Background. In 1977 a woman deposited $1 million in an investment account at a bank. She instructed the bank to accumulate earnings and leave them in the account. Within a year, the bank had lost the entire $1 million through poor investments, leaving only a small amount of earnings. Nearly twenty years later the woman sued the bank. She claimed that the loss of her investment was caused by the bank’s breach of its “fiduciary duties.” The bank argued that the lawsuit should be dismissed since the statute of limitations had expired. It noted that under state law bank customers have ten years to bring such a lawsuit, and that this period had long since expired.
The court’s ruling. A trial court ruled in favor of the bank, and the woman appealed. A state appeals court upheld the trial court’s decision in favor of the bank. The court noted that a bank customer “has a duty to exercise reasonable care and promptness” in examining bank statements. It pointed out that the bank had sent the woman (and her husband and accountant) monthly statements from the time she first invested funds with the bank, and that she was thereby “put on notice” of the loss of her funds long before the statute of limitations expired on her claim. The court rejected the woman’s claim that the ten-year limitations period should be extended because of her failure to discover the loss of her funds. It observed that
a cursory review, month to month, would have revealed the depletion of approximately $1 million in principal within a twelve month period. If anything, [the bank] attempted to aid [the woman] by sending multiple sets of the monthly statements. [She] had sufficient information to excite her attention. [She] had sufficient notice to alert her to the possibility that something was happening to her funds. Any unreasonable ignorance of the facts by [her] regarding the account activity is not excused …. [She] had sufficient notice to put her on guard that something was going on with her account.
Relevance to church treasurers. Nearly every church has one or more bank accounts, and several have endowment or other designated funds in an investment account. Be sure to review each monthly statement (and its contents) so that you can detect unexplained or unforeseen losses, unauthorized signatures, alterations, and other irregularities. This case illustrates that a failure to recognize problems may jeopardize a church’s legal right to correct or address them. Robinson v. Whitney National Bank, 683 So.2d 847 (La. App. 1996).
This article originally appeared in Church Treasurer Alert, April 1997.