On May 8, 2014, the New York State Court of Appeals issued a decision in Clemente Brothers v. Aprile Hafner-Milazzo and Capital One. The case presented the issue of whether a bank and its customer may shorten the statutory time period provided for in UCC 4-406 within which a customer must notify its bank of an improperly paid item in order to recover the payment.
The court found for defendants on the facts of this case, calling it “not manifestly unreasonable” for the bank to shorten the time period from one year to 14 days because Clemente Brothers was a sophisticated customer with numerous employees who had the resources to make informed decisions about opening accounts. The Court specifically pointed to the fact that Clemente Brothers passed a corporate resolution acknowledging its obligation to notify Capital One of any irregularities in account statements within 14 days. It is important to note that the Court limited its holding to a case involving a sophisticated corporate entity but thought it could be unreasonable to impose a 14 day limit on unsophisticated customers, such as the elderly, disabled or small family businesses.