Section 4-406(c) of the Uniform Commercial Code speaks to the customer’s duty to notify its bank of any items that contain unauthorized signatures or alterations (e.g. forged checks) in a timely way. Similar provisions are contained in the federal Electronic Fund Transfer Act (“EFTA”) and the agreements banks require customers to acknowledge when they open their accounts. The failure of the customer to discharge the review and notification requirements of the UCC, the EFTA and the customer agreement carries serious consequences that impact the customer’s right to assert claims against the bank. What happens, though, when the customer claims that such failure was due to the fact that it never received the bank statement that would have placed it on notice of the unauthorized transaction?
As a threshold matter, it should be noted that UCC 4-406(c) does not make receipt of statements a precondition of the customer’s duty to notify. All that is required is that the bank “sends or makes available a statement of account”. The case law supports the view that, regardless of the customer’s personal circumstances, the customer bears the risk of non-receipt. As the court observed in Stowell v. Cloquet Co-op Credit Union, 557 N.W. 2d 567, 571-572 (Minn. 1997): “The modern U.C.C. case law of other jurisdictions is virtually unanimous in holding that, once account statements are mailed to the account holder's proper address, the risk of non-receipt falls on the account holder and interception of the statements by a wrongdoer does not relieve the account holder of the duty to examine the statements and report unauthorized items to the bank.” The court also noted that requiring actual receipt of statements “would place unreasonable financial burdens on banks and other financial institutions by forcing them to prove receipt either through the use of certified mail or by individually contacting each account holder to confirm that they had, in fact, received their account statement.” Id. at 572. Other courts have reached the same conclusion. See e.g., Peters v. Riggs National Bank, 942 A. 2d 1163 (D.C. Ct. App. 2008) (upholding the bar of section 4-406(f) notwithstanding the depositor’s hospitalization due to stroke during the period of serial forgeries); Borowski v. Firstar Bank Milwaukee, N.A., 579 N.W. 2d 247, 252-53 (Ct. App. 1998) (concluding that notice provision barred claims, even where plaintiff's girlfriend forged check and intercepted bank statements); PTA, Pub. Sch. 72 v. Mfrs. Hanover Trust Co., 524 N.Y.S. 2d 336, 340 (N.Y. City Civ. Ct. 1988) (upholding bar of claim notwithstanding that the forger intercepted statements, depriving the account holder of actual receipt); and American Airlines Employees Federal Credit Union v. Martin, 29 S.W. 3d. 86 (Tex. 2000) (account holder denied receipt of quarterly statements that showed unauthorized funds transfers, but the Court, noting that the customer never contacted the bank to request the quarterly statements, held that the risk of non-receipt of the statements must fall on the customer, who is the one most familiar with the underlying transactions).
Accordingly, businesses and consumers are strongly advised to not only review their periodic bank statements with care, but to request statements that they do not receive within a short time after the normal closing date. This will guard against the risks associated with a failure of mail or electronic delivery, an interception of the statements (e.g. by a faithless employee or conniving relative) and a host of other causes (business interruption, sickness). As the law recognizes, one of the most serious consequences of the customer's failure to comply with notification requirements is the opportunity presented to the wrongdoer to repeat the misdeeds. And banks, the law has decided, should generally not have to bear those consequences.