Commercial customer liability for check is addressed in the Uniform Commercial Code (UCC), as well as your account agreement.

Articles 3 and 4 of the UCC, which outline customer liability for check fraud, apply to both individual and commercial customers. We have included several relevant provisions regarding liability in our resources section below.

In addition, as you noted, your bank may address check fraud liability in its account agreements. However, 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.”

The IBA does not have any sample terms and conditions for commercial accounts in its forms database. However, several banks have made their terms and conditions available online. One such example is found here: https://www08.wellsfargomedia.com/assets/pdf/small-business/agreement.pdf.

For resources related to our guidance, please see:

• UCC, 810 ILCS 5/1-201(27) (“‘Person’ means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality, public corporation, or any other legal or commercial entity.”)

• UCC, 810 ILCS 5/3-407(c) (“A payor bank or drawee paying a fraudulently altered instrument or a person taking it for value, in good faith and without notice of the alteration, may enforce rights with respect to the instrument (i) according to its original terms, or (ii) in the case of an incomplete instrument altered by unauthorized completion, according to its terms as completed.”)

• UCC, 810 ILCS 5/4-406(c) (“[T]he customer must exercise reasonable promptness in examining the statement. . . 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(e) (A “person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.”)

• UCC, 810 ILCS 5/3-417 (Both the person obtaining payment of a check and the previous transferor of the check warrant to the drawee making payment or accepting the draft in good faith that at the time of transfer the draft had not been altered, and a payor bank may recover damages for breach of warranty.)

• UCC, 810 ILCS 5/4-103(a) (Banks cannot disclaim their 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.)