Ark. Code Ann. § 4-4-406 (2026)
Customer's duty to discover and report unauthorized signature or alteration — Comparative fault
- A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer reasonably to identify the items paid. The statement of account provides sufficient information if the item is described by item number, amount, and date of payment.
- If the items are not returned to the customer, the person retaining the items shall either retain the items or, if the items are destroyed, maintain the capacity to furnish legible copies of the items until the expiration of seven (7) years after receipt of the items. A customer may request an item from the bank that paid the item, and that bank must provide in a reasonable time either the item or, if the item has been destroyed or is not otherwise obtainable, a legible copy of the item.
- If a bank sends or makes available a statement of account or items pursuant to subsection (a), the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. 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.
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If the bank proves that the customer failed, with respect to an item, to comply with the duties imposed on the customer by subsection (c), the customer is precluded from asserting against the bank:
- the customer's unauthorized signature or any alteration on the item, if the bank also proves that it suffered a loss by reason of the failure; and
- the customer's unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding thirty (30) days, in which to examine the item or statement of account and notify the bank.
- If subsection (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure substantially contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with subsection (c) and the failure of the bank to exercise ordinary care contributed to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under subsection (d) does not apply.
- Without regard to care or lack of care of either the customer or the bank, a customer who does not within one (1) year after the statement or items are made available to the customer (subsection (a)) discover and report the customer's unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under § 4-4-208 with respect to the unauthorized signature or alteration to which the preclusion applies.
History. Acts 1961, No. 185, § 4-406; A.S.A. 1947, § 85-4-406; Acts 1987, No. 564, § 2; 1987, No. 565, § 1; Acts 1991, No. 572, § 6.
Research References
U. Ark. Little Rock L.J.
Survey—Uniform Commercial Code, 10 U. Ark. Little Rock L.J. 613.
Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.
Case Notes
Customer's Breach of Transfer Warranties.
Where a bank customer breached the transfer warranties under § 4-4-207 by depositing and receiving payment for a check with an altered payee line, the alleged failure of the drawer of the check to promptly notify the bank of the alteration did not provide a defense to the customer under the bank statement rule. Talbert v. United States Bank, N.A., 372 Ark. 148, 271 S.W.3d 486 (2008).
Laches and Estoppel.
Corporation could not recover from bank which allowed the corporation's bookkeeper to receive cash when she deposited checks marked “For Deposit Only,” even though allowing cash to be given on such deposits was a breach of an implied contract by the bank, since plaintiff had allowed this practice to go on for more than the statutory period of years without complaining. J.W. Reynolds Lumber Co. v. Smackover State Bank, 310 Ark. 342, 836 S.W.2d 853 (1992).
Lack of Ordinary Care.
A bank is precluded from using the defense that the customer did not promptly notify it of an unauthorized signature after statements were available to the customer, if the evidence establishes a lack of care on the part of the bank. First Nat'l Bank v. Hobbs, 248 Ark. 76, 450 S.W.2d 298 (1970).
Trial court's findings contained no suggestion that the bank was negligent or otherwise failed to exercise ordinary care when it made payments to an unauthorized customer as the bank could not have known that the transactions were a result of forgery or other unauthorized conduct. Mercantile Bank v. Vowell, 82 Ark. App. 421, 117 S.W.3d 603 (2003).
Statements of Accounts.
A depositor is not excused from his duty of examining his bank statement with reasonable dispatch and care and informing the bank of any errors by entrusting performance of this duty to an incompetent or dishonest agent in the absence of reasonable diligence in supervising his conduct. Pine Bluff Nat'l Bank v. Kesterson, 257 Ark. 813, 520 S.W.2d 253 (1975).
The usage and custom of a bank in delivering statements and cancelled checks to its depositors is competent evidence to prove delivery was effectuated. Cooley v. First Nat'l Bank, 276 Ark. 387, 635 S.W.2d 250 (1982).
Where bank statements are mailed to the address provided by the depositors as reflected on the signature card, they are “available” within the meaning of subsection (a) of this section. Cooley v. First Nat'l Bank, 276 Ark. 387, 635 S.W.2d 250 (1982) (decision under prior law).
Terms of the customer-account agreement did not preclude the customer from recovering on the items contained in the July savings, August checking, and August savings statements because the bank was notified before 30 days had elapsed following the deemed-receipt dates of those statements; allowing recovery for the items that the bank paid for before August 10, 1997, but precluding recovery for those items that were paid after August 10 was in keeping with the purpose of this section. Mercantile Bank v. Vowell, 82 Ark. App. 421, 117 S.W.3d 603 (2003).
Where supplier's bank wrongly encoded a check but the supplier did not notice the error for seven months, the account agreement, which required the supplier to notify the supplier's bank of “any other errors” within 60 days, did not bar supplier's negligence suit because the agreement applied only to the types of transactions or errors specifically identified in this section (unauthorized signatures and alterations) and not to encoding errors. Douglas Cos. v. Commercial Nat'l Bank of Texarkana, 419 F.3d 812 (8th Cir. 2005).
Statute of Limitations.
Subsection (f) of this section is not a statute of limitations, but rather, it creates an absolute bar as it is a rule of substantive law which is a condition precedent to an action. Pine Bluff Nat'l Bank v. Kesterson, 257 Ark. 813, 520 S.W.2d 253 (1975); Coast-to-Coast Stores, Inc. v. Citizens Bank, 676 F. Supp. 923 (E.D. Ark. 1987) (decision under prior law).
Evidence was sufficient to support conclusion that depositor had knowledge of unauthorized withdrawals and yet failed to act within the time allowed under subsection (f) of this section. Cooley v. First Nat'l Bank, 276 Ark. 387, 635 S.W.2d 250 (1982) (decision under prior law).
Depositor held to have acted within the time allowed under subsection (f) of this section where it notified bank within 4 months of the unauthorized withdrawal but did not file suit within the time allowed for discovering and reporting unauthorized signatures. Coast-to-Coast Stores, Inc. v. Citizens Bank, 676 F. Supp. 923 (E.D. Ark. 1987).
Unauthorized Signatures.
Where the authorized signature of a trust fund required the joint signatures of three trustees, any purported signature of less than three trustees was an “unauthorized signature.” Pine Bluff Nat'l Bank v. Kesterson, 257 Ark. 813, 520 S.W.2d 253 (1975).
The bank's payment of a check or withdrawal on less than the required number of signatures renders the signature “unauthorized” within the meaning of this section and requires the customer to discover and report it within one year from the time the statement and items are made available. Cooley v. First Nat'l Bank, 276 Ark. 387, 635 S.W.2d 250 (1982).
Cited: Carter v. Hartenstein, 248 Ark. 1172, 455 S.W.2d 918 (1970).