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Missing Indorsement - Check Return
by John Burnett, BOL Guru
Guru Bio
Question: We recently returned a check for missing indorsement. The payee was upset because we returned it and because their bank lost the check. Our practice has always been to return items missing or improperly indorsed. However, after this incident and a little research, we found that some banks and bank consultants are saying that the burden for obtaining an indorsement falls on the depository bank and they automatically guarantee the indorsement regardless of whether or not they supply the missing indorsement. Any guidance you can offer would be greatly appreciated.
Answer: Section 4-205 of the model version of the Uniform Commercial Code reads as follows:
If a customer delivers an item to a depositary bank for collection:
(1) the depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of Section 3-302, it is a holder in due course; and
(2) the depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer's account.
If your customer, the drawer of the check, becomes concerned that a check is paid without an indorsement, you can assure him or her that if the payee did not received credit for the deposited check (for instance, if it were stolen), the payment could be recovered as much as three years after the fact.
First published on BankersOnline.com 7/23/07
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