Mississippi has joined the growing list of jurisdictions that have approved contractual reductions of the one-year reporting deadline for certain check fraud claims found in Uniform Commercial Code (“UCC”) section 4-406(f). In Century Construction Co., LLC v. BancorpSouth Bank, 117 So.3d 345, 80 UCC Rep.2d 1073 (Miss. Ct. App. 2013), the Mississippi Court of Appeals found that a term in the customer’s deposit account agreement requiring the customer to report check fraud claims within 60 days of the issuance of the account statement listing the subject check was valid and enforceable.
Century Construction opened a corporate checking account with the bank in 1997, with the two company owners as the authorized signers on the account. In October 2004, Century’s new bookkeeper began forging checks on the company’s account. In September 2005, Century discovered the fraud, fired the bookkeeper, informed the bank that there had been forgeries on the account, and requested copies of the prior 12 months of account statements. Critically, despite allegedly informing the bank three times during September and October 2005 of the fraud, it was not until August 30, 2006 that Century sent a letter to the bank identifying the forged checks by check number, date, and amount.
Century’s deposit agreement with the bank stated that any loss due to fraudulent checks or other errors in the account was the responsibility of the customer if not reported within 60 days of when the bank made the account statement listing the subject checks available. The court determined that the limitation of the fraud reporting period comported with the UCC, citing to leading cases from Wisconsin and New York. See, e.g., PTA v. Manufacturers Hanover Trust Co., 524 N.Y.S.2d 336, 5 UCC Rep. 679 (N.Y. Civ. Ct. 1998) (shortened periods of limitation have been “routinely accepted in the banking relationship.”).
The court went on to cite UCC § 4-406(f) in determining that Century’s 2005 notices to the bank failed to satisfy the reporting requirement, noting that UCC § 4-406(f) requires that the customer “discover and report the customer’s unauthorized signature on or any alteration on the item…” (emphasis added). Citing to Watseka First Nat’l Bank v. Horney, 686 N.E.2d 1175 (Ill. Ct. App. 1997), the court agreed that the report needed to identify the quantity, check number, amounts, dates, and payees upon which the bank could act. Because Century’s 2005 notices failed to provide the required specificity, and because the notice to the bank containing the requisite specificity was sent long after the 60-day reporting period, Century was barred from any recovery.
Mississippi has now joined the list of jurisdictions that have approved contractual reductions of the one-year reporting deadline for check fraud found in UCC § 4-406(f). Fitch Law Partners LLP will continue to monitor developments in this area of the law.
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