## Facts

- A construction company maintained multiple operating accounts and a line of credit with its depository bank; the company’s principal personally guaranteed certain obligations.
- A corporate resolution designated the principal as the sole authorized signatory and required the customer to notify the bank of errors, unauthorized signatures, or forgeries within 14 days after statements or items were made available, or the bank would not be liable.
- Over roughly two years, the company’s employee/bookkeeper forged the principal’s signature on line-of-credit draw requests and related instruments, embezzling approximately $386,000.
- The bank sent monthly statements reflecting account activity; the forged drawdowns appeared in the statements as credits and related transactions.
- The company discovered the forgeries in February 2010 and notified the bank; the bank then declared the loan and line-of-credit debts due and demanded repayment.
- The company and principal sued the employee and the bank, seeking damages and to prevent enforcement of repayment.

## Issues

1. Whether a bank and its customer may contractually shorten the one-year period in UCC § 4-406(4) for reporting unauthorized signatures or alterations to 14 days.
2. Whether a 14-day period is “manifestly unreasonable” under UCC § 4-103(a) in this commercial setting.
3. Whether enforcing the 14-day provision impermissibly excuses the bank from responsibility for lack of ordinary care or good faith.

## Decision

- The Court of Appeals affirmed summary judgment for the bank (affirmed as modified).
- The court held that UCC § 4-103(a) permits parties to vary Article 4’s notice/limitations rules, including the one-year outer limit in UCC § 4-406(4), by agreement.
- The court held the 14-day contractual notice period was not manifestly unreasonable on these facts, given the customer’s commercial character and the availability of monthly statements.
- The court rejected the argument that the clause functioned as an impermissible disclaimer of the bank’s ordinary-care duty, construing it as a time bar that conditions preservation of the customer’s rights.
- Because the customer failed to notify the bank within 14 days of statements being made available, the claims against the bank based on the forgeries were barred.

## Legal Principles

- Under UCC § 4-103(a), a bank and customer may vary Article 4’s provisions by agreement, but may not disclaim a bank’s lack of good faith or failure to exercise ordinary care, and any agreed standards must not be manifestly unreasonable.
- UCC § 4-406(4)’s one-year period operates as an outer limit for claims based on unauthorized signatures or alterations, and it may be reduced by agreement subject to UCC § 4-103(a).
- A contractual notice deadline that functions as a condition for preserving a customer’s rights is not, without more, an impermissible disclaimer of the bank’s ordinary-care obligations.
- Whether a shortened notice period is manifestly unreasonable is context-dependent; a 14-day period may be enforceable for a financially sophisticated commercial customer receiving regular statements.

## Conclusion

The court enforced a corporate resolution requiring notice of forged or unauthorized items within 14 days, holding that Article 4 allows contractual reduction of UCC § 4-406(4)’s one-year period and that, for this commercial customer, the 14-day period was not manifestly unreasonable, barring the claims against the bank.


Clemente Bros. Contracting Corp. v. Hafner-Milazzo, 14 N.E.3d 367 (N.Y. 2014)