We've been looking at a lawsuit brought by a small company against its bank after the bank refused to make good on six company checks totaling $8,090 which had been paid to another person despite the fact they contained forged signatures.

Although the bank claimed the cancelled forgeries were returned to the company in the statements sent on Dec. 23 and Jan. 25, the company's principal claimed because the forger had intercepted the statements she did not see them until Jan. 27. On Feb. 3, oral notification was given to the bank, and on Feb. 10, a written notice. The bank refused to make good on these checks, and on March 25 of the following year, the company started this lawsuit.

In its decision, the court first noted the relevant law requires a customer "exercise reasonable care and promptness to examine the statement and the items to discover his unauthorized signature...and must notify the bank promptly after discovery thereof." It also states a customer who fails to report an unauthorized signature within one year may no longer attempt to hold the bank responsible. The judge referred to that portion of the law that allows a bank and its customers to come to an agreement setting forth their rights and responsibilities with each other, which, so long as it's not "manifestly unreasonable," may actually limit the rights of the customer contained in the Uniform Commercial Code. Every bank we know of has such an "agreement." It's usually a part of all of those forms that you are asked to sign when you open a new account. In this case, the judge now turned to this particular agreement.

It is important to note the difference between the law and the agreement. The law says a customer must "promptly" notify the bank after discovery of an unauthorized check returned in a statement. The law further provides if the depositor does not give this notice within one year from the time the statement and item were made available to the depositor, he is barred from holding the bank responsible. The agreement on the other hand says such notification, if the bank is to be liable, must be made, in writing, within "14 calendar days of the delivery or mailing" of the statement containing the unauthorized or forged checks.

If after receiving the proper, timely notice the bank refuses to make good on a claimed forged check, the depositor's only recourse will be a lawsuit. Under the "law" such a suit must be commenced within the statutory time limitations of a contract action, in most states 4 to 6 years. The agreement of the bank, in this case, limited this period to one year after the date when the statement and cancelled checks were mailed or delivered. Quite a difference!

The judge in this case, after noting the bank appeared to have been negligent in its payment of the forged checks, stated that had the depositor given notice during the 14-day period and commenced this action within the year required by the agreement the bank may very well have been required to credit the account for the erroneous payment.

In this case, however, since the "agreed upon" written notice was not given, and since the lawsuit had not been commenced within the "agreed upon" period of time, the judge could do nothing but dismiss the lawsuit. In his conclusion he writes perhaps the legislature should again examine these laws that allow the banks to more or less set their own rules, and if they find that depositors are being unfairly penalized, as he feels is the situation in this case, "the system ought to be changed."