We were presented with a check made payable to “husband and wife.” The husband has signed the check, but the wife has not. The husband would like to deposit the check into a business account for his LLC. The wife has consented to this deposit via text message. Can we deposit this check into the account for the LLC, or is a dual indorsement required?

Whether to deposit this check into the LLC’s account is a business decision for your bank to make, mindful that depositing the check with just the husband’s endorsement technically poses some risk, as the check is not considered “properly payable” if both payees have not endorsed the check over to the LLC.

When a check is made payable to two or more persons “not alternatively,” the Uniform Commercial Code provides that “it is payable to all of them and may be negotiated, discharged, or enforced only by all of them.” The payees to whom a check is payable are entitled to negotiate the check to a third party, and the check at issue here unquestionably may be deposited into the LLC’s business account if it is properly indorsed by both payees and then indorsed by the LLC.

But that is not the case here. While the wife’s text communication consenting to the check’s deposit into the LLC’s account may be indicative that the risk for the bank is negligible, the bank would remain subject to a claim by the wife that the check is not properly payable, for example if she was not the author of the text. Thus, the conservative approach would be to require both the husband’s and wife’s special indorsement to the LLC before depositing the check in the LLC’s account, but if the bank views the risk in this case to be negligible, it may wish to accept the risk as a business decision and accept the deposit.

For resources related to our guidance, please see:

UCC, 810 ILCS 5/3-201 (“(a) ‘Negotiation’ means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. (b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.”)

UCC, 810 ILCS 5/3-205(a) (“If an indorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the indorsement identifies a person to whom it makes the instrument payable, it is a ‘special indorsement’. When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person. The principles stated in Section 3-110 apply to special indorsements.”)

UCC, 810 ILCS 5/3-205(c) (“The holder may convert a blank indorsement that consists only of a signature into a special indorsement by writing, above the signature of the indorser, words identifying the person to whom the instrument is made payable.”)

UCC, 810 ILCS 5/3-110(d) (“If an instrument is payable to 2 or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to 2 or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to 2 or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.”)

Sanwa Bus. Credit Corp. v. Continental Ill. Nat. Bank and Trust Co., 247 Ill.App.3d 155, 160–161 (1st Dist. 1993) (“The checks at issue here named both Club and Golf as payees but Golf alone had endorsed them. . . . Thus, without Club’s endorsement, the checks were not ‘properly payable’ under section 4-401 . . . .”)

UCC, 810 ILCS 5/4-401 (“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.”)