breach of contract claim where a bank customer was precluded from suing bank for payment of fraudulent checks because customer did not report fraud within 90 days of receiving statement containing copy of first fraudulent check, and account agreement specified that fraud was required to be reported within 90 days.
Designer Direct, Inc. has a bank account with PNC Financial Services Group, Inc. Three of Designer Direct’s officers are authorized signers on its bank account. Between October 2016 and May 2017, Designer Direct’s former office manager, Kristiana Ostojic, forged one of those officers’, Stephen Rebarchak, signature on thirty-nine checks drawn on the account. Each check was made payable either to Ostojic or KO Development. The sum total of the fraudulent checks was $185,421.94
Ostojic deposited each check at either US Bank or JP Morgan Chase. The checks were then eventually presented to PNC for payment and were processed during the normal course of business through an automated system. PNC mailed account statements to Designer Direct each month. Each statement identified checks drawn on the account by date, check number, and amount. PNC also included copies of drawn checks with each statement.
Rebarchak reviewed all of the statements sent by PNC but did not see the electronic check copies because Ostojic intercepted the online statements and removed the check images before he could see them. When Rebarchak did finally see one of the checks, in May 2017, he was immediately aware of the fraud and notified PNC the next day. Designer Direct eventually sued PNC in federal district court in the Northern District of Illinois for breach of contract, alleging that PNC breached the account agreement by failing to exercise ordinary care in the payment of the checks.
PNC moved for summary judgment. PNC stated that the account agreement that Designer Direct signed specified that PNC would not be liable for any unauthorized transaction or any forgery, unauthorized signature, or alteration of an item on the signatories’ account that was not brought to PNC’s attention within 90 days of the date of the statement was received. PNC argued that the Uniform Commercial Code barred Designer Direct from recovering on its breach of contract claim.
The district court began by citing Napleton v. Great Lakes Bank, N.A., stating that, in Illinois, the UCC governs the relationship between a bank and its customer. The court stated that the UCC defines the duties of a bank customer regarding the examination of account statements and the discovery of unauthorized payments. The court found that § 4-406 of the UCC barred a bank customer from asserting an unauthorized signature unless the customer exercised reasonable promptness in examining their statements. The court found that PNC complied with its duties to provide statements for each check drawn on Designer Direct’s account and that the account agreement defined “reasonable promptness” to mean 90 days. The court found that Designer Direct was thus barred from recovering for any fraudulent check paid prior to February 2017. The court then found that § 4-406(d)(2) barred recovery for subsequent fraudulent checks when the first notice was not given to the bank within 30 days of the original fraudulent check. The court stated that § 4-406(d)(2) prevented Designer Direct from recovering for any check forged by Ostojic and paid after February 2017. The court then granted PNC’s motion for summary judgment.
You can view the decision here.Super Lawyers named Chicago business dispute attorney Peter Lubin a Super Lawyer and Chicago business litigation lawyer Patrick Austermuehle a Rising Star in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Lubin Austermuehle’s Chicago business trial lawyers have over thirty years of experience in litigating franchise and dealer termination, breach of contract, complex class action, copyright, partnership, and shareholder oppression suits, noncompete agreement, trademark and libel suits, consumer rights and many different types of business and commercial litigation disputes. Our Wheaton and Oak Brook franchise and dealer termination lawyers, civil litigation lawyers, and copyright attorneys handle emergency business lawsuits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist Chicago and Oak Brook area businesses and business owners who are victims of fraud. You can contact us by calling at 630-333-0333. You can also contact us online here.