Answer:
First, the depositary bank was correct to hold your bank to its midnight deadline for returning the checks. Your bank is responsible for knowing its customer's authorized signature.
As for whether your depositor was timely in his claim that the checks were unauthorized depends on whether your bank has a provision in its deposit contract that defines what "prompt" or "timely" notice of unauthorized items is. Many banks, for example, include contractual language that requires notice within 30 days (even sooner for business accounts at some banks) or 60 days of sending the statement showing the payment of such items.
If you don't have such a provision in your deposit agreement, the Uniform Commercial Code of your state, section 4-406, supplies an outside time limit. The recommended language for that section puts a one-year (from sending of the statement) time limit on the customer. In some states, that time period may be shorter. For example, in Florida, it's 180 days from statement date and in Georgia, it's only 60 days.
First published on BankersOnline.com 9/10/12
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