Our bank sells personal money orders. A teller types in the amount and date, and the purchaser fills in the payee line and signs as the remitter after they leave the bank. Is a personal money order considered valid if the purchaser never signs the face of the money order and it clears the bank unsigned?

No, we do not believe that a personal money order that has not been signed by the drawer is valid.

To begin, we note that under Illinois case law, the money order you described would likely be treated as an ordinary check, not a cashier’s check, as it is not structured as a bank obligation and has not been signed by your bank.

Under the Illinois UCC, a check is properly payable if “it is authorized by the customer and is in accordance with any agreement between the customer and bank.” Additionally, “[a] person is not liable on an instrument unless . . . the person signed the instrument.” If a bank makes an improper payment, a customer can bring an action and have their account recredited.

Here, the purchaser did not sign the money order, and we do not believe it was properly payable for that reason. If the purchaser brings an action against your bank for improperly paying the money order, you may be required to refund them (assuming that it is too late to return the check before the midnight deadline).

Under the Illinois UCC, your bank (as the payor bank) is responsible for paying items with missing drawers’ signatures. Your bank may have a claim against the depository bank if it breached one of the Illinois UCC’s presentment warranties. When the depository bank presented the check to your bank, it made three presentment warranties under the Illinois UCC: (1) there are no unauthorized or missing endorsements on the check, (2) the check has not been altered, and (3) the depository bank did not know that the drawer’s signature was forged. It may be unlikely that the depository bank breached any of these warranties in this case — unless the check was missing an endorsement — as it seems only the drawer’s signature is missing.

For resources related to our guidance, please see:

Chicago Cicero Currency Exchange, Inc. v. Continental Illinois Nat’l Bank & Trust Co. 189 Ill.App.3d 259, 261 (1st Dist. 1989) (“A cashier’s check is a bill of exchange or draft which is drawn by a bank upon itself. . . . In addition, the bank issuing the cashier’s check fills in the payee’s name and an authorized representative of the bank signs as drawer. In contrast, personal money orders have been described as similar to checks in that the purchaser signs as drawer, a blank space is provided for the name of the payee, and the order must be endorsed. . . . Since a personal money order is not signed by an authorized representative of the issuing bank, it is more in the nature of an ordinary check than a bank obligation.”)

Illinois UCC, 810 ILCS 5/3-104(f) (“‘Check’ means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or (ii) a cashier’s check or teller’s check. An instrument may be a check even though it is described on its face by another term, such as ‘money order’.”)

Illinois UCC, 810 ILCS 5/4-401(a) (“A bank may charge against the account of a customer an item that is properly payable from that account even though the charge creates an overdraft. An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.”)

Illinois UCC, 810 ILCS 5/3-401(a) (“A person is not liable on an instrument unless (i) the person signed the instrument . . .”)

Continental Cas. Co., Inc. v. Am. Nat. Bank and Trust Co., 329 Ill.App.3d 686, 698 (1st Dist. 2002) (“[W]hen a bank makes an improper payment . . . the drawer can bring an action for improper payment under section 4-401(a) and have its account recredited.”)

Illinois UCC, 810 ILCS 5/3-417(a) and 810 ILCS 5/4-208(a) (“Presentment warranties. (a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that: (1) the warrantor is or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft; (2) the draft has not been altered; and (3) the warrantor has no knowledge that the signature of the purported drawer of the draft is unauthorized.”)

UCC § 3-417 cmt. 2 (“Subsection (a) states three warranties. Subsection (a)(1) in effect is a warranty that there are no unauthorized or missing indorsements. ‘Person entitled to enforce’ is defined in Section 3-301. Subsection (a)(2) is a warranty that there is no alteration. Subsection (a)(3) is a warranty of no knowledge that there is a forged drawer’s signature.”)

Illinois UCC, 810 ILCS 5/3-204(a) (“‘Indorsement’ means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring indorser’s liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.”)

Illinois UCC, 810 ILCS 5/4-302 (“Payor bank’s responsibility for late return of item.

(a) If an item is presented to and received by a payor bank, the bank is accountable for the amount of: (1) a demand item, other than a documentary draft, whether properly payable or not, if the bank . . . retains the item beyond midnight of the banking day of receipt without settling for it or . . . does not pay or return the item or send notice of dishonor until after its midnight deadline . . .

(b) The liability of a payor bank to pay an item pursuant to subsection (a) is subject to defenses based on breach of a presentment warranty (Section 4-208) or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose of defrauding the payor bank.”)