Does the UCC acknowledge “FDO” as a substitute for “for deposit only?” We are seeing customers use “FDO” in lieu of “for deposit only” when endorsing checks, and we would like to know if this shortened version of a restrictive endorsement is acceptable.

We believe that your bank should treat a check endorsed as “FDO” as endorsed with the words “for deposit only.” You may choose to return a check with the restrictive endorsement “FDO” as lacking a proper endorsement if you are directed to deposit the check into an account other than the endorser’s, as you would for a check with the endorsement “for deposit only.”

Regarding restrictive endorsements, the Illinois Uniform Commercial Code (UCC) provides that if an instrument bears an endorsement to a particular bank using the words “for deposit,” a depository bank is liable for conversion unless it pays the endorser or deposits the check into the endorser’s account (consistent with the endorsement). The UCC and its commentary do not address the use of the “FDO” acronym, and we are not aware of any courts that have encountered the use of this acronym.

Consequently, if you receive a check with the letters “FDO” written on it, and you have not been directed to deposit the check into the endorser’s account, you may wish to contact your customer to confirm that they intended the check to be “for deposit only.” Your bank also would be within its rights to return the check as lacking a proper endorsement if you have not been directed to deposit the check into the endorser’s account.

For resources related to our guidance, please see:

Illinois UCC, 810 ILCS 5/3-206(c) (“If an instrument bears an indorsement . . . in blank or to a particular bank using the words ‘for deposit’, ‘for collection’, or other words indicating a purpose of having the instrument collected by a bank for the indorser or for a particular account, the following rules apply . . . (2) A depositary bank that purchases the instrument or takes it for collection when so indorsed converts the instrument unless the amount paid by the bank with respect to the instrument is received by the indorser or applied consistently with the indorsement.”)

Interior Crafts, Inc. v. Leparski, 853 N.E.2d 1244, 1248 (3rd Dist. 2006) (“Article 3 of the UCC imposes certain duties and responsibilities on the depository bank. With respect to restrictive endorsements, the depository bank is liable in conversion for failing to honor a restrictive endorsement. . . . Under section 3-206 a depository bank is liable in conversion unless the payee under a restrictive endorsement receives the amount of the check or unless the amount of the check is deposited in the endorser’s account.”)

UCC, 810 ILCS 5/3-417(a)(1) and 810 ILCS 5/4-208(a)(1) (“Presentment warranties. (a) 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 making payment or accepting the draft in good faith that: (1) the warrantor is or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft . . . .”)

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