## Facts

- Compania de Aguaceros, S.A. (a Panamanian corporation) maintained a checking account at First National City Bank’s Panama branch.
- Joseph M. Silverthorne, Aguaceros’s treasurer and organizer, was the sole authorized signatory and lived in Honduras.
- Aguaceros retained Farca, S.A. (Farcasa) as its Panamanian resident agent; Carlos Echeverría later acquired Farcasa and served as Aguaceros’s agent and auditor in Panama.
- From October 11, 1963 through February 25, 1964, Echeverría forged Silverthorne’s signature on nine checks totaling about $44,000, which the bank paid.
- The bank rendered periodic statements and returned cancelled checks in the ordinary course to Aguaceros’s designated address; the statements and cancelled checks went to Farcasa rather than to Silverthorne.
- Silverthorne was absent from Panama after October 29, 1963, returned on March 19, 1964, reviewed the account materials, and discovered the forgeries.
- Aguaceros protested to the bank on March 20, 1964, after the checks had been paid and after the statements reflecting the items had been provided.
- The dispute centered on Article 989 of the Panamanian Commercial Code, which required delivery of current account statements within a specified period and gave the account holder five days thereafter to contest the balance or be deemed to have accepted it.

## Issues

1. Whether Article 989 of the Panamanian Commercial Code barred the depositor’s forged-check claim because the depositor did not contest the bank statements within the statutory objection period.
2. Whether the bank’s alleged negligence could avoid the statutory bar where the depositor failed to object within the time limit.

## Decision

- The Fifth Circuit reversed the judgment for Aguaceros.
- The court held Article 989 was clear and controlling and operated to bar Aguaceros’s claim due to its failure to timely contest the statements.
- The court treated the statutory objection period as dispositive, rejecting the trial court’s view that the provision was nonmandatory or could be overcome by a negligence finding.
- The result relieved the bank of liability for the nine forged checks.

## Legal Principles

- When the governing commercial law provides a definite and short period for a depositor to object to account statements, failure to object within that period deems the statement accepted and bars later claims for items shown on the statement, including forged checks.
- In an account governed by foreign commercial law, a federal court applies the foreign statute as a substantive rule where it is unequivocal and applicable to the transaction.
- The statutory scheme places the primary duty on the depositor to promptly review statements and cancelled items and to object within the prescribed time; the bank may rely on the depositor’s silence as acceptance.
- Where the forger is the depositor’s own agent entrusted with statement review, the depositor bears the consequences of that arrangement when the statute conditions recovery on timely objection.

## Conclusion

The Fifth Circuit applied Article 989 as a mandatory, substantive rule allocating responsibility to the depositor to review and promptly dispute bank statements; because Aguaceros did not object within the statutory period, its claim for the bank’s payment of forged checks was barred.


First Nat’l City Bank v. Compania de Aguaceros, S.A., 398 F.2d 779 (5th Cir. 1968)