## Facts

- Randall E. Stowell opened a savings and draft account at Cloquet Co-op Credit Union and signed a Draft Withdrawal Agreement requiring him to examine monthly statements and report “any errors” within 20 days after the statement was mailed; otherwise, the statement items became final.
- From December 1992 to September 1993, Stowell’s neighbor, Robert Nelson, stole blank checks and monthly statements from Stowell’s mail, forged approximately 50 checks totaling about $22,000, and negotiated them against Stowell’s account.
- Stowell repeatedly told the Credit Union he was not receiving monthly statements; the Credit Union mailed duplicate statements, which were also intercepted.
- In September 1993, a bank notified Stowell that a check payable to Nelson had been returned for insufficient funds; Stowell denied writing it.
- Stowell contacted police and the Credit Union; after reviewing statements, the parties discovered the series of forged checks.
- The Credit Union used automated check processing and generally did not conduct manual, item-by-item signature comparison.

## Issues

1. Whether a customer’s duty under Minn. Stat. § 336.4-406 to examine statements and report unauthorized signatures may begin upon mailing when the parties agreed to a 20-day notice period running from the mailing date.
2. Whether a 20-day contractual notice requirement is “manifestly unreasonable” and therefore unenforceable under Minn. Stat. § 336.4-103(a).
3. Whether there was sufficient evidence that the Credit Union failed to exercise “ordinary care” in paying the forged checks, particularly those paid in August 1993, to prevent contractual/U.C.C. preclusion.

## Decision

- The Minnesota Supreme Court reversed the court of appeals and district court and remanded with instructions.
- The Court held the agreement’s 20-day notice-from-mailing provision was valid and enforceable and not manifestly unreasonable under Minn. Stat. § 336.4-103(a).
- The Court held Stowell’s duty to examine statements and report unauthorized items commenced when the statements were mailed, consistent with the parties’ agreement.
- The Court held the record contained no evidence supporting the jury’s finding that the Credit Union failed to exercise ordinary care in paying forged checks in August 1993; the related award could not stand.
- The Court directed enforcement of the agreement and U.C.C. loss-allocation rules, barring recovery except to the extent the customer could prove the Credit Union’s lack of good faith or failure to exercise ordinary care.

## Legal Principles

- Under Minn. Stat. § 336.4-406, a customer must examine account statements with reasonable promptness and promptly notify the bank of unauthorized signatures or alterations; failure may preclude the customer from asserting the unauthorized items against the bank.
- Under Minn. Stat. § 336.4-103(a), a bank and customer may set by agreement the standards for measuring the bank’s responsibilities, so long as the agreement does not disclaim the bank’s duties of good faith or ordinary care and is not manifestly unreasonable.
- A contractual notice period (including one running from mailing rather than receipt) may define “reasonable promptness” for purposes of § 4-406 and operate as a condition to the customer’s recovery for forged items.
- Interception of statements by a third party does not, by itself, shift loss to the bank when statements are mailed as agreed and the customer cannot show bank lack of good faith or ordinary care.
- Automated check processing consistent with prevailing banking practices can satisfy “ordinary care”; a finding of lack of ordinary care requires evidence of departure from reasonable commercial standards or negligent operation.

## Conclusion

The court enforced a 20-day notice requirement measured from the mailing of statements and held that, absent evidence the credit union acted without ordinary care or good faith, the customer’s failure to timely detect and report a single forger’s series of unauthorized checks barred recovery under the contract and U.C.C. Article 4.


Stowell v. Cloquet Co-op Credit Union, 557 N.W.2d 567 (Minn. 1997)