We discovered that a cashier’s check issued on behalf of our customer was deposited and cleared at another institution, without the payee’s official endorsement. The check’s payee said that they do not bank with the other institution and the other institution stated that we need to submit a forged endorsement case so they can research it. How should we submit such a case? We have an “Affidavit of Alteration or Other Fraudulent Act” form, but we do not know whether the customer or the bank should sign and complete it, since it was a cashier’s check drawn on our bank’s account. Additionally, are there any Illinois Uniform Commercial Code (UCC) provisions we should consider?

We believe that the “Affidavit of Alteration or Other Fraudulent Act” form should be signed and completed by your institution, as the relevant cashier’s check is a draft drawn by your bank against its own account.

Your bank’s “Affidavit of Alteration or Other Fraudulent Act” form states that an account owner must sign and complete the form when the reason for the fraud claim is “Lack of Indorsement/Not Indorsed as Drawn.” As your bank owns the account from which the funds for the unendorsed cashier’s check were drawn, we believe your institution is the one that must sign and complete the form.

Additionally, your institution should be aware that the Illinois UCC allows for claims to be brought against depository banks when they breach one of the three presentment warranties. When the depository bank presented the cashier’s check to your bank, it made three presentment warranties under the UCC: (1) there were no unauthorized or missing endorsements on the check, (2) the check had not been altered, and (3) the depository bank did not know that the drawer’s signature was forged.

Under the Illinois UCC, notice of a claim for breach of warranty must be asserted within thirty days after the drawee learns of the breach and identity of the warrantor. After this thirty-day period, the depository bank cannot be held liable for any loss caused by the delay in giving notice of the claim. Consequently, we recommend sending notice of the breach of warranty along with your “Affidavit of Alteration or Other Fraudulent Act” form.

Furthermore, a cause of action for breach of warranty must be commenced within three years after it accrues. The decision of whether to ultimately assert a claim for a breach of warranty is one that we recommend be discussed with bank counsel.

For resources related to our guidance, please see:

Illinois UCC, 810 ILCS 5/3-104(g) (“‘Cashier’s check’ means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank.”)

Illinois UCC, 810 ILCS 5/3-103 (“(2) ‘Drawee’ means a person ordered in a draft to make payment. (3) ‘Drawer’ means a person who signs or is identified in a draft as a person ordering payment.”)

Illinois UCC, 810 ILCS 5/3-417(a) and 810 ILCS 5/4-208(a) (“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; (2) the draft has not been altered; and (3) the warrantor has no knowledge that the signature of the purported drawer of the draft is unauthorized.”)

Illinois UCC, 810 ILCS 5/3-417(b) and 810 ILCS 5/4-208(b) (“A drawee making payment may recover from any warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition the drawee is entitled to compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subsection is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft, breach of warranty is a defense to the obligation of the acceptor. If the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from any warrantor for breach of warranty the amounts stated in this subsection.”)

Illinois UCC, 810 ILCS 5/3-417(e) and 810 ILCS 5/4-208(e) (“The warranties stated in subsections (a) and (d) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the liability of the warrantor under subsection (b) or (d) is discharged to the extent of any loss caused by the delay in giving notice of the claim.”)

UCC § 3-417 cmt. 7 (“The first sentence of subsection (e) recognizes that checks are normally paid by automated means and that payor banks rely on warranties in making payment. Thus, it is not appropriate to allow disclaimer of warranties appearing on checks that normally will not be examined by the payor bank. The second sentence requires a breach of warranty claim to be asserted within 30 days after the drawee learns of the breach and identity of the warrantor.”)

Illinois UCC, 810 ILCS 5/3-118(g) (“An action . . . (ii) for breach of warranty, or (iii) to enforce an obligation, duty, or right arising under this Article and not governed by this Section must be commenced within 3 years after the cause of action accrues.”)

Illinois UCC, 810 ILCS 5/3-417(f) and 810 ILCS 5/4-208(f) (“A cause of action for breach of warranty under this Section accrues when the claimant has reason to know of the breach.”)