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R. Bank Liability. The City will assess the degree to which the Bank will assume liability for injury or harm to the City, its officers, officials, employees, agents, vendors, customers, bondholders, and third parties in general. The City needs to clearly understand the extent to which the Bank is willing to assume liability if and when extraordinary events might occur. The bank's acceptance of liability for damages to the City and /or its employees (in connection with failure to process payroll payments) will, in each case be dependent upon facts and circumstances of the particular situation, and any contributory fault or negligence of the City or third parties not controlled by the Bank, as well as timeliness in the City's notification to the Bank of any issues with respect to altered checks, non - receipt of electronic transfers, and the like. The bank generally does not accept liability for indirect, consequential, or punitive damages. 1. Under what circumstances will the bank assume full liability for check fraud on the City's accounts? J.P. Morgan has been an industry leader in offering a wide a variety of sophisticated fraud protection services, to protect our clients and the bank from financial loss due to payment fraud. The laws governing checks and negotiable instruments, primarily in Federal Regulation CC and the UCC, and interpretation of those laws have been changing to reflect a shared responsibility and partnership between clients and their banks. Therefore, we strongly recommend the usage of positive pay, Payee Name Verification and other applicable fraud protection services, to prevent any and all losses due to check fraud. Each situation is unique and will be examined and researched carefully by our Fraud Control team. The aspect of liability will then be determined on a case by case basis, after all the supporting facts have been reviewed. Currently in most states, the UCC provides for defenses that can be raised to a claim of loss due to check fraud based on the following principles: • Ordinary Care — the observance of reasonable commercial standards that prevail in the area in which the person is located and with respect to the business in which the person is engaged. • Comparative Negligence — in situations where there is loss due to fraud, a court would compare the client's negligence against the banks negligence to determine who should be liable. • Contributory Negligence —the client could be found to have contributed to the loss if, for example, they fail to safeguard checks from forgery or alteration by a "reasonable commercial standard," and that failure to safeguard contributes to the forgery or alteration. � TMi