## Facts

- An employee of White Sands Forest Products, Inc. stole blank company checks over an extended period, forged authorized signatures, and negotiated the checks at First National Bank of Alamogordo.
- First National paid the forged items, resulting in substantial losses to White Sands.
- After discovering the scheme, White Sands sought to recover from the bank for paying checks bearing unauthorized signatures.
- The bank asserted UCC-based defenses, including that White Sands failed to promptly examine account statements and timely notify the bank of unauthorized signatures as required by UCC § 4-406.
- White Sands moved for summary judgment to eliminate the bank’s defenses, arguing (among other points) that UCC § 4-406 did not apply to the bank in the posture of the case.
- The district court granted summary judgment to White Sands on the bank’s asserted defenses.

## Issues

1. Whether UCC § 4-406 could be invoked by the bank as a defense in a forged-check dispute under the circumstances presented.
2. Whether the district court erred by disposing of the bank’s UCC and related defenses as a matter of law on summary judgment.
3. Whether genuine disputes of material fact existed concerning White Sands’ promptness in reviewing statements, the timing/content of notice, causation of loss, and comparative responsibility.

## Decision

- The Court of Appeals reversed the summary judgment in significant part and remanded for further proceedings.
- The court rejected the categorical ruling that the bank was legally barred from asserting UCC § 4-406 defenses.
- The court held that questions tied to § 4-406—reasonable promptness in statement review, timeliness of notice, and resulting loss—were fact-dependent and not suitable for blanket resolution on summary judgment on the record presented.
- To the extent the district court’s order eliminated the bank’s defenses without resolving disputed material facts, it was erroneous.

## Legal Principles

- UCC § 4-406 imposes on customers a duty to exercise reasonable promptness in examining statements/items and to promptly notify the bank of unauthorized signatures or alterations; failure may preclude the customer’s claim, subject to statutory limits.
- Whether a customer acted with “reasonable promptness,” whether notice was timely, and whether delay caused loss are typically questions of fact.
- Article 4 provides an integrated loss-allocation framework for forged-check disputes that contemplates allocating loss based on the parties’ respective conduct, including comparative responsibility concepts implemented through the UCC.
- Summary judgment is improper when statutory defenses turn on disputed factual predicates and competing inferences about diligence, notice, and causation.

## Conclusion

The appellate court held that the bank was not barred as a matter of law from asserting UCC § 4-406 and related defenses and that fact disputes concerning statement review, notice, and comparative responsibility required further proceedings rather than summary judgment eliminating the bank’s defenses.


White Sands Forest Prods., Inc. v. First Nat’l Bank of Alamogordo, 50 P.3d 202 (N.M. Ct. App. 2002)