While Section 4-111 of the Uniform Commercial Code (“UCC”) contains a three-year statute of limitations for filing claims against a bank for paying an unauthorized or altered item from an account, a more potent tool for banks can be found in UCC 4-406(f), a one-year statute of repose for reporting the disputed item to the bank. Under UCC 4-406(f), a customer is required to report the disputed item to the bank within one year after the bank makes available the account statement or other documentation of the items paid, but what constitutes a “report” to the bank by the customer is not spelled out in the statute.
Courts that have analyzed the issue have read UCC 4-406(f) as requiring such a report to specify the account, payment amount, check number, or other specific information identifying the unauthorized draft. Among the methods which have failed to satisfy the reporting requirement: Placing a blanket stop-payment order on an account and requesting copies of the account statements, Hatcher Cleaning Co. v. Comerica Bank – Texas, 995 S.W.2d 933 (Tex. App. 1999); requesting copies of potentially invalid checks from the bank, Watseka First National Bank v. Horney, 686 N.E.2d 1175 (Ill. App. 1997); reporting to the bank that a specific employee was suspected of check forgery on the company accounts, Villa Contracting Co., Inc. v. Summit Bancorporation, 695 A.2d 762 (N.J. Super. Ct. Law Div. 1996); discussing with a bank officer possible irregularities with single signatures on a dual-signature account, First Place Computers, Inc. v. Security Nat. Bank of Omaha, 558 N.W.2d 57 (Neb. 1997); reporting to the bank a belief of foul play or general notice of a possible theft, Simi Management Corp. v. Bank of America, N.A., 930 F. Supp. 2d 1082 (N.D. Calif. 2013).
While Massachusetts lacks a decision on this issue, the general consensus from courts that have addressed the issue should give comfort to banks that the UCC 4-406(f) statute of repose will continue to provide finality for those items not reported with specificity within the one-year period.
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