Topic: Article 4 – Uniform Commercial Code
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When we receive our daily cash letter from the Fed, we review all checks of $2,500 and above for an endorsement. If the checks are not endorsed by the payee or stamped “All Prior Endorsements Guaranteed” by the depositing bank, we return the check. Is it our responsibility as the payor bank to check the endorsements? Who is held liable when there is no endorsement or a fraudulent endorsement — the depository bank or the payor bank?
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A payor bank does not have a duty to review checks received from a depository bank for missing or unauthorized endorsements. The Uniform Commercial Code (UCC) places the ultimate risk of loss for the payment of a check with a missing or unauthorized endorsement on the depository bank. Under the UCC, a depository bank warrants…
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May banks in Illinois dishonor checks that are properly payable when presented by a non-customer to cash? We have a policy of not cashing “on us” checks for non-customers. Is this permissible?
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Yes, we believe it is permissible to dishonor a check when presented by a non-customer to cash. However, you should review your account agreements to ensure that the bank has not directly or indirectly agreed to cash checks drawn by your customers and presented by non-customers. When refusing to cash an otherwise bona fide check…
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I’ve been taught that if a customer makes a deposit in-person, we should have the customer sign their endorsement before depositing the check. But our tellers and personal bankers are asking whether we can quickly stamp any checks deposited in-person, without requiring signatures (particularly if a customer is depositing six or more checks).
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Yes, it is possible to accept a customer’s check for deposit without their endorsement, although your bank is taking on some potential liability when doing so. The Uniform Commercial Code (UCC) provides that your institution, as the depository bank in this situation, is entitled to enforce a check deposited in person “whether or not the…
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We recently opened a new business checking account for ABC Inc. We later learned that the business is not in good standing with the Secretary of State, and it is our policy to close such accounts (and we have other misgivings about this particular customer). However, the customer already has deposited a check of several thousand dollars. The check was payable to “Smith and Smith,” but it was endorsed by ABC Inc. and deposited into ABC Inc.’s account at our bank.
The payor bank told us that they confirmed with the check’s drawer that the check is a legitimate payment for painting services and that the drawer wishes it to be paid so that painting will commence. The check itself did not include the drawer’s name or contact information, so we have no way of contacting the drawer directly. The payor bank will not guarantee that they won’t make a warranty claim based on the incorrect endorsement, nor will they return the original check to us. If we close the account, we will have to issue an official check to the customer, leaving us holding the bag if the payor bank later brings a warranty claim. But we don’t want to leave the account open, and if we freeze the account funds, the customer might refuse to begin the paint job and possibly expose us to a claim from the drawer. What should we do?—
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Unfortunately, the payor bank may have a potential claim against your bank for the proceeds of the check, and without more information about the drawer and the drawer’s account agreement with the payor bank, it might be difficult to determine whether your bank has a valid defense against such a claim, or when the period…
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If a customer reports a fraudulent check after receiving their statement, is it true that we have only 24 hours to return the check after receiving it, regardless of the fraud?
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Yes, banks generally must return checks by midnight on the next banking day after receiving the check, as required by the Illinois Uniform Commercial Code (UCC). Although federal Regulation CC permits certain limited extensions of the UCC midnight deadline rule, they almost certainly are unavailable when the fraud is not discovered until after the customer…
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We received a breach of warranty collection request from another bank, based on the alleged alteration of the payee on a check deposited into a customer’s account. The bank claims that the original payee was a business and that the payee line was altered to name the business owner individually, not the business. The bank included a copy of its customer’s check register as proof that the check was originally made out to the business, as well as a statement from the business acknowledging receipt of the check. We believe that the payee line was left blank and the business owner wrote in his own name. The check has no visible alternations, and our customer’s account into which this check was deposited has since been closed. Should we deny the claim? The check posted in January, and the drawer signed a fraud affidavit in December of the same year.
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Whether your bank should deny this claim is a business decision to be made based on the available facts and the likelihood of your success in court. In other words, whether your bank is liable to the payor bank for a breach of warranty is a question for a court to decide based on the…
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We recently signed an agreement to purchase two bank branches. The selling bank has agreed to provide us with two years’ worth of documents related to the acquired accounts. However, we are aware that Illinois law requires some documents to be retained for seven years. Are there any special exceptions to record retention requirements that apply to branch acquisitions? What are our record retention obligations for these acquired accounts?
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We are not aware of any special record retention exceptions that apply when acquiring branches from another institution. As such, we believe your bank will be held to the same record retention requirements as if it had originated the acquired accounts. There are several record retention provisions that will require more than two years’ worth…
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We have a customer who closed her account and requested that a cashier’s check with the remaining funds be mailed to her. The customer has not received the check and believes it was lost in the mail. She has signed an indemnity agreement and would like a new cashier’s check to be issued. Do we have to wait ninety days to reissue the cashier’s check if we have a signed indemnity agreement? Can we put a stop payment on the lost cashier’s check?
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Whether to issue a replacement cashier’s check prior to the ninety-day waiting period is a business decision for your bank. As both the remitter and payee of the cashier’s check, the customer may assert a claim for the lost check by signing a “declaration of loss” that meets the Uniform Commercial Code’s (UCC) requirements. However,…
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One of our customers lost her checkbook, and checks drawn on our bank were forged. The depositary bank already has cashed the checks. Are we liable for the forgeries?
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In general, your bank (the bank on which the forged checks were drawn) is liable for any forged checks that it did not return before its midnight deadline, but your bank may have a few narrow defenses against liability. In the context of a forgery, you will need to reimburse the customer for the amount…