Clemente Bros. Contracting Corp. v Hafner-Milazzo

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Corporation, which owned corporate operating accounts at Bank, took out a loan and line of credit. Corporation passed a corporate resolution providing that unless it notified Bank within fourteen days of an improperly paid item in order to recover the payment, Bank would not be held liable for any error in Corporation’s account. Corporation later discovered that its bookkeeper had been forging signatures on certain Bank documents and had embezzled approximately $386,000 over the course of two years. Corporation sued Bank to prevent Bank from forcing repayment on the loans. Bank counterclaimed to recover amounts due under the loans. Supreme Court granted summary judgment for Bank, concluding that a bank and its customer may agree to shorten from one year to fourteen days the statutory time period under N.Y. U.C.C. Law 4-406(4) within which the customer must notify its bank of an improperly paid item in order to recover the payment thereon. The Court of Appeals affirmed as modified, holding (1) a customer and bank can contractually reduce section 4-406(4)’s one-year limitations period; and (2) shortening the one-year period to fourteen days was not manifestly unreasonable under the facts of this case. View "Clemente Bros. Contracting Corp. v Hafner-Milazzo" on Justia Law