Forged Signatures. Visiting Nurses Association of Telfair County, Inc (VNA), maintained a checking account at Security State Bank in Valdosta, Georgia. Wanda Williamson, a VNA clerk, was responsible for making VNA bank deposits, but she was not a

Question

signatory on the association's account. Over a four-year period, Williamson embezzled more than $250,000 from VNA by forging its indorsement on checks, cashing them at the bank, and keeping a portion of the proceeds. Williamson was arrested, convicted, sentenced to a prison term, and ordered to pay restitution. VNA filed a suit in a Georgia state court against the bank, alleging, among other things, negligence. The bank filed a motion for summary judgment on the ground that VNA was precluded by UCC 4-406(f) from recovering on checks with forged indorsements. Should the court grant the motion? Explain.

Answer 1

Forged signatures
The court denied the bank's motion for summary judgment, and the bank appealed to a state intermediate appellate court, which reversed the lower court's judgment. The appellate court applied "the statutory bars of [UCC 4-406(f)] to the facts." Under UCC 4-406(f), "[w]ithout re-gard to care or lack of care of either the customer or the bank, a customer who does not within 60 days after the statement or items are made available to the customer . . . discover and report the customer's unauthorized signature on or any alteration on the face of the item or who does not within one year from that time discover and report any unauthorized indorsement or alteration on the back of the item is precluded from asserting against the bank the unauthorized signature, indorsement or alteration." The court noted that the term "unauthorized endorsement" includes a missing indorsement and a forgery. In this case, "the bank sent VNA a monthly statement during the four-year period that Williamson was fraudulently cashing checks. The bank is therefore entitled to invoke the limitation periods."