ONE-YEAR STATUE OF LIMITATIONS – EMBEZZLEMENT

Copy of case: (Travelers Casualty & Surety Co., v. Washington Trust Bank, No 92483-0) 1611-travelers-casualty-surety-co-v-washington-trust-bank

Often the only hope of financial recovery from an embezzlement, other than from insurance policies, is from a bank which paid on forged endorsements (also spelled “indorsements”). A recent case (November 3, 2016) held that the statute of limitations in such cases is only one year in Washington State.¹Travelers Casualty & Surety Co., v. Washington Trust Bank, No 92483-0

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. The embezzlement was discovered in an admission in the employee’s suicide note.

The Bank sent monthly bank statements during the embezzlement period. These statements included copies of the fronts of the checks that had been cashed at the Bank. The statements did not include copies of the backs of the checks, which would have readily revealed the embezzler’s signature.

During the relevant period of time, the victim 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.

RCW 62A.4-406(f) provides:

“Without regard to care or lack of care of either the customer or the bank, 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]

This statute is part of the Uniform Commercial Code and is commonly enacted across the United States in some form in every state. The case turned on whether the unauthorized signature of an embezzler is an “indorsement” which is defined in RCW 62A.3-204(a):

“Indorsement” means a signature, other than that of a signer as maker, drawer, or acceptor that alone or accompanied by other words is made on an instrument 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.

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, since the UCC does not define “indorsement,” it appears any person’s signature could act as an indorsement, not just the payee or holder.

The court held:

In this case, the embezzler’s signatures arguably fit the first alternative [to negotiate the instrument] 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.

Therefore, under the plain language of RCW 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).

Although it seems that the one year rule will apply to most embezzlement cases, it is possible that in a given case there may be a different claim against a bank other than under RCW 62A.4-406(f) (for example a separate contract duty of the bank) and a chance of recovery.