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Yadlon v. Fleet Bank, N.A.

03-CV-4002 (U.S. Dist. Ct. N.J. 2005) (Unpublished)

BANKS; CHECKS; FORGERY — Under the Uniform Commercial Code, a bank customer that fails to timely review its bank statements can be barred from recovering unauthorized payments or forged checks from its bank.

An attorney maintained a trust account at a bank. The bank improperly charged the attorney for 26 forged checks. The bank also improperly debited the attorney’s trust account three times pursuant to unauthorized electronic debits. The attorney did not regularly check his bank statements and therefore he did not discover the unauthorized transactions until eleven months later. The attorney requested reimbursement from the bank, but the bank refused to return the money. The attorney sued the bank in federal court seeking full reimbursement for the counterfeit checks and for the unauthorized debiting of his account. The bank moved for summary judgment.

The Court ruled that Articles 3 and 4 of the Uniform Commercial Code (UCC) governed the attorney’s cause of action regarding the counterfeit checks. It further held that New Jersey law applied because payment for the checks were made in New Jersey. The Court then ruled that under the UCC, a bank is prohibited from making any unauthorized payments from a customer’s account. A forged check is unauthorized and therefore a bank is liable for payments made on a forged check unless one of the UCC defenses apply. Here, the bank raised the defense that its customer failed to timely review his account. The Court emphasized that, under the UCC, a customer has a duty to review its bank statements. Failure to do so can bar a customer from recovering unauthorized money paid by a bank. Accordingly, the attorney’s failure to timely review his bank statements for over eleven months constituted a defense to the charge of unauthorized payments under the UCC and summary judgment was granted in favor of the bank.

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