Mercantile Bank of Arkansas v. Vowell

• Decision Date: 11 June 2003
• Docket Number: No. CA 02-839.,CA 02-839.
• Citation: 117 S.W.3d 603,82 Ark. App. 421
• Parties: MERCANTILE BANK OF ARKANSAS v. John G. VOWELL.
• Court: Arkansas Court of Appeals

117 S.W.3d 603

MERCANTILE BANK OF ARKANSAS v. John G. VOWELL.

No. CA 02-839.

Court of Appeals of Arkansas, Divisions II and III.

June 11, 2003.

Hilburn, Calhoon, Harper, Pruniski & Calhoon, Ltd., by: Randy L. Grice and Traci LaCerra, North Little Rock, for appellant.

No response.

JOHN F. STROUD, JR., Chief Judge.

This appeal arose from a civil judgment of $6,014.38 in the circuit court of Pulaski County in favor of appellee and against appellant, Mercantile Bank of Arkansas and its successor entity, Firstar Bank. Appellant argues (1) that the trial court erred in finding that the conduct of appellee, Dr. John G. Vowell, did not substantially contribute to forgeries and unauthorized transactions by his daughter, Suzan Vowell, and that, as a result, appellee was not precluded from asserting the forgeries and unauthorized transactions against appellant pursuant to Ark.Code Ann. § 4-3-406; (2) that the trial court further erred in applying the allocation and preclusion provisions of Ark.Code Ann. § 4-4-406(e); and, finally, (3) that the trial court erred in apportioning the loss between appellee and appellant pursuant to the customer-account agreements. Appellee chose not to file a brief in response. We hold that there is no clear error in the trial court's finding that Dr. Vowell's conduct did not substantially contribute to the forgeries and unauthorized transactions. Neither do we find clear error in the trial court's finding that the appellant bank did not fail to exercise ordinary care. Where we do find error, however, is in the trial court's determination of which items appellee is precluded from recovering from appellant and the trial court's allocation of the loss between appellant and appellee. We therefore affirm in part and reverse and remand in part so that the trial court can enter a new judgment in accordance with this opinion.

Appellee and his wife, now deceased, had an interest-bearing checking account and a savings/money-market account with appellant. Both appellee and his wife signed the customer-account agreements with respect to each account. Each agreement contained a provision immediately above the signature line, which provided:

SIGNATURE(S)—THE UNDERSIGNED AGREE(S) TO THE TERMS STATED ON THE FRONT AND BACK OF THIS FORM, AND ACKNOWLEDGE(S) RECEIPT OF A COMPLETED COPY ON TODAY'S DATE. THE UNDERSIGNED ALSO ACKNOWLEDGE(S) RECEIPT OF A COPY OF OUR ACCOUNT INFORMATION BROCHURE[.]

The agreements also contained the following provision:

STATEMENTS—You must examine your statement of account with "reasonable promptness." If you discover (or reasonably should have discovered) any unauthorized payments or alterations, you must promptly notify us of the relevant facts. If you fail to do either of these duties, you will have to either share the loss with us, or bear the loss entirely yourself (depending on whether we exercised ordinary care and, if not, whether we substantially contributed to the loss). The loss could be not only with respect to items on the statement but other items forged or altered by the same wrongdoer. You agree that the time you have to examine your statement and report to us will depend on the circumstances, but that such time will not, in any circumstance, exceed a total of 30 days from when the statement is first made available to you.

You further agree that if you fail to report any unauthorized signatures, alterations, forgeries or any other errors in your account within 60 days of when we make the statement available, you cannot assert a claim against us on any items in that statement, and the loss will be entirely yours. This 60 day limitation is without regard to whether we exercised ordinary care. The limitation in this paragraph is in addition to that contained in the first paragraph of this section.

Appellant's policy regarding bank statements is to mail monthly bank statements on any account that has deposit or withdrawal activity. The bank statement covers the previous month's activity for the time frame that appears on the statement. The statements were usually sent to the account holder two days after the cutoff day listed on the statement and were generally considered as received two days thereafter. Appellee received bank statements at the Little Rock, Arkansas, address provided in the customer-account agreements. Appellee testified at trial that his wife had been responsible for reviewing the bank statements and balancing the checkbooks. Appellee did not personally review the accounts.

In June of 1997, appellee and his wife allowed their daughter, Suzan Vowell, now also deceased, and her boyfriend to move in with them at their home. At that time, they knew that Suzan and her boyfriend had been involved with drugs, alcohol, writing bad checks, and stealing. They also knew that Suzan had stolen checks from them in the past and forged either appellee's or his wife's signatures. The trial court found that appellee and his wife took precautions against future theft and forgeries by Suzan by hiding Mrs. Vowell's purse, which contained their checkbook, under the kitchen sink. Furthermore, appellee's wife suffered from diabetes mellitus and alcoholism, conditions that forced her to stay in bed either all or most of the time. Appellee, however, continued to rely on his wife to review the bank statements and to balance the checkbooks.

Beginning in June 1997 and continuing into September 1997, Suzan forged appellee's wife's signature on forty-two checks, drawn on both accounts, and committed nine unauthorized ATM withdrawals in the aggregate amount of $12,028.75.¹ Suzan found her mother's purse hidden under the kitchen sink and stole the checkbooks and ATM card from the purse. She apparently had access to, or figured out, appellee's PIN (personal identification number) because the number was identical with appellee's home security-system code. Suzan also stole certain credit cards, which she used to conduct various unauthorized transactions, but they did not involve appellant.

The first unauthorized banking transaction appeared on the June 1997 bank statement for the checking account, covering transactions occurring June 6 through July 7, 1997. This statement was sent to appellee on July 9, 1997. The trial court found that the statement was therefore deemed received as of July 11, 1997. This statement contained unauthorized payments totaling $230.00.

The second set of unauthorized transactions appeared on the July 1997 bank statement for the checking account, covering transactions occurring July 8 through August 6, 1997. That statement was mailed on August 8, 1997, and was thus deemed received as of August 10, 1997. This statement contained unauthorized payments totaling $1,235.25.

The third set of unauthorized transactions also appeared on the July 1997 bank statement for the savings account, covering transactions occurring July 23 through August 21, 1997, which was sent on August 23, 1997, and was deemed received as of August 25, 1997.² This statement contained unauthorized payments totaling $5,140.00.

The fourth set of unauthorized transactions appeared on the August 1997 bank statement for the checking account, covering transactions occurring August 7 through September 7, 1997. That statement was mailed to appellee on September 9, 1997, and was deemed received as of September 11, 1997. This statement contained unauthorized payments totaling $1,423.50.

Finally, the fifth set of unauthorized transactions appeared on the August 1997 bank statement for the savings account, covering transactions occurring August 22 through September 22, 1997. This statement was sent on September 24, 1997, and was deemed received as of September 26, 1997. It contained unauthorized payments totaling $4,000.00. The trial court specifically found that appellee did not notify appellant of the unauthorized transactions appearing on the June and July checking-account statements within thirty days from the date each was either sent or deemed received. Finally, on September 15, 1997, appellee discovered a receipt for an unauthorized credit-card transaction and notified appellant about his discovery at a meeting with Bill Eldridge, branch manager of appellant's Geyer Springs branch. Immediately, appellant froze appellee's and his wife's accounts, alerted its tellers and computer system, and began investigating the alleged forgeries and other unauthorized transactions pursuant to its policy.

As a result of the alert on appellee's account, Suzan was arrested on September 16, 1997, after she attempted to obtain an unauthorized cash advance at appellant's Riverfront branch. No more unauthorized transactions occurred after the alert was issued. Appellant prepared eight separate "Forged or Altered Check Affidavits of Loss," setting forth the forty-two forged checks and nine unauthorized ATM withdrawals. Appellee's wife signed the affidavits and Bill Eldridge notarized her signature on each affidavit.

Based on the facts before it, the trial court concluded that appellee and his wife "attempted to take proper precautions to safeguard their checkbooks, ATM cards and PIN" and that Dr. Vowell's conduct did not "substantially contribute to the forgeries and unauthorized transactions by Suzan Vowell which were paid in good faith by Firstar." Thus, the trial court determined that appellee was not precluded from asserting any of the forgeries and unauthorized transactions against appellant under Ark.Code Ann. § 4-3-406.

The trial court concluded, however, that appellee failed to exercise reasonable promptness in the examination and reporting of the forged checks and other unauthorized transactions on the June checking-account statement and the July checking-account statement. Therefore, the court found that appellee was precluded from asserting against appellant the forgeries contained on both of those checking-account statements. The trial court also found that appellee was entitled to an...