14-Day Period for Notifying a Bank of Improperly Paid Items Reasonable Under the Facts

The Court of Appeals, in a full-fledged opinion by Judge Lippman, over a dissent, determined that shortening the period during which a bank must be informed of an improperly paid item from one year to 14 days was reasonable under the facts.  The court noted that the party which agreed to the shortened period was a sophisticated business entity and the shortened period may not be reasonable in other circumstances, with less sophisticated parties, for example. The improperly paid items in this case were checks and drawdown requests forged by an employee.  Summary judgment was granted in favor of the bank because the bank had not been notified of the forged items within 14 days:

[With respect] to the application of UCC 4-406 (4), the UCC permits parties to alter the provisions of article 4 by agreement (see UCC 4-103 [1]). The Official Comments go so far as to say that there exists a “blanket power to vary all provisions of the Article” (id. at Comment 2). But that power is not boundless:”[N]o agreement can disclaim a bank's responsibility for its own lack of good faith or failure to exercise ordinary care or can limit the measure of damages for such lack or failure; but the parties may by agreement determine the standards by which such responsibility is to be measured if such standards are not manifestly unreasonable”(UCC 4-103 [1]).

The application of these limitations raises two issues: first, whether parties can vary the one-year period by agreement; we hold that they can; and second, whether shortening the one-year period to 14 days is manifestly unreasonable; we hold that it is not, at least under these facts. Clemente Bros Contr Corp v Hafner-Milazzo, 2014 NY Slip Op 03291, CtApp 5-8-14