Based on the facts as described, we believe the check casher is the holder in due course of the original check and is correct in demanding payment from your customer. In addition, the check casher also has the right to demand payment from your customer’s employee.  Under the rules of the UCC, both would be liable for the check casher’s loss.

Also, while not directly applicable to these facts, you may find it helpful to view an IBA webinar held this past July on the risks of mobile deposits and recent changes to Regulation CC (focusing on bank-to-bank indemnities). You can view the recorded webinar here.

For resources related to our guidance, please see:

• UCC, 810 ILCS 5/3-414(b) (“If an unaccepted draft is dishonored, the drawer is obliged to pay the draft (i) according to its terms at the time it was issued . . . . The obligation is owed to a person entitled to enforce the draft or to an indorser who paid the draft under Section 3-415.”)

• UCC, 810 ILCS 5/3-302(a) (“. . . ‘holder in due course’ means the holder of an instrument if: (1) the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity, and (2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in Section 3-306, and (vi) without notice that any party has a defense or claim in recoupment stated in Section 3-305(a).”)

• UCC, 810 ILCS 5/3-415(a) (“. . . if an instrument is dishonored, an indorser is obliged to pay the amount due on the instrument . . . .”)