Yes, we recommend that you require IOLTA customers to obtain endorsements on checks made out to third parties before depositing them (as you would with any other customer). Otherwise, your bank is risking liability to the payor bank under your presentment warranties. When sending a check for payment to the payor bank, your bank is warranting that there are no missing endorsements.

Additionally, the Illinois Supreme Court has recommended that lawyers obtain proper endorsements on checks before depositing them into the lawyer’s IOLTA. The Illinois Supreme Court’s Client Trust Account Handbook states that lawyers are accountable for “proper negotiation of [checks] by the payee,” among other responsibilities. 

For resources related to our guidance, please see:

• Uniform Commercial Code, 810 ILCS 5/3-417(a)(1) and 810 ILCS 5/4-208(a)(1) (“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 that pays or accepts the draft in good faith that: (1) the warrantor is or was, at the time the warrantor transferred the item, a person entitled to enforce the item . . . .”)

• UCC § 3-417 cmt. 2 (“Subsection (a)(1) in effect is a warranty that there are no unauthorized or missing indorsements. . . .”)

• Illinois Supreme Court, Client Trust Account Handbook (May 2015), page 28/printed page 26 (“3. Always Maintain a Paper Trail. Accountability requires that all aspects of the transaction be traceable from the time of receipt of the funds, up to and including the disbursement of the funds by check, proper negotiation of that check by the payee and clearance through the banking process. . . .”)