What is an Improper Payment from Account?

Bank Liability for Unauthorized Payments

Commercial Code Sec. 4401(a) provides in relevant part: "A bank may charge against the account of a customer an, item that is properly payable. ... An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.” The 1990 Official Comments on UCC §4401 provide in part “An item is properly payable from a customer's account if the customer has authorized the payment. . . ."

Section 4401 provides that a bank may charge against a customer’s account an item that is properly payable although the charge creates an overdraft. UCC § 4401(a). It provides for liability against the bank where the bank charges a check against the customer’s account before the date stated in the notice of postdating. UCC § 4401(c).

Bank Liability and Customer's Failure to Report

Under section 4406(1), when a bank sends or makes available a statement of account accompanied by items paid in good faith, then the customer must exercise reasonable care and promptness to examine the statement and the items to discover any unauthorized signature or any alteration of an item and must promptly notify the bank of any such discovery. (Roy Supply, Inc. v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1062–1064, setting forth the application of an earlier version of Section 4406, not substantially different from the instant version.) A customer’s failure to notify the bank temporally limits a bank’s initial absolute liability. (Id.) Therefore, under Commercial Code section 4406, all a bank needs to do to shift the burden to the customer to alert the bank of any fraud and therefore avoid potential liability for payment on forged items is to “send or make available” a statement of account to the customer. (Com. Code, Sec. 4406(a).)

Commercial Code section “4406 is not per se a statute of limitation but instead is an issue-preclusion statute. Unlike a statute of limitations, it does not purport to bar an action against a bank; rather, it simply precludes a customer from asserting a forgery or alteration against the bank if the customer has failed to discover and report the forgery or alteration to the bank. The effect this will have on a customer’s claim against the bank will depend upon whether proof of the forgery is an essential element of the particular claim asserted.” (Roy Supply, Inc. v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1065-1066.)

Statute of Limitations

In Lundgren v. Bank of America, N.A. (2011) 2011 WL 4592801, the Plaintiff asserted separate causes of action for acceptance of forged checks versus checks made out to others which were not endorsed. The Court determined that the first cause of action regarding the bank’s payment of the forged checks was barred by Section 340(c); but the second cause of action, for accepting for deposit checks not made out to the embezzler but rather to various vendors which were unendorsed, was subject to the three-year statute of limitations. (Lundgren, supra, *3-4.) After reviewing the code sections cited by the parties, the court in Lundgren determined that a check deposited without the payee’s endorsement was not the equivalent of a forgery, and thus, not subject to the one-year limitations period. (Id. at *4.) The bank in Lundgren was both the payor and depository bank.

Useful Rulings on Improper Payment from Account

Recent Rulings on Improper Payment from Account

KIM VS. BANK OF THE WEST

Neither Commercial Code section 4406(f) nor Code of Civil Procedure section 340(c) applies on the face of Plaintiff’s claim. Commercial Code section 4406(c), requires depositors to “exercise reasonable promptness in examining” bank statements to determine whether any payment was not authorized because of an alteration of an item or because a purported signature of the customer was not authorized. Any claim must be made within one year after the statement or items are made avaialble to the customer. (Comm.

  • Hearing

G. WIEMANN CONSTRUCTION, INC. V. BANK OF THE SIERRA, ET AL.

Code, § 4406 and Section 340(c)], Mac v. Bank of America (1999) 76 Cal.App.4th 562 [action against payor banks].) Citing to Allied Concord Financial Corp. v. Bank of America (1969) 275 Cal.App.2d 1, 8-9, Chase argues the one-year statute of limitations applies to the depository bank as well. As noted in the tentative ruling posted prior to the hearing on Chase’s earlier demurrer, “[t]he Court agrees insofar as each of these cases concerned forged checks or forged endorsements.”

  • Hearing

G. WIEMANN CONSTRUCTION, INC. V. JOY WILDE, ET AL.

The relevant subdivisions of Commercial Code section 4406 (“Section 4406”) provide as follows: • Subdivision (c) requires a customer to exercise reasonable promptness in examining his or her statements to determine if there were any unauthorized payments due to an unauthorized signature or alteration.

  • Hearing

G. WIEMANN CONSTRUCTION, INC. V. JOY WILDE, ET AL.

Superior Court (2004) 117 Cal.App.4th 873, 877.)1 Plaintiff responds that the complaint alleges Sierra accepted for deposit checks which Wilde Footnote 1: Commercial Code section4406 is not per se a statute of limitation but instead is an issue-preclusion statute.

  • Hearing

G. WIEMANN CONSTRUCTION, INC. V. BANK OF THE SIERRA, ET AL.

Code, § 4406 and Section 340(c)], Mac v. Bank of America (1999) 76 Cal.App.4th 562 [action against payor banks].) Citing to Allied Concord Financial Corp. v. Bank of America (1969) 275 Cal.App.2d 1, 8-9, Chase argues the one-year statute of limitations applies to the depository bank as well. The Court agrees insofar as each of these cases concerned forged checks or forged endorsements.

  • Hearing

G. WIEMANN CONSTRUCTION, INC. V. JOY WILDE, ET AL.

Plaintiff responds that preclusion rule under Commercial Code section 4406(d) may be avoided if the “customer proves that the bank failed to exercise ordinary care in paying the item ….” (Com. Code, §§ 4406(e), 3101(a)(7) [definition of “ordinary care”]; see also Espresso, supra, 100 Cal.App.4th at pp. 530-531.)

  • Hearing

SURJUE, STEPHEN VS JP MORGAN CHASE BANK, N.A.

Plaintiffs’ Second Amended Complaint alleged claims for (1) Improper Payment from Account, Commercial Code section 4401, et seq.; (2) Unauthorized Transaction, Commercial Code section 4406, et seq.; (3) Failure to Exercise Ordinary Care, Commercial Code section 4406, et seq.; (4) Breach of Contract; and (5) Conversion. Following Defendant’s demurrer to the Second Amended Complaint, the court struck the 1st, 4th and 5th causes of action, and sustained the demurrer to the 3rd cause of action.

  • Hearing

  • Judge

    James E. Blancarte or Wendy Chang

  • County

    Los Angeles County, CA

SURJUE, STEPHEN VS JP MORGAN CHASE BANK, N.A.

Plaintiffs’ Second Amended Complaint alleged claims for (1) Improper Payment from Account, Commercial Code section 4401, et seq.; (2) Unauthorized Transaction, Commercial Code section 4406, et seq.; (3) Failure to Exercise Ordinary Care, Commercial Code section 4406, et seq.; (4) Breach of Contract; and (5) Conversion. Following Defendant’s demurrer to the Second Amended Complaint, the court struck the 1st, 4th and 5th causes of action, and sustained the demurrer to the 3rd cause of action.

  • Hearing

  • Judge

    James E. Blancarte or Wendy Chang

  • County

    Los Angeles County, CA

SURJUE, STEPHEN VS JP MORGAN CHASE BANK, N.A.

Plaintiffs’ Second Amended Complaint alleged claims for (1) Improper Payment from Account, Commercial Code section 4401, et seq.; (2) Unauthorized Transaction, Commercial Code section 4406, et seq.; (3) Failure to Exercise Ordinary Care, Commercial Code section 4406, et seq.; (4) Breach of Contract; and (5) Conversion. Following Defendant’s demurrer to the Second Amended Complaint, the court struck the 1st, 4th and 5th causes of action, and sustained the demurrer to the 3rd cause of action.

  • Hearing

  • Judge

    James E. Blancarte or Wendy Chang

  • County

    Los Angeles County, CA

MIGUEL LOPEZ VS. RITA FERRARI

A principal who executes a Uniform Statutory Form Power of Attorney, as set forth in Probate Code section 4401, may give the agent the power to prosecute claims of and defend claims against the principal. (See Probate Code section 24459.) However, in such a case, the agent may appear only as a guardian ad litem for the principal, after appointment by the court. Marriage of Caballero (1994) 27 Cal.App.4th 1139, 1151–1152. Furthermore, the agent must appear in the action through an attorney. Drake v.

  • Hearing

  • County

    Merced County, CA

CHARLES HILL VS J.P. MORGAN CHASE BANK, N.A.

Therefore, under Commercial Code section 4406, all a bank needs to do to shift the burden to the customer to alert the bank of any fraud and therefore avoid potential liability for payment on forged items is to “send or make available” a statement of account to the customer. (Com. Code, § 4406(a).) 1. Actual receipt of account statements is not required.

  • Hearing

KURTZ-AHLERS V. MULDER

As to summary adjudication, both motions request dismissal based on the expiration of the limitations period contained in section 340 and Commercial Code section 4406.

  • Hearing

ERIC S BARTON ET AL VS RODNEY R RICE III ET AL

COMMERCIAL CODE § 4406 BOA next argues that Barton’s claims based on fraudulent signatures are barred by Commercial code § 4406, subd. (f), which requires that bank customers must discover and report any item on a monthly statement bearing an unauthorized signature within a year after that statement is made available. (Motion at p. 13; Com. Code § 4406, subd. (f).) However, that statute only applies “after the statement or items are made available to the customer,” which Barton here denies. (Com.

  • Hearing

  • Judge

    Robert S. Draper or Gail Ruderman Feuer

  • County

    Los Angeles County, CA

MARISO FOOD, INC. VS. NGUYEN

Similarly, section 4401 gives a customer a claim only against a payor bank. Here, U.S. Bank is not the drawee or payor bank. Accordingly, sections 3403 and 4401 do not apply. The demurrer to the sixth cause of action is sustained. Ruling Motion 2: U.S. Bank’s motion to strike portions of the third amended complaint is MOOT in light of the ruling above. Moving party to give notice. Case Management Conference

  • Hearing

THURSTON VS. CHASE BANK

Defendant presents evidence demonstrating that the withdrawals at issue occurred in January and February 2014, and are thus time-barred pursuant to Commercial Code § 4406. Opposition to the motion was due on or before Thursday, February 8, 2018. Failure to file and/or serve an opposition constitutes an admission the motion is meritorious. (Rooney v. Vermont Inv. Corp. (1973) 10 Cal.3d 351, 367.) Based on the evidence presented, and having received no opposition, the Court grants the motion.

  • Hearing

  • Type

    Contract

  • Sub Type

    Contract - Other

LITTLE V. HALLMEYER

As might be expected, UCB asserts this qualification as a bar to the first count, claiming that Sun ‘n Sand's mistake was caused by its neglect of legal duties imposed by section 4406, subdivision (1), and section 3405. ¶ UCB correctly observes that section 4406, subdivision (1), imposes a duty on bank customers to examine their bank statements and returned checks for alterations and forgeries.

  • Hearing

PATNO VS. FARMERS AND MERCHANTS BANK OF LONG BEACH

Commercial Code §4401(a) provides in relevant part: "A bank may charge against the account of a customer an, item that is properly payable. ... An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.” The 1990 Official Comments on UCC §4401 provide in part “An item is properly payable from a customer's account if the customer has authorized the payment. . . ."

  • Hearing

KURTZ-AHLERS, LLC V. MULDER

Issue No. 2: All of Plaintiff’s Claims are Time Barred by the “30 Day Repeat Offender” Provision in Section 4406 of the Uniform Commercial Claim. (Affirmative Defense No. 15.)

  • Hearing

EXECUTIVE LAW OFFICE PC VS MAURICIO CARDENAS ET AL

Finally, section 4401 merely provides that a bank may charge against a customer’s account an item that is properly payable although the charge creates an overdraft. UCC § 4401(a). It provides for liability against the bank where the bank charges a check against the customer’s account before the date stated in the notice of postdating. UCC § 4401(c). The alleged facts are about forgery, not overdraft or postdating. This section is inapplicable.

  • Hearing

PATNO VS. FARMERS AND MERCHANTS BANK OF LONG BEACH

The defendant has not set forth authority which would make CCP § 340(c) or Comm Code § 4406(f) applicable to transfers of monies. The one year deadlines for issue preclusion (Com. Code §4406(f)) and statute of limitations (CCP 340(c)) only apply to checks with forged and unauthorized signatures. The defendant has presented no authority which supports a finding that such applies to the alleged credit extension entries.

  • Hearing

MARIN COMMUNITY COLLEGE VS. MARCY WONG

The bank moved for summary adjudication on 23 checks on the ground that the claims were time barred under the Commercial Code (Section 4111: three years to file action and Section 4406(f): one year to discover and report losses due to unauthorized signatures). The Court of Appeal held that the trial court’s order of summary adjudication was proper, even though plaintiff put all of its claims as to all 83 checks in the two causes of action for breach of contract and negligence.

  • Hearing

  • Judge Ed Weil
  • County

    Contra Costa County, CA

SURJUE, STEPHEN VS JP MORGAN CHASE BANK, N.A.

Plaintiffs’ Second Amended Complaint alleges claims for (1) Improper Payment from Account, Commercial Code section 4401, et seq.; (2) Unauthorized Transaction, Commercial Code section 4406, et seq.; (3) Failure to Exercise Ordinary Care, Commercial Code section 4406, et seq.; (4) Breach of Contract; and (5) Conversion. Following Defendant’s demurrer to the Second Amended Complaint, the court struck the 1st, 4th and 5th causes of action, and sustained the demurrer to the 3rd cause of action.

  • Hearing

  • Judge

    Elaine Lu or Yolanda Orozco

  • County

    Los Angeles County, CA

MARTELLO, ALICE VS LOMAX, ANDREA

On July 07, 2016, Alice submitted a notarized power of attorney that substantially complies with the provisions of Probate Code § 4401, appointing her daughter, Jeannette Martello (“Jeanette”), (who is not admitted to the state bar) as her attorney-in-fact. On January 13, 2017, Alice submitted a first amended complaint against Defendants, and a request for dismissal as to State Farm. The FAC was verified by both Alice personally and by Jeannette, as attorney-in-fact.

  • Hearing

  • Type

    Personal Injury/ Tort

  • Sub Type

    Auto

  • County

    Los Angeles County, CA

MARTELLO, ALICE VS LOMAX, ANDREA

On July 07, 2016, Alice submitted a notarized power of attorney that substantially complies with the provisions of Probate Code § 4401, appointing her daughter, Jeannette Martello (“Jeanette”), (who is not admitted to the state bar) as her attorney-in-fact. On January 13, 2017, Alice submitted a first amended complaint against Defendants, and a request for dismissal as to State Farm. The FAC was verified by both Alice personally and by Jeannette, as attorney-in-fact.

  • Hearing

  • Type

    Personal Injury/ Tort

  • Sub Type

    Auto

  • Judge

    Elaine Lu or Yolanda Orozco

  • County

    Los Angeles County, CA

PATNO VS. FARMERS AND MERCHANTS BANK OF LONG BEACH

The defendant has not set forth authority which would make CCP § 340(c) or Comm Code § 4406(f) applicable to transfers of monies or unsigned checks.

  • Hearing

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