IBA Compliance Connection

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A customer signed blank checks, which the customer’s caregiver later filled out and made payable to himself. After the customer died, but before we became aware of the death, the caregiver cashed the checks at our bank. The customer’s account is now overdrawn. Do we have any recourse against the caregiver for the amount of the checks?

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Yes, if you can prove that the blank checks arose out of wrongdoing by the caregiver against your customer. The Uniform Commercial Code authorizes a bank to stand in its customer’s shoes and assert the customer’s rights against the payee of a check (in this case the caregiver) if the following requirements are met: (1) The check has been paid “under circumstances giving a basis for objection by the drawer or maker,” (2) the bank is making its claim “to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of [the check],” and (3) the bank is asserting a right of the check’s drawer “with respect to the transaction out of which the item arose.”

From what you have told us, we do not have enough facts to determine whether you will be able to satisfy these elements. For example, simply asserting that the caregiver completed the customer’s blank checks would not suffice without other facts, since the UCC does not presume that a signed blank check is unauthorized; rather, it places the burden of proving that the completed check was unauthorized on the party making this assertion.

For resources related to our guidance, please see:

  • Illinois Uniform Commercial Code, 810 ILCS 5/4-407 (payor bank’s right to subrogation on improper payment)
  • First Nat. Bank of Belleville v. Heatherly, 8 Ill.App.3d 1073, 1074–75 (5th Dist. 1972) (a bank may stand in the shoes of its customer in action against a check’s payee, but the bank must prove its customer’s claim against the payee)
  • Illinois Uniform Commercial Code, 810 ILCS 5/3-115(d) (“The burden of establishing that words or numbers were added to an incomplete instrument without authority of the signer is on the person asserting the lack of authority.”)
  • Hutcheson v. Herron, 131 Ill.App.2d 409, 413 (1st Dist. 1971) (“When a person signs and executes a form instrument without filling in all the blanks, the person by implication authorizes a holder of the instrument to fill in the empty blanks in accordance with an underlying agreement. In the absence of evidence tending to show that the completion of the instrument was unauthorized, the court will presume that the instrument incomplete when executed was properly filled out.”)