Section 4--406. Customer's Duty to Discover and Report Unauthorized

Signature or Alteration.

(1) When a bank sends to its customer a statement of account
accompanied by items paid in good faith in support of the debit entries
or holds the statement and items pursuant to a request or instructions
of its customer or otherwise in a reasonable manner makes the statement
and items available to the customer, the customer must exercise
reasonable care and promptness to examine the statement and items to
discover his unauthorized signature or any alteration on an item and
must notify the bank promptly after discovery thereof.

(2) If the bank establishes that the customer failed with respect to
an item to comply with the duties imposed on the customer by subsection
(1) the customer is precluded from asserting against the bank

(a) his unauthorized signature or any alteration on the item if

the bank also establishes that it suffered a loss by reason

of such failure; and

(b) an unauthorized signature or alteration by the same wrongdoer

on any other item paid in good faith by the bank after the

first item and statement was available to the customer for a

reasonable period not exceeding fourteen calendar days and

before the bank receives notification from the customer of

any such unauthorized signature or alteration.

(3) The preclusion under subsection (2) does not apply if the customer
establishes lack of ordinary care on the part of the bank in paying the
item(s).

(4) Without regard to care or lack of care of either the customer or
the bank a customer who does not within one year from the time the
statement and items are made available to the customer (subsection (1))
discover and report his unauthorized signature or any alteration on the
face or back of the item or does not within three years from that time
discover and report any unauthorized indorsement is precluded from
asserting against the bank such unauthorized signature or indorsement or
such alteration.

(5) If under this section a payor bank has a valid defense against a
claim of a customer upon or resulting from payment of an item and waives
or fails upon request to assert the defense the bank may not assert
against any collecting bank or other prior party presenting or
transferring the item a claim based upon the unauthorized signature or
alteration giving rise to the customer's claim.