I am a U.K. banker that wishes to establish U.S. practice / rules regarding cheque endorsments, please.

Say a cheque drawn on a U.S. bank (and deposited with my bank by one of our customers who is the payee) is made payable to 'XYZ International Ltd' and is endorsed 'XYZ Int. Ltd' (the signature being purportedly of a director) should, in principle, the U.S. collecting bank to whom we send it, or the U.S. paying bank, refuse it by reason of the endorsment?

Reading the UCC Articles 3 & 4 my impression is endorsment is not even required or, if it is, the endorsement does not have to be literally as per the front of the cheque.

Grateful for any fellow bankers views on this matter and where, if any where, the rules are laid down.

Many thanks.

The endorsement should match what is written on the fromt of the check. In reality, many banks do not verify the endorsement, especially in the case of business deposits that may be cleared through a lock box or night deposit. Many banks use the thought that it is incumbent upon the writer of the check to verify endorsement when they receive tehir statement.

The check does need to be endorsed by the Payee as proof of payment. The Payor can refuse to honor the check if no endorsement is on the check.

In the US the receiving bank endorses the check as part of processing the check back to the payee bank. This endorsement does give liability to the payee bank in that it is guaranteeing to the payor bank that it negoiated the check with the proper payee.

There was a time when all checks paid against an account were looked at manually to make sure they were endorsed correctly. In recent years regulations have been changed to bypass that process as it was a very labor intensive effort. An automated paying process has replaced the manual processing, as it is much cheaper for the banks. So for the sake of automation and decreased labor expense checking to determine things like proper endorsements has been pushed onto the customer. It was felt that the savings in cost, offsets any losses due to incorrectness of paying a check.

Technically, yes you can present a check without an endorsement and it will process. However, there is no guarantee that it will not be returned to you. It is best to get an endorsement to protect your bank from potential loss. Without an endorsement you have no proof you paid the correct payee.

Many thanks for the above. Further queries if I may, please.

Happygilore: When you say the endorsement should ‘match’ what is written on the front of the cheque are you saying my example above would not ‘match’ what was written on the front? If so, is this a matter of banking practice or a legal requirement?

Don: If I understand correctly, you say that there is no guarantee that a cheque -that has not been endorsed by the payee- will returned to us unpaid. What gives the drawee bank the legal right to do this?

Grateful for your further input.

The payor bank can return an item for "Lack of Endorsement" The Payor can also request that their bank return the item as it was not endorsed. A payor may or may not do this. The possibility that they might do that gives you no guarantee of collecting proceeds of the check. Its the payors proof of payment.

A chain of responsibility needs to be established which gives the payor recourse in the event the payee ever comes back and says they never received their money.

To send the item for payment your bank needs to guarantee that the endorsement of the Payee is a valid endorsement.

If you just send the item for collection without either the payee endorsement or your guarantee that the payee received funds, the item can be returned for "Lack of Endorsement"

The endorsement as you stated sounds fine. If the item was made payable to ABC Ltd and just endorsed by John Smith there is nothing to say that John Smith has the legal right to negotiate items for ABC Ltd. Your banks guarantee is what makes the item payable. It give recourse to the payor bank as well as the payor back to your bank in the event of a problem.

If the check is made to "International Payments Corporation" and endorsed as "Int. Pay. Corp" or "IPC", I see mo issues. However, if a director of this corporation, John Smith, were to endorse as "John Smith" then it could be returned as "not endorsed as written" even though John Smith has signatory rights under teh corp.

Don & Happy, thanks for this; it's most useful.