Your account agreement — using language that appears in hundreds of other financial institutions’ account agreements, as far as we can tell from internet search engine results — establishes three classes of claims for an unauthorized signature, alteration or forgery: (1) claims that the customer reported within thirty days, for which the customer will not be held liable, (2) claims that the customer failed to report within thirty days but did report within sixty days, for which your customer must share the loss or bear the loss entirely, depending on the circumstances, and (3) claims that the customer failed to report within sixty days, for which the customer must bear the entire loss, whether or not your bank failed to use ordinary care.

The rules established in your account agreement for the first two classes of claims comport with the Uniform Commercial Code (UCC), which requires customers to examine their account statements and notify a bank regarding an unauthorized or altered item with “reasonable promptness.” If a customer fails to notify its bank with reasonable promptness, the UCC establishes rules for apportioning the loss between the bank and the customer in cases where the customer proves that the bank failed to exercise ordinary care in paying the item.

The UCC also permits banks to narrow the definition of “reasonable promptness” in their deposit account agreements, based on the general rule that the UCC’s provisions “may be varied by agreement,” with the limitation that an agreement “cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank’s responsibility is to be measured if those standards are not manifestly unreasonable.”

Relying on this general rule, an Illinois court has upheld a deposit account agreement’s thirty-day requirement for reasonably prompt notification, and a Wisconsin court has upheld an even shorter fourteen-day window for reasonably prompt notification. Consequently, we believe your bank may narrow the window for reporting claims of unauthorized items to thirty days, after which the customer may share its loss with your bank or bear the loss entirely, depending on the circumstances, if notice is given within sixty days.

Your account agreement also establishes a third class of claims reported after more than sixty days, for which the customer must bear the loss “without regard to whether [your bank] used ordinary care.” The UCC establishes that if a customer fails to notify their bank regarding an unauthorized or altered item within a year, the customer is entirely precluded from asserting a claim against the bank “[w]ithout regard to care or lack of care of either the customer or the bank.” While your sixty-day notice period for this class of claims is less than a year, in the Wisconsin case mentioned above, the court stated that the UCC does permit an account agreement to narrow the one-year limitation for customer claims without regard to the bank’s lack of care, provided the account agreement is not “manifestly unreasonable.” We are unaware of any Illinois court decisions that address whether or not shortening the UCC’s one-year period for this class of claims to sixty days is manifestly unreasonable.

For resources related to our guidance, please see:

• UCC, 810 ILCS 5/4-406(c) (“If a bank sends or makes available a statement of account or items pursuant to subsection (a), the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.”)

• UCC, 810 ILCS 5/4-406(d) (“If the bank proves that the customer failed, with respect to an item, to comply with the duties imposed on the customer by subsection (c), the customer is precluded from asserting against the bank: (1) the customer’s unauthorized signature or any alteration on the item, if the bank also proves that it suffered a loss by reason of the failure; . . .”)

• UCC, 810 ILCS 5/4-406(e) (“If subsection (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure substantially contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with subsection (c) and the failure of the bank to exercise ordinary care contributed to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under subsection (d) does not apply.”)

• UCC, 810 ILCS 5/4-406(f) (“Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer (subsection (a)) discover and report the customer’s unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under Section 4-208 with respect to the unauthorized signature or alteration to which the preclusion applies.”)

• UCC, 810 ILCS 5/4-103(a) (“The effect of the provisions of this Article may be varied by agreement, but the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank’s responsibility is to be measured if those standards are not manifestly unreasonable.”)

• Napleton v. Great Lakes Bank, N.A., 945 N.E.2d 115, 118–19 (1st Dist. 2011) (“Here, the parties agree that pursuant to the terms of the Account Agreement, the plaintiff’s duty to ‘promptly notify’ the bank of any unauthorized charges was modified to mean 30 days from the date the Monthly Statement was mailed to plaintiff. Although we did not find any Illinois cases directly addressing this issue, decisions from other jurisdictions indicate that such an alteration in the notification period is clearly permissible. . . . because plaintiff failed to notify the bank of the forgery within 30 days, the trial court did not err in finding that plaintiff had no claim against defendant.”)

• Napleton v. Great Lakes Bank, N.A., 945 N.E.2d 117–18 (1st Dist. 2011) (“During oral argument, plaintiffs counsel asserted that the case should be remanded to the trial court for a determination as to whether the bank’s conduct amounted to a lack of good faith or a failure to exercise ordinary care in violation of section 4-103(a) of the UCC, which permits the parties to vary the terms of the UCC by agreement but provides that the parties ‘cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care.’ 810 ILCS 5/4-103(a) (West 2008). We agree with plaintiff that evidence showing that the bank acted in bad faith in trying to disclaim liability for paying unauthorized items or failed to exercise ordinary care might preclude defendant from raising plaintiffs failure to timely notify it of the forgery as a defense. See, e.g., Falk v. Northern Trust Co., 327 Ill. App. 3d 101, 109, 763 N.E.2d 380, 261 Ill. Dec. 410 (2001) (holding that customer’s failure to provide statutory notice to bank of unauthorized withdrawal did not protect bank from suit when it acted in bad faith). However, plaintiff failed to present this issue in his initial complaint or in his briefs to this court and therefore, it is forfeited on appeal.”)

• Borowski v. Firstar Bank Milwaukee, N.A., 579 N.W.2d 247 (Wis. Ct. App. 1998) (“The only reported case that we were able to find that addresses the precise question at issue here, Parent Teacher Ass’n v. Manufacturers Hanover Trust Co., 524 N.Y.S.2d 336, 341-342 (N.Y. Civ. Ct. 1988), approved a reduction from one year to fourteen days without regard to whether or not the bank was negligent. . . . Based on the foregoing, we conclude that the fourteen-day period is not ‘manifestly unreasonable’ as that term is used in [UCC § 4-103] . . . .”)