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J. Walter Thompson, U.S.A., Inc. v. Bank of America Corporation

A check was written to a vendor. Someone intercepted the check, altered the payee, and deposited the check to an account in the name of the new payee. When the drawer of the check realized what had happened, it demanded reimbursement from the payor bank, which in turn made transfer and presentment warranty claims against the depositary bank and an intermediary collecting bank. This decision from the U.S. Court of Appeals for the Second Circuit provides a refreshingly clear illustration of how the UCC is designed to allocate losses from altered checks, and affirms that a payor bank may initiate transfer and presentment warranty claims before actually having reimbursed its customer for the improper payment of an altered item.

One caveat, however: A key finding in this case hinges on the lack of availability of Payee Matching Positive Pay technology in 2001. The result in this case would likely have been different if the events had occurred later, after such technology became available.

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