Answer:
UCC section 4-406 addresses a depositor's responsibility to verify an account and statement for unauthorized items and alterations. It doesn't address forged endorsements.
Forged endorsement claims are started by the legitimate payee of a check, who provides an affidavit that the payee did not endorse the check and did not obtain any benefit from it. That affidavit is given to the remitter/drawer of the check as part of a claim of non-payment. The drawer of the check then looks to the paying bank under a claim that the payment of the check was improper due to the forgery.
The forged endorsement is then used as the basis for the paying bank's claim against the depositary bank or a collecting bank under the transfer and presentment warranties in UCC 4-207 and 4-208. Each party that learns of a breach of warranty under those section has thirty days from the date it has knowledge of the breach, and the identity of the warrantor (whom to file the claim against), to file a notice of the claim or the warrantor is discharged from liability to the extent of the warrantor's loss attributable to the delay in notice.
The statute of limitations for filing an action for recovery under a warranty in Article 4 varies from state to state. The model statute puts the deadline at three years from when the cause of action (the breach of warranty) accrues. In some states, notably Florida and Georgia, the period is one year.
First published on BankersOnline.com 9/06/10
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