Must a bank statement contain check images to provide notice of unauthorized transactions?

Cancelled Check

C. Nicholas Pereos, Ltd. v. Bank of Am. (Nev. Supreme Ct. – July 2, 2015)

Williams, a long-time employee of Pereos, Ltd., law firm, was a signator on the firm’s operating account with Bank of America. In September 2006, the firm’s solo practitioner, Pereos, removed Williams as a signator on the account, leaving Pereos as the sole signator. Pereos told Williams to let the Bank of America account “run itself out” to cover any outstanding checks, but he never took any action to affirmatively close the account.

In 2010, Pereos discovered that Williams had been embezzling money since 2006. Despite being removed as a signator on the account, Williams deposited checks made out to Pereos, Ltd. into the Bank of America account and would then write and sign checks for her own personal use. Pereos notified the bank of the unauthorized transactions on January 28, 2010. The next month, Pereos, Ltd. filed a complaint against Bank of America based on Williams’ use of unauthorized signatures to withdraw funds from the account from 2006 to 2010. When it was discovered that Williams had enrolled the Pereos, Ltd. account in online banking and the bank statements had not been mailed, Pereos amended the complaint to include an allegation that Bank of America had failed to make Pereos, Ltd.’s statements available as required by NRS 104.4406(1).

Bank of America moved to dismiss the amended complaint, or alternatively for summary judgment, on the ground that Pereos, Ltd.’s claims for unauthorized transactions were time-barred either because they were not reported by Pereos, Ltd. within 30 days under NRS 104.4406(4)(b) or within the one-year period of repose under NRS 104.4406(6). The bank argued that, notwithstanding Pereos, Ltd.’s contention that the account statements were not mailed to it, Pereos’ deposition testimony revealed that Pereos had on occasion personally picked up some of Pereos, Ltd.’s bank account statements from Bank of America in 2006, 2007, and 2008. The bank attached copies of the account’s statements to its motion and argued that the unauthorized transactions were contained in the bank statements that were made available to Pereos. In opposition, Pereos, Ltd. argued that the statements he obtained were insufficient to provide it with notice of the unauthorized signatures as they were only a single page or two-page document that showed check numbers and the amount of the check, and balances and nothing more. Moreover, he contended that the statements were insufficient because they did not contain a copy of the canceled checks. Pereos also argued that his claims for unauthorized checks cashed within the year preceding his notification to the bank were not time-barred. Conversely, Bank of America argued that, because the same wrongdoer committed all of the wrongful transactions, all claims were time-barred by Pereos, Ltd.’s failure to give the bank notice within 30 days after receiving the account statements.

The district court granted summary judgment in favor of Bank of America, finding that it was irrelevant whether Pereos, Ltd. Received copies of the checks because NRS 104.4406(1) does not require the inclusion of check images. Moreover, the district court found that there was no dispute that the bank statements received by Pereos contained item numbers, amounts, and dates of payment, and thus, the account statements Pereos received were sufficient to notify him of the unauthorized activity on the firm’s account. Accordingly, all claims were time-barred under NRS 104.4406(4)(b) and NRS 104.4406(6). Pereos appealed.

The Nevada Supreme Court explained that Nevada’s version of the Uniform Commercial Code generally absolves a bank of liability for payment on an unauthorized transaction when it provides the customer with information that would allow the customer to identify any unauthorized transactions, such as an account statement, and the customer then fails to timely act in response to unauthorized transactions reflected therein.

NRS 104.4406(3) provides that once the customer is provided with the necessary account information, the customer must exercise reasonable promptness in examining the information and notifying the bank of any unauthorized transactions. Pursuant to NRS 104.4406(4), (5), failure to do so may limit the bank’s liability for the unauthorized transactions contained in the information and also for any others made by the same wrongdoer that occur before the bank receives notice, depending on whether the bank exercised ordinary care in making the payments. Regardless of fault, however, NRS 104.4406(6), bars a customer from asserting any claims with respect to an unauthorized transaction more than one year after the bank made the information available to the customer.

Pereos, Ltd. argued that summary judgment was inappropriate because genuine issues of material fact remain as to (1) whether the account statements were sufficient to give notice of the unauthorized activity on its account so as to trigger its duty to examine the statements for and notify the bank of any unauthorized activity; and (2) even if its duty was triggered, whether its claims concerning payments made within the one-year period before it notified the bank of the unauthorized activity were time-barred.

Duty to Act

The Court explained that to trigger a customer’s duty to examine its account for unauthorized account activity, a bank may either (1) return or make available copies of the canceled checks to the customer, or (2) furnish an account statement to the customer. If copies of canceled checks are not returned, the account statement must provide the customer with sufficient information for the customer reasonably to identify the items paid on the account. This requirement is met if the item is described by item number, amount and date of payment.

This safe harbor rule permitting banks to furnish account statements to customers that contain the item number, amount, and date of payment in lieu of providing customers with copies of canceled checks was intended to reduce the costs associated with check collection. Therefore, the burden is on the bank’s customers to remain reasonably aware of the activity on their accounts. Accordingly, if the customer should reasonably have discovered the unauthorized payment from the information provided, the customer must promptly notify the bank.

The Court determined there were genuine issues of material fact as to the manner of delivery and the content of the statements that Bank of America contended were mailed to Pereos or delivered to him during his branch visits. Pereos, Ltd. disputed the fact that Bank of America mailed bank statements to its office location during the time in question. While Bank of America supplied copies of the bank statements to the district court, it appeared from the record that the bank did not actually mail those statements to Pereos, Ltd., but rather, they were made available online at the direction of Williams. The Court indicated It was not clear from the record the extent of Williams’ authority and when she converted delivery of the bank statements to an online format. Nonetheless, Bank of America continued to maintain that, regardless of the method of delivery, Pereos received some of the statements during his visits to the bank between September 2006 and January 2008, the contents of which would have put him on notice of the unauthorized activity. And even though Pereos conceded that the statements he received contained the item number and amount for each item paid, he maintained that they did not contain the date of payment. Because genuine issues of material fact remain as to the delivery method of the bank statements and whether the statements Pereos received during his visits to Bank of America contained the statutory safe harbor information to discover the unauthorized transactions, the Court concluded that the district court erred in granting summary judgment under the 30-day rule in NRS 104.4406(4)(b).


Pereos, Ltd. Also argued that, even if the statements triggered its duty to identify and promptly notify Bank of America of the unauthorized activity, its claims for checks forged within the year preceding giving notice to the bank are not time-barred by the one-year deadline. Bank of America argued that all of Pereos, Ltd.’s claims were barred pursuant to NRS 104.4406(4)(b), because payment on all of the acts of forgery, committed by the same wrongdoer, occurred after Pereos, Ltd. had 30 days to examine the first account statement containing forged transactions and before Pereos, Ltd. reported the unauthorized transactions to Bank of America. To resolve this issue, the Court examined the interplay between NRS 104.4406’s subsections 4, 5, and 6, to determine whether Pereos, Ltd.’s claims for unauthorized payments made from its bank account during the one-year period before January 2010 were statutorily barred.

Distinguishing between a single forgery and multiple forgeries by the same wrongdoer, subsection 4 provides that a customer who fails to exercise the reasonable diligence required in subsection 3 is precluded from asserting a claim against the bank for a single forged item if the bank proves that it suffered a loss from that failure, NRS 104.4406(4)(a), or for multiple forged items by the same wrongdoer 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, but after the customer had 30 days to review the account statement.

These preclusions are subject to exception for the bank’s failure to exercise due care, however: if 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 to be divided between the bank and the customer. And if the bank pays the item without good faith, subsection 4’s prohibitions against the customer asserting a claim are inapplicable altogether. But regardless of either the bank’s or the customer’s failure to exercise ordinary care, a customer is precluded from bringing any claim against the bank if it is not brought within one year of the account statement being made available.

To the extent that Bank of America argued that all of Pereos’ claims were barred by NRS 104.4406(4)(b) because the same wrongdoer was responsible for all of the embezzlements and Pereos did not report them within 30 days of receiving the first account statement reflecting the forgeries, the Court noted that the one-year period of repose in NRS 104.4406(6) does not differentiate between a single forgery and multiple forgeries by the same wrongdoer. Because NRS 104.4406(6) does not expressly differentiate between a single forgery and multiple forgeries by the same wrongdoer, the Court concluded that a new limitations period under its one-year statute of repose begins to run with each successive forgery. Thus, the Court found that Pereos was permitted to bring claims consistent with the provisions in NRS 104.4406.

Moreover, the Court explained that if the customer sufficiently proves that the bank failed to exercise ordinary care in making the unauthorized payment, NRS 104.4406(4)(b)’s limitation period is negated. Here, Pereos, Ltd. Had alleged, and Bank of America did not deny, that it paid on checks drawn from the account signed by Williams after Williams’ authority over the account was removed. Thus, Pereos may be able to prove that Bank of America failed to exercise ordinary care in continuing to honor Williams’ signature on checks despite the account owner’s instructions otherwise. Accordingly, the Court found genuine issues of material fact existed regarding the parties’ fault with respect to these transactions. Even if Pereos, Ltd.’s claims for unauthorized transactions before January 2009 were barred by NRS 104.4406(4)(b), Pereos, Ltd. was entitled to go forward with its claims against Bank of America for those unauthorized payments made during the year before Pereos notified the bank in January 2010. Accordingly, the Court reversed the district court’s summary judgment.

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