|
March 1, 1994 MEMORANDUM TO CLIENTS
NEW CHECK HANDLING LAWS: PROTECT YOURSELF FROM STOLEN OR FRAUDULENTLY SIGNED CHECKS Your check is stolen. The bank accepts it. Payment is made on the check. Who is to blame? Who should pay for the loss? Is there no hope of recovery? This article examines who has the duty to prevent losses incurred when a check is stolen and/or fraudulently endorsed and who bears these losses. The Florida Statutes concerning negotiable instruments and the handling of checks have been revised to accommodate changes in technology, and business and financial practices. These changes attempt to clarify the ambiguous language and resolve the conflicting judicial decisions and interpretations.
Who should bear the loss when a check is stolen and/or fraudulently endorsed? Florida Statutes Chapter 673 requires all parties involved in the payment and collection process (the banks, the maker/signer of the check, and the recipient/owner of the check) to exercise "ordinary" care. Therefore, the loss incurred when a check is stolen, accepted by a bank and paid is generally shared by all the parties involved to the extent of their individual failures to exercise ordinary care. The statutes give little guidance as to what constitutes the exercise of ordinary care. However, the new law's drafters advise that the law is intended to allow a customer to prove a bank's lack of ordinary care by proving that the bank's procedures are unreasonable, arbitrary, or unfair. If the customer's own failure to exercise ordinary care substantially contributed to a forged or altered check, then the customer will be precluded from asserting a claim against the bank which accepted and paid the check in good faith. Failure to review bank statements is an example of a customer's failure to exercise ordinary care. Another example would be the customer's frequent allowance of another unauthorized person to sign or endorse the customer's checks.
Florida Statutes §673.4051 places a greater responsibility on an employer whose employee has stolen and/or fraudulently endorsed a check. The loss incurred as a result of the theft or forgery shifts to the employer when the theft or forgery is caused by an employee with authority to handle the check. The rationale behind the statute's allocation of loss is that the employer is in a better position to avoid the loss through careful choosing of employees, proper supervision of employees and adopting other measurements to prevent theft by employees. Florida Statutes §673.4051(2) provides some relief for employers if the bank also fails to exercise ordinary care when accepting and/or making payment on the stolen check. The employer may be able to recover from the bank a portion of the loss to the extent that the bank failed to exercise ordinary care. It is uncertain what effect agreements between the bank and its customers to hold the bank harmless will have on how the loss is allocated.
Bank customers are not exempted from sharing in stolen check losses. Florida Statutes §674.406 imposes a duty upon the bank customer to examine statements and items sent or made available to the customer by the bank. A reasonable period of time to examine statements may be less than one month. The customer is under a duty to promptly notify the bank of any facts which indicate that a wrongdoing, such as theft or forgery, has occurred. Failure to notify the bank will preclude the customer from asserting the loss against the bank unless the customer can prove that the bank failed to exercise ordinary care and the bank's failure to exercise ordinary care substantially contributed to the loss. Be aware, that even if the customer proves the bank failed to exercise ordinary care which substantially contributed to the loss, the bank may still not bear the entire loss. A loss will be allocated among all parties contributing to the loss by failing to exercise ordinary care. UNLICENSED WORK
Many property owners find to their chagrin that expensive but shoddy work has been performed by unlicensed individuals. State and many local laws require certain types of work to be undertaken by licensed individuals. Licenses are required for more than just people who produce audits and provide legal advice. Many building trades also are licensed and regulated by one level of government or another. Reliance upon a licensed service provider is imperative. While many laws allow a corporate director to rely upon advice provided to the corporate director, if this advice is not provided by qualified individuals then that advice may not be the basis for a reasonable reliance. For example, knowingly utilizing an unlicensed engineer for a building project would most likely be found to be a dereliction of a director's duty just as if a corporation used a bookkeeper for audit work or used a notary public or building manager to obtain legal opinions. The law is clear, before seeking advice for services, a corporation should be assured that the provider is appropriately licensed.
It is that time of year again, the Legislature is in session! This year our state representatives and senators do not appear to be overly interested in Association Law. As a result the only legislation that appears to be seriously considered will be some technical adjustments to managers' applications, and some of the more difficult areas of condominium and cooperative law, such as concerning assessments, owner complaints, and developer disclosures. If new association related laws are enacted, then we plan to summarize the contents for you in a brief concise fashion.
© 1994 by Gelfand & Arpe, P.A. |