UCC Bank Deposits Law and Legal Definition

Article 4 of the Uniform Commercial Code (UCC), adopting in some form by nearly all states, deals with bank deposit and collections transactions. It is the duty of a bank to honor a check drawn on it by a customer. The customer will have a cause of action against the bank for any actual damages sustained by the customer if the bank improperly refuses to honor the customer's check, including damages for an arrest or prosecution of the customer or other consequential damages. Code § 4-402 defines the extent of a bank's liability to its customers for wrongful dishonor, and specifies the damages that may be recovered. Punitive damages may be awarded for the wrongful dishonor by the bank of its depositor's checks only when the conduct of the bank is shown to be maliciously intentional, fraudulent, oppressive, or committed recklessly or with a wanton disregard of the depositor's rights.

A check is subject to revocation by the customer at any time before the check has been certified, accepted, or paid by the bank. The bank must obey the instructions of the customer to stop payment on the check if the bank receives clear notice to stop payment. If the bank pays a check after receiving reasonable notice from the customer to stop payment, the bank is liable to the customer. A local statute may require that a stop-payment order be in writing and that the stop-payment order be renewed in writing to prevent the stop-payment order from expiring. In the absence of such a statute, an oral stop-payment order is effective.

If a bank sends or makes available a statement of account or items, described by item number, amount, and date of payment, the customer has a duty to promptly review it in order to reasonably discover any authorized payments and if any are discovered, must promptly notify the bank. Regardless of any care exercised by the customer or bank, after1 year from when the statement or items are made available to the customer, the customer is barred from making a claim against the bank for the unauthorized signature or alteration.