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#126546 - 10/29/03 05:14 PM Two Signatures Required & Indorsement
Anonymous
Unregistered

Let's say Bank A accepts a check for deposit. The deposited check is drawn on Bank B (my bank) and according to the signature card any withdrawal from this account requires two signatures. The check deposited at Bank A is payable to Donald's Advertisements and the check is endorsed Sam Donald. First issue is the check does not contain two signatures as required by deposit agreement. Second issue is Mr. Donald is embezzling from the company at which he is employed.

Questions:
1)Can Bank B return the check to Bank A based on the endorsement even though it's past the 24 time period?
2)Is Bank B stuck because the check did not contain 2 signatures and it was not returned within 24 hours?
3)Other options?

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General Discussion
#126547 - 10/29/03 05:34 PM Re: Two Signatures Required & Indorsement
RayLynch Offline
Platinum Poster
RayLynch
Joined: Oct 2003
Posts: 544
What do you know about the bank account at Bank A? Perhaps "Donald's Advertisement" is a sole proprietorship and the dba for Sam Donald. If so, the endorsement is valid.

In any event your bank is liable to your customer for paying any check without the two required signatures regardless of the endorsement issue UNLESS you can use the same wrongdoer defense under UCC Section 4406.

My experience is that when customers discover an employee has been embezzling, the embezzlement scheme has been going on for some time.

If that is true there may be additional checks that your bank has paid without the two required signatures. Have your customer audit their books to determine if there have been such checks in the past.

If your customer did not report the first such unauthorized check by Mr. Donald within the required 30 days of receiving the statement, then the same wrongdoer defense may come into play and release your bank from liability on the current check.

Until a careful review is done of your customer's account it is too early to say whether or not your bank can escape liability to your customer for the current check.

Remember that liability to your customer is not based on whether or not you have the right to present a breach of warranty claim to the collecting bank.

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#126548 - 10/29/03 05:54 PM Re: Two Signatures Required & Indorsement
Anonymous
Unregistered

Yes, it could be a dba or it may not be a legitimate business. I don't know at this time.
This was reported within 30 days.

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#126549 - 10/29/03 06:02 PM Re: Two Signatures Required & Indorsement
RayLynch Offline
Platinum Poster
RayLynch
Joined: Oct 2003
Posts: 544
If there have been similar checks in the past, the fact that the present check was reported in 30 days does not mean that the same wrongdoer defense under UCC Section 4406 is not available.

The customer has 30 days to report the initial unauthorized check by the same wrongdoer otherwise the same wrongdoer rule is invoked. Subsequent unauthorized checks may be reported within 30 days of receipt but the customer will bear liability for those checks because of the failure to timely report the initial unauthorized check.

In the past what I have recommend is as follows:

If the current check is small, then offer to repay the check in exchange for a complete release (including any and all other unauthorized checks not previously disputed by the customer).

If the check is large then ask the customer to review their account history to determine if there are other similar checks. If there are similar checks then you know the same wrongdoer defense is applicable.

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#126550 - 10/29/03 06:53 PM Re: Two Signatures Required & Indorsement
Anonymous
Unregistered

In this case the initial fraudulent check first appeared in their 9-30 statement. After the company did not receive that statement they requested copies from bank and reported fraud problem on 10-29. They reported other fraudulent checks written after 9-30 but before 10-29. By contract we give customers 30 days to review statement.

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#126551 - 10/29/03 07:40 PM Re: Two Signatures Required & Indorsement
wpdcad Offline
100 Club
wpdcad
Joined: Apr 2001
Posts: 194
The endorsement is the responsibility of the bank that accepts it for deposit. They guarantee the endorsement. It is your resposibility to verify the signers on the check one or in this case there must be two. You have to follow the midnight rule and either pay or return within 24 hours. The next day after receiving the check. You do not say anything about the drawee of the check having any connection with the payee of the check and that is beside the point anyway, unless if it is the same person ie company and they are kiting.
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#126552 - 10/29/03 09:04 PM Re: Two Signatures Required & Indorsement
Anonymous
Unregistered

Drawee is supposedly the owner of the company to which the check is payable. So the drawee/an authorized signer signed a check drawn on her (now former) employer's account which was payable to another company that she purported to own.

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#126553 - 10/29/03 09:11 PM Re: Two Signatures Required & Indorsement
RayLynch Offline
Platinum Poster
RayLynch
Joined: Oct 2003
Posts: 544
Roger,

It appears your customer has made a timely claim for the unauthorized checks (assuming it never occurred before).

Here is another thought and really requires the involvement of counsel.

If the payee company exists and is a separate legal entity from the employee then there is a forged endorsement.

You also effectively have a forged maker signature because you don't have all required signatures.

This puts you into the double forgery case and in such a case, there is a basis for the drawee bank (your bank) to make a claim against the depositary bank. That basis appears in UCC Section 3404(d) - which invokes comparative negligence principles.

A lot of facts needs to be determined first to know if your bank can avail itself of any claims against the depositary bank under UCC Section 3404(d). That is why I suggest you involve counsel.

Under the theory that you have nothing to lose [especially if UCC Section 3404(d) is applicable] return the check under a breach of endorsement warranty claim and see what happens. You may get lucky and the funds may be returned to you.

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