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We have a customer who wants to deposit a large check (for over $1 million) but is unavailable to endorse the check. Further complicating matters is that the check was made out to the customer individually and to two of the customer’s businesses (which are also our customers). Is there any way that we can deposit the check without the customer’s endorsement? – IBA Compliance Connection

IBA Compliance Connection

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We have a customer who wants to deposit a large check (for over $1 million) but is unavailable to endorse the check. Further complicating matters is that the check was made out to the customer individually and to two of the customer’s businesses (which are also our customers). Is there any way that we can deposit the check without the customer’s endorsement?

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It is possible to deposit the check without the customer’s endorsement. The Uniform Commercial Code (UCC) provides that your institution, the “depositary bank” in this situation, may deposit a check that a customer delivers to your institution without the customer’s endorsement. 810 ILCS 5/4-205(1). (The Official Comments to the UCC state that this rule applies even if a customer does not physically deliver a check to your bank, as with customers who authorize banks to receive their mail and deposit unendorsed checks under “lock-box” agreements. See UCC § 4-205 cmt. 1.)

Note that by depositing the check and sending it for collection, your institution is warranting to the payor bank, other collecting banks, and the drawer that you have either paid the check to the payees or deposited the proceeds into the payees’ accounts. 810 ILCS 5/4-205(2).This warranty should not be an issue in this situation, as you will be depositing the check into a payee’s account — in other words, you are doing what your warranty promises you will do.

As to the fact that there are multiple payees on the check, none of which will be endorsing it, in theory there could be a risk that they would object to the unendorsed deposit on behalf of your individual customer. In the event of such an objection, they could bring a claim against your bank for unlawful conversion of the instrument under Section 3-420 of the UCC (810 ILCS 5/3-420). However, we do not see this possibility as being an issue here, since you have indicated that the other payees are businesses that are wholly owned by the customer.