§ 4-406 — Customer's Duty to Discover and Report Unauthorized Signature or Alteration

Section 4--406. Customer's Duty to Discover and Report Unauthorized\n Signature or Alteration.\n (1) When a bank sends to its customer a statement of account\naccompanied by items paid in good faith in support of the debit entries\nor holds the statement and items pursuant to a request or instructions\nof its customer or otherwise in a reasonable manner makes the statement\nand items available to the customer, the customer must exercise\nreasonable care and promptness to examine the statement and items to\ndiscover his unauthorized signature or any alteration on an item and\nmust notify the bank promptly after discovery thereof.\n (2) If the bank establishes that the customer failed with respect to\nan item to comply with the duties imposed on the customer by subsection\n(1) the customer is precluded from asserting against the bank\n (a) his unauthorized signature or any alteration on the item if\n the bank also establishes that it suffered a loss by reason\n of such failure; and\n (b) an unauthorized signature or alteration by the same wrongdoer\n on any other item paid in good faith by the bank after the\n first item and statement was available to the customer for a\n reasonable period not exceeding fourteen calendar days and\n before the bank receives notification from the customer of\n any such unauthorized signature or alteration.\n (3) The preclusion under subsection (2) does not apply if the customer\nestablishes lack of ordinary care on the part of the bank in paying the\nitem(s).\n (4) Without regard to care or lack of care of either the customer or\nthe bank a customer who does not within one year from the time the\nstatement and items are made available to the customer (subsection (1))\ndiscover and report his unauthorized signature or any alteration on the\nface or back of the item or does not within three years from that time\ndiscover and report any unauthorized indorsement is precluded from\nasserting against the bank such unauthorized signature or indorsement or\nsuch alteration.\n (5) If under this section a payor bank has a valid defense against a\nclaim of a customer upon or resulting from payment of an item and waives\nor fails upon request to assert the defense the bank may not assert\nagainst any collecting bank or other prior party presenting or\ntransferring the item a claim based upon the unauthorized signature or\nalteration giving rise to the customer's claim.\n