Cal U Com Code § 11505

Deering's California Codes are current through Chapter 4 of the 2019 Regular Session.

Deering’s California Codes Annotated > UNIFORM COMMERCIAL CODE (§§ 1101 — 16104) >
Division 11 Funds Transfers (Chs. 1 — 5) > Chapter 5 Miscellaneous Provisions (§§ 11501 —
11507)

§ 11505. Notice to bank that customer objects to payment

If a receiving bank has received payment from its customer with respect to a payment order issued in the
name of the customer as sender and accepted by the bank, and the customer received notification
reasonably identifying the order, the customer is precluded from asserting that the bank is not entitled to
retain the payment unless the customer notifies the bank of the customer’s objection to the payment within
one year after the notification was received by the customer.

History

Added Stats 1990 ch 125 § 2 (SB 1759).

Annotations

Commentary

Official Comments on Uniform Commercial Code

This section is in the nature of a statute of repose for objecting to debits made to the customer’s account. A
receiving bank that executes payment orders of a customer may have received payment from the customer
by debiting the customer’s account with respect to a payment order that the customer was not required to
pay. For example, the payment order may not have been authorized or verified pursuant to Section 4A–202
or the funds transfer may not have been completed. In either case the receiving bank is obliged to refund
the payment to the customer and this obligation to refund payment cannot be varied by agreement. Section
4A–204 and Section 4A–402. Refund may also be required if the receiving bank is not entitled to payment
from the customer because the bank erroneously executed a payment order. Section 4A–303. A similar
analysis applies to that case. Section 4A–402(d) and (f) require refund and the obligation to refund may not
be varied by agreement. Under 4A–505, however, the obligation to refund may not be asserted by the
customer if the customer has not objected to the debiting of the account within one year after the customer
received notification of the debit.

Notes to Decisions

1. Generally
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Cal U Com Code § 11505

In a case in which a company’s chief financial officer apparently embezzled $4.6 million by directing four fraudulent
funds transfers from the company’s account to an account he controlled, the company arguably did more than just
inform a bank that the payment orders were unauthorized, where the company’s chief executive officer (CEO) told a
bank official that he had not authorized the payment orders, and the CEO testified that he and the bank official had
engaged in a very general discussion about the bank being sued. Zengen, Inc. v. Comerica Bank (Cal. June 4,
2007), 41 Cal. 4th 239, 59 Cal. Rptr. 3d 240, 158 P.3d 800, 2007 Cal. LEXIS 5491.

As a prerequisite to recovering from a bank for honoring unauthorized funds transfers, a banking customer must
pursuant to UCC § 11505 notify the bank of the customer’s objection to the payment within one year after the
customer receives payment notification. The customer must not merely inform the bank that the payment orders are
unauthorized or fraudulent, but must inform the bank in some way that it has objected to what the bank has done in
accepting the payment orders. Zengen, Inc. v. Comerica Bank (Cal. June 4, 2007), 41 Cal. 4th 239, 59 Cal. Rptr. 3d
240, 158 P.3d 800, 2007 Cal. LEXIS 5491.

UCC § 11505 does not require any particular formulaic words. Rather, it is sufficient if, based on all of the
circumstances, a reasonable bank would understand that the customer is objecting to what the bank has done in
accepting the unauthorized payment orders or otherwise considers the bank liable for the loss. Zengen, Inc. v.
Comerica Bank (Cal. June 4, 2007), 41 Cal. 4th 239, 59 Cal. Rptr. 3d 240, 158 P.3d 800, 2007 Cal. LEXIS 5491.

Notifying a bank that payment orders are fraudulent might be notifying the bank of the relevant facts, but UCC § 
11505’s one-year notification requirement must mean something different than merely notifying the bank of the
relevant facts. In context, the difference is that § 11505 requires notification that the bank may be liable for the loss.
Zengen, Inc. v. Comerica Bank (Cal. June 4, 2007), 41 Cal. 4th 239, 59 Cal. Rptr. 3d 240, 158 P.3d 800, 2007 Cal.
LEXIS 5491.

Regarding objection to debits made to a banking customer’s account, UCC § 11505 is not a statute of limitation,
but merely a statute of repose. It requires a banking customer only to notify the bank of the claim, not actually to
commence the action. Zengen, Inc. v. Comerica Bank (Cal. June 4, 2007), 41 Cal. 4th 239, 59 Cal. Rptr. 3d 240,
158 P.3d 800, 2007 Cal. LEXIS 5491.

Bank is not necessarily liable for accepting an unauthorized, or even fraudulent, payment order. Accordingly, merely
informing the bank the payment order is fraudulent does not inform the bank that the customer considers the bank
liable for the loss. Zengen, Inc. v. Comerica Bank (Cal. June 4, 2007), 41 Cal. 4th 239, 59 Cal. Rptr. 3d 240, 158
P.3d 800, 2007 Cal. LEXIS 5491.

UCC § 11505 requires notice in some form that the bank may be liable for an unauthorized funds transfer; what
procedure applies to deciding whether the bank is, indeed, liable is irrelevant to what the notice must contain.
Zengen, Inc. v. Comerica Bank (Cal. June 4, 2007), 41 Cal. 4th 239, 59 Cal. Rptr. 3d 240, 158 P.3d 800, 2007 Cal.
LEXIS 5491.

Research References & Practice Aids

Treatises

4 Witkin Summary (10th ed) Negotiable Instruments § 135.

Deering’s California Codes Annotated

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Cal U Com Code § 11505

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