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#2269918 - 05/02/22 05:29 PM Late Return/Counterfeit Check Claim Inquiry
Anonymous
Unregistered

We accepted a counterfeit check through our mobile deposit system, the other FI is out of the midnight deadline to return through the FED. If there is no physical alteration and the payee on the front of the check matches the name on the deposit account BUT the back of the check has another endorsement (another name typed on it) would we be obligated to pay a WOE claim?

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#2269921 - 05/02/22 05:44 PM Re: Late Return/Counterfeit Check Claim Inquiry Anonymous
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,633
Galveston, TX
A check that is not properly endorsed can be returned, if that is what you are asking. You warrant the endorsement or lack therefor. If the check was not properly endorsed by the payee, which it does not appear that it was, then you are most likely going to be on the hook.
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#2269938 - 05/02/22 07:45 PM Re: Late Return/Counterfeit Check Claim Inquiry Anonymous
John Burnett Offline
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John Burnett
Joined: Oct 2000
Posts: 39,684
Cape Cod
You said it's a counterfeit check. Lets get down to specifics. Is the check itself a counterfeit, never issued or authorized by the party owning the account it claims to be drawn against at the other bank?

If that's the case, you may have some protection here as the depositary bank, despite the payee/indorser mismatch. That's because the check is fundamentally not properly payable and never was. The paying bank is responsible if it failed to make a timely (midnight deadline) return.
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#2269958 - 05/02/22 11:36 PM Re: Late Return/Counterfeit Check Claim Inquiry Anonymous
rainman Offline
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rainman
Joined: Nov 2004
Posts: 3,081
If your customer is the payee and deposited it to their account, the "extra" endorsement is irrelevant. Under UCC 4-205, if the payee was a holder of the item and delivered it to the bank in exchange for cash or deposit to the payee's account. Thus no breach of warranty for lack of endorsement.

UCC 4-205:

(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.

Under 1-201(21), if a check is payable to a person and that person has possession of the check, they are a holder.

The endorsement warranty under 4-208 is that the person making the warranty is a "person entitled to enforce" the check.

Under 3-301, a "holder" is a person entitled to enforce the check. In this case, the lack of endorsement shouldn't be a problem unless someone other than the customer deposited it to the customer's account or unless the check was altered.
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