Our customer made a deposit in June 2012. However, for reasons I will not go into here, the deposit wasn't ever credited to the account. Now over two years later, they are making a claim for the funds. I am having trouble locating language in UCC-4 relating to the banks obligation to pay or deny the claim, can someone point me in the right direction? & am I correct our obligation would extend for 3 years under the statute of limitations? Your help would be greatly appreciated.

Unless your talking $100k+ (which I doubt since it took two years to claim) just pay it and be done. You'll lose the court battle and public opinion. Doesn't matter what your legal obligation is; not worth the reputational risk.

If I have a receipt and my money was never deposited and I never noticed it, then my funds should be sitting in a GL account. If you have researched and know what happened, I agree with milby, just credit the customer's account and move on. It is better not to make a mountain out of a mole hill.

Receipt? The OP said nothing about a receipt. Even with a receipt this is not an automatic. Was this a deposited check. Did it ever clear?