Question: We took a check from a well known customer for $105,000 for deposit. The teller knew him, and consequently didn't take a close look at the check. Our customer, who has a construction company, was one of two payees on the check. It only had his endorsement. We got a letter from the drawee bank with a copy of the check - the original has already been destroyed - with a demand for our check for $105,000 for reason of "missing endorsement". There is no "and" anywhere on the check. When the other bank called to find out where their $105,000 reimbursement was, I told them there was no requirement for the second endorsement because there was no "and" in the payee area. They wanted to know where I got that idea. I quoted UCC to them. Am I in trouble?
Answer: It seems as if this problem comes into this office every month. It is one of the most troublesome areas for front line people to handle, and one of the most confusing for some attorneys.
You certainly should not be in trouble with your response. Section 3-110 (d) ( IDENTIFICATION OF PERSON TO WHOM INSTRUMENT IS PAYABLE) ... of the revised UCC says (not so very) clearly,
d) If an instrument is payable to two 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 two 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 two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.
Translated, that means if it appears to be payable to more than one person but does not make it clear by using the word "and", then any payee in possession of the check can negotiate it alone.
If, however, the word "and" appears between the payees' names, then both (or all) payees must endorse the item.
I'm not surprised the other bank did not know this rule, although it has been around for quite a few years. Many lawyers and judges were trained in the "old" UCC rules, which were in direct contrast to the new UCC. Before the UCC revision, all payees were required to endorse the item, no matter how it was made payable. (Editor's note - all of the above response holds true EXCEPT in the states of South Carolina and New York, which, for some reason, still have not adopted the revised UCC all the other states have been operating under for the past ten years.)
Even though it's not required under the new UCC, it is still safer to simply make it policy to obtain the endorsement of all payees.
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