UCC § 4A-505 requires a bank customer to “notify the bank of the customer’s objection” within one year.
Suppose your company employee forges the CEO’s name and faxes the bank payment instructions directing the bank to transfer funds into the employee’s own account. You want the bank to credit back the funds. Is it enough to tell the bank that the transfer was “fraudulent and unauthorized” like one defrauded bank customer did? In Zengen, Inc. v. Comerica Bank, 2007 WL 4424947 (Dec. 19, 2007), the court came down in favor of the bank and said, “NO.” The customer also should have informed the bank that it “objected” to the bank’s conduct in processing the transfer and should have specifically asked for the money to be transferred back into its account. The customer should also have notified the bank that it erred in following the established security procedures.
In other words, it is not enough to complain; you must ask for what you want. Don’t just notify the bank of the loss; ask for the money back or submit a claim. Since a bank is not necessarily liable for fraudulent or unauthorized funds transfers unless it fails to follow established security procedures, UCC § 4A-202(b), the court found that mere notification of a fraudulent or unauthorized transaction would not necessarily imply a claim against the bank.
Zenger is a Zinger for the customer. Most cases will not involve this situation because if a customer goes to the trouble of notifying the bank about an unauthorized funds transfer, the customer will also ask for the money to be credited back into the account.
The case was decided (in an unreported and uncitable decision) by the California Court of Appeal on remand from the California Supreme Court’s earlier decision in Zengen, Inc. v. Comerica Bank, (2007), 41 al. 4th 239, 59 Cal. Rptr. 3d 240. The case involved California’s UCC equivalent, California Commercial Code Section 11505.