R.I. Hosp. Tr. Nat'l Bank v. Zapata Corp.

848 F.2d 291 (1st Cir. 1988)



Strict bank liability terminates 14 days after a customer receives a bank's statement unless customer establishes lack of ordinary care. R.I. Gen. Laws § 6A-4-406(3). One of the most serious consequences of failure of a customer to examine his statement and notify the bank promptly of an unauthorized signature is the opportunity presented to the wrongdoer to repeat his misdeeds. Conversely, one of the best ways to keep down losses in this type of situation is for the customer to promptly examine his statement and notify the bank so that the bank will be alerted to stop paying further items. Even if the bank succeeds in establishing that the customer has failed to exercise ordinary care, if in turn the customer succeeds in establishing that the bank failed to exercise ordinary care in paying the items, the preclusion rule does not apply. 


Appellant's employee wrote a large number of forged checks that were drawn on appellant's accounts at appellee bank. Appellee bank paid the forged checks. Appellee bank sent regular statements to appellant that reflected the forged checks. Under R.I. Gen. Laws § 6A-4-406(3), appellee's strict bank liability terminated 14 days after appellant received the first statement that reflected forged checks. Appellant asserted that appellee was required to reimburse it for checks paid after that date because appellee's treatment of checks lacked ordinary care. Appellant sought review of the judgment of the district court that held that appellee bank was not required to reimburse appellant for payment of forged checks that cleared after appellant had opportunity to examine its account statement. The court further found that appellee's practice of examining one percent of signatures at random was reasonable. The judgment was affirmed.


Did the system employed by appellee bank for detecting forged checks lack the "ordinary care" that a bank must exercise?




The court found that appellee made out a prima facie case of ordinary care because expert testimony established that its practices conformed to banking industry standard. Appellant produced no evidence that an industry-wide standard that required examination of every check would increase the number of forgeries detected. Appellee's practice conformed to standard of care for the banking industry.  The court found that costs saved was a relevant consideration in determining the practice's reasonableness.

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