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Altered Check on Business Account

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One of our banks has a business account on which a check has been materially altered. The payee has been changed. There are no funds available at the depository bank. Is our bank liable for this item or can we claim "breach of warranty" to the other bank and recover the funds. The check is for $35,000.

The fact that the depositor of the check has withdrawn all the funds may cause the depositary bank to resist paying a claim, but it does not affect your bank's right to file a breach of presentment warranty claim under UCC section 4-208. Start by ensuring that your customer's claim that the check was altered was timely under UCC 4-406. If that claim was not timely, your claim under 4-208 should be disallowed. If your customer acted in a timely manner, you must make your claim on the depositary bank within thirty days of knowing of the alteration and the identity of the depositary bank, or the depositary bank could attempt to reduce your claim by the amount of its losses caused by your delay. If the depositary bank refuses your direct "without entry" claim, you'll have to decide whether to pursue legal action to recover the funds.

First published on 8/02/10

First published on 08/02/2010

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