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National Title Insurance Corporation Agency v. First Union National Bank

Citation. Nat’l Title Ins. Corp. Agency v. First Union Nat’l Bank, 263 Va. 355, 559 S.E.2d 668, 47 U.C.C. Rep. Serv. 2d (Callaghan) 318 (Va. Mar. 1, 2002)
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Brief Fact Summary.

This is an appeal of a suit brought by the plaintiff seeking to recover payment from defendant for two fraudulent checks. Two fraudulent checks were paid by the defendant and debited against the plaintiff’s account. Plaintiff did not notice the fraud and inform the defendant until after the 60 day time period as outlined in the parties’ Deposit Agreement.

Synopsis of Rule of Law.

Code Section: 8.4-103(a) states that the provisions of Section 8.4 may be varied by agreement of both parties so long as it does not absolve a bank of liability.


National Title Insurance Corporation (the “plaintiff”) opened an escrow checking account with First Union National Bank (the “defendant”) in April 1996. At the time, the parties entered into a deposit agreement. The deposit agreement defined and governed the relationship between the parties. At issue in this case is Paragraph 12 of the deposit agreement that absolves the defendant of any liability for paying an item containing an unauthorized signature, an unauthorized indorsement, or a material alteration of the plaintiff does not report such fact to the defendant within 60 days of the mailing of the account statement describing the questionable item. Considering this, the defendant paid two counterfeit checks. The plaintiff did not report either of the unauthorized signatures to the defendant within 60 days of receipt of the account statements. After the defendant failed to credit the plaintiff’s account, this action ensued. The trial court concluded that the parties could contractually reduce the one-year period for reporting unauthorized signatures set forth in Code Section: 8.4-406(f) and that the 60 day time period was not “manifestly unreasonable” under the provisions of the code.


May a bank and its customer, by contractual agreement, shorten the one-year period provided in Code Section: 8.4-406(f)?


Yes. Code Section: 8.4-103(a) states that, “the effect of the provision of this title may be varied by agreement but the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith of failure to exercise ordinary care of limit the measure of damages for lack or failure. However, the parties may determine by agreement the standards by which the bank’s responsibility is to be measured if those standards are not manifestly unreasonable.” Official Comment 2 regarding 4-103 of the UCC states, “subsection (a) confers blanket power to vary all provisions of the Article by agreements of the ordinary kind.” Therefore, this statue allows a bank and its customer to vary an agreement so long as it does not: “(1) ‘disclaim a bank’s responsibility for its lack of good faith,’ (2) ‘disclaim a bank’s responsibility for its failure to exercise ordinary care’ or (3) ‘limit the measure of damage for the lack of failure’” The court held that the agreement between the p arties remains within the aforementioned limitations and that the reduction in the length of the statutory notice period is “consistent with the concept embodied in Code Section: 8.4-406(f) and that First Union and National Trade did so in Paragraph 12 of the Deposit Agreement.” The court further held that the 60-day time limitation set forth in Paragraph 12 is not “manifestly unreasonable” as argued by the plaintiff. Additionally, the provisions of Paragraph 12 of the Deposit Agreement do not alter liability between the banks and their customers as set forth in Code Section: 8.4-406. The ruling of the circuit court is affirmed.


Virginia Commercial Code Title 8.4 establishes the duties and obligations between banks and its customers. A bank may charge against its customer’s account only those charges that are properly payable from the account. Items with unauthorized signatures are not properly payable. Considering this, a customer has a duty to discover and report any unauthorized charges. Code Section: 8.4-406(c) states that if a bank offers a customer a bank statement, the customer “must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized.” If the customer fails to comply with these duties, then according to Code Section: 8.4-406(d)(1), then the customer is precluded from “asserting against the bank the unauthorized signature to alteration of the item.” Conversely, according to Code Section: 8.4-406(e), if a customer is able to establish that the bank “failed to exercise ordinary care in paying the item and that the failure substantially contributed to the loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent” that the failure of each party contributed to the loss. Finally, Code Section: 8.4-406(f) states that if a customer “does not discover and report an unauthorized signature or alteration on an item within on year after the statement or items are made available to the customer, the customer is thereafter precluded from asserting against the bank the unauthorized signature or alteration.”

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