The basic premise of the bank statement rule under 4.406 is to provide a one year window for bank customers to read and review bank statements and to report unauthorized activity on their accounts. Should a customer notify the bank of any unauthorized activity after the one (1) year period, the customer may be precluded from seeking restitution from the bank.
A unique situation presents itself when unauthorized activity takes place in a decedent’s account. What then, is the rule when (1) unauthorized activity takes place two years before the appointment of an administrator to an estate and (2) after the appointment of the administrator, the administrator waits approximately twenty-one months to report any unauthorized activity?
This fact scenario presented itself in Jefferson State Bank v. Lenk. 1 There, the decedent passed away in March 2000 with no estate administration pending and no estate representative appointed at the time. Meanwhile, Melvyn Spillman, who had been involved in a series of similar activities and was subsequently arrested, sent the bank fraudulent letters of administration allegedly appointing him as administrator of the decedent’s estate. Because of the letters of administration, the bank granted Spillman access to the decedent’s account, who subsequently funneled nearly all the funds to his accounts. Finally in September 2003, the probate court appointed Christa Lenk as the administratrix of the estate, who at the time knew of Spillman’s fraudulent activity. Although Lenk was appointed administratrix, Lenk never contacted the bank regarding the account and the bank presumably was unaware of Lenk’s appointment. Because of this, the bank did not send any of the bank statements to Lenk, continued to send statements to Spillman, and retained the statements at its offices. It was not until June 2005 that Lenk noticed the errors in the account and made demand on the bank for repayment of the money ($185,785!), almost twenty-one months after her appointment as administratrix. The bank, of course, asserted defenses under § 4.406 saying that over sixty days passed since the bank statements were made available to Lenk.2 However, Lenk argued that maintaining the statements at the bank’s offices was insufficient under the availability requirement under § 4.406(a). The Court of Appeals agreed with Lenk and held that retaining the bank statements at the bank was insufficient to fulfill the bank’s duty under § 4.406.
As an initial holding, the Texas Supreme Court rejected the idea that the bank’s notification to Spillman was satisfactory, because Spillman would have never been the bank’s customer. However, the Court did agree with the bank’s argument that retaining statements after a customer’s death would satisfy its duty under § 4.406. In so holding, the Court said that after a customer’s death, there would be no one to whom the bank statements could be sent. Even after the appointment of an administrator, the bank should not be faulted for not sending the statements to the administrator since the bank would be unaware of its existence. Finally, citing Texas Probate Code § 37, the Court said that “administrators are vested with the authority and duty to act on the estate’s behalf.”3
The Court’s cumulative holding is that banks can satisfy their duty by retaining bank statements after a customer’s death, but the one year bank statement rule does not begin until an administrator is appointed. Once appointed, the administrator is responsible for requesting the statements.
Because of an administrator’s duty to hold the possession of the estate in trust, coupled with the ideas of certainty and predictability under the statute, banks should be able to rely on the appointment of an administrator as the temporal beginning of the bank statement rule.4 This is more certain than waiting for an administrator to become aware of an account, which itself could take years.
The Court’s holding seems to benefit customers and banks simultaneously. The customer (and estate) is protected by not having the bank statement rule begin until an administrator’s appointment, rather than at the time of the customer’s death. The bank is protected by providing a specific time to begin the clock under these particular circumstances.5
1 Jefferson State Bank v. Lenk, 323 S.W.3d 146 (Tex. 2010).
2 The parties contractually agreed to shorten the notice period from one year to sixty days. Id. at 147.
5 The Court in its holding did not alter the ability of parties (bank and customer) to negotiate a shorter notice period under the bank statement rule.
This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.