Section 4–406. Customer's Duty to Discover and Report Unauthorized

Terms Used In N.Y. Uniform Commercial Code 4-406

  • Account: means any account with a bank and includes a

    checking, time, interest or savings account;

    (b) "Afternoon" means the period of a day between noon and

    midnight;

    (c) "Banking day" means that part of any day on which a bank is

    open to the public for carrying on substantially all of its

    banking functions;

    (d) "Clearing house" means any association of banks or other

    payors regularly clearing items;

    (e) "Customer" means any person having an account with a bank or

    for whom a bank has agreed to collect items and includes a

    bank carrying an account with another bank;

    (f) "Documentary draft" means any negotiable or non-negotiable

    draft with accompanying documents, securities or other papers

    to be delivered against honor of the draft;

    (g) "Item" means any instrument for the payment of money even

    though it is not negotiable but does not include money;

    (h) "Midnight deadline" with respect to a bank is midnight on its

    next banking day following the banking day on which it

    receives the relevant item or notice or from which the time

    for taking action commences to run, whichever is later;

    (i) "Obligated bank" means the acceptor of a certified check, the

    issuer of a cashier's check, or the drawer of a teller's

    check;

    (j) "Properly payable" includes the availability of funds for

    payment at the time of decision to pay or dishonor;

    (k) "Remitter" means the buyer from the obligated bank of a

    cashier's check or a teller's check, and the drawer of a

    certified check;

    (l) "Settle" means to pay in cash, by clearing house settlement,

    in a charge or credit or by remittance, or otherwise as

    instructed. See N.Y. Uniform Commercial Code 4-104
  • Discovery: Lawyers' examination, before trial, of facts and documents in possession of the opponents to help the lawyers prepare for trial.

Signature or Alteration.

(1) When a bank sends to its customer a statement of account accompanied by items paid in good faith in support of the debit entries or holds the statement and items pursuant to a request or instructions of its customer or otherwise in a reasonable manner makes the statement and items available to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or any alteration on an item and must notify the bank promptly after discovery thereof.

(2) If the bank establishes that the customer failed with respect to an item to comply with the duties imposed on the customer by subsection (1) the customer is precluded from asserting against the bank

(a) his unauthorized signature or any alteration on the item if

the bank also establishes that it suffered a loss by reason

of such failure; and

(b) an unauthorized signature or alteration by the same wrongdoer

on any other item paid in good faith by the bank after the

first item and statement was available to the customer for a

reasonable period not exceeding fourteen calendar days and

before the bank receives notification from the customer of

any such unauthorized signature or alteration.

(3) The preclusion under subsection (2) does not apply if the customer establishes lack of ordinary care on the part of the bank in paying the item(s).

(4) Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer (subsection (1)) discover and report his unauthorized signature or any alteration on the face or back of the item or does not within three years from that time discover and report any unauthorized indorsement is precluded from asserting against the bank such unauthorized signature or indorsement or such alteration.

(5) If under this section a payor bank has a valid defense against a claim of a customer upon or resulting from payment of an item and waives or fails upon request to assert the defense the bank may not assert against any collecting bank or other prior party presenting or transferring the item a claim based upon the unauthorized signature or alteration giving rise to the customer's claim.

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