John Doe runs a farm management company, John Doe, LLC. He would like to open a business account for the company at our bank. Sometimes he receives checks that list the payee as “[client name], c/o John Doe, LLC.” Can he deposit these checks into his business account without the client’s endorsement if he has their written authorization to do so?

Yes, we believe that John Doe, LLC may deposit these checks in its account at your bank without its clients’ endorsements. However, this practice could pose minor residual risks to your bank (even with written authorizations from your customer’s clients on file).

Under the Uniform Commercial Code (UCC), if a check is made out to two persons alternatively (payable to LLC or Doe Farm), then only one of the payees’ endorsements is necessary. But if a check is made out to two people conjunctively (payable to LLC and Doe Farm), then both payees’ endorsement is necessary. If the check’s identification of the two payees is ambiguous (as is the case here), then the check is treated as payable alternatively to either payee, and only one of the payee’s endorsements is necessary.

In this case, the deposited checks use neither the “and” nor “or” designations — instead, they use “c/o.” While we are not aware of any Illinois cases that address this issue, there are some out-of-state cases that are instructive. One New Jersey court has held that use of the “c/o” designation is ambiguous; as a result, it treated such checks as properly endorsed with only one payee’s endorsement. On the other hand, a New York court declined to follow the New Jersey court’s reasoning, but its decision was based on an older version of the UCC that has been superseded, as well as circumstances suggesting that the checks factually should not have been treated as alternatively payable.

We are inclined to agree with the New Jersey court’s reasoning that the “c/o” designation is ambiguous and can be treated as an alternative designation. Under that reasoning, you may accept deposited checks that have been endorsed only by the LLC. But this issue has not been decided in Illinois. If a check’s payee or the payor bank challenges the checks as lacking proper endorsements, there is some risk that an Illinois court could decide differently.

We believe you can significantly mitigate this risk by maintaining written authorizations from the LLC’s clients that are named as payees on the checks. Additionally, you may wish to suggest that the LLC instruct its clients to make checks payable to the LLC alone, or to identify the LLC as the farm’s agent, either of which would allow your bank to avoid the “c/o” issue altogether.

For resources related to our guidance, please see:

Uniform Commercial Code,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.”)

Matson Intermodal Sys., Inc. v. Kubis Enters., Ltd., 895 A.3d 1242, 1249 (Sup. Ct. N.J. 2005) (“The use of the symbol ‘c/o’ on a check, without any further qualification such as trustee or representative, does not objectively indicate whether there are joint or alternative payees. . . . Given the complete absence of any indication as to whether the checks were intended to be payable alternatively or jointly, the court finds that the checks were ambiguous. . . .”)

Matson Intermodal Sys., Inc. at 1247 (Also noting that “[t]here is a paucity of case law on this issue in other jurisdictions and a consensus does not exist. . . .”)

Scolnick v. Bank One, N.A., 2014 NY Slip Op. 30612 (Sup. Ct. N.Y. March 7, 2014) (“This Court disagrees with the New Jersey Superior Court on whether a c/o symbol is ambiguous. The use of the symbol ‘c/o’ in a vertical alignment between a taxpayer and the taxpayer’s paid preparer on a tax refund check plainly indicates only that the refund check was mailed, via a government computer, care of the paid preparer, as the taxpayer’s designated representative. Objectively, the symbol cannot be construed to mean that the tax refund is payable to the tax preparer, or that the tax preparer has the authority to negotiate the check on the client's behalf.”)
Uniform Commercial Code, 810 ILCS 5/3-110(c)(2)(ii) (“If an instrument is payable to . . . (ii) a person described as agent or similar representative of a named or identified person, the instrument is payable to the represented person, the representative, or a successor of a representative; . . .”)