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Are We Left Holding the Altered Check Bag?

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Question: 
Two weeks ago we received notice of a without entry breach of warranty from the drawee bank on a $16,510 check. The maker has sent an affidavit of fraudulent activity with an altered payee claim. The check cleared the account almost three months ago. Our depositor was not aware of this alteration and received the check by a mail lottery scam with their name in the payee line. We, the depositing institution, acted in good faith and accepted the check for deposit. Our depositor waited for the check to clear and withdrew the funds. We are now being ordered to pay the full amount of $16,510 back to the drawee bank. I have gone through all the UCC sections for presentment warranties, imposters, ficticious payees and negligence contributing to forged signature or alteration of instument. Are we held liable for this item? And did the drawee bank meet the timeframe to return the item?
Answer: 

Let's start with the easy question. The drawee bank certainly made its claim within the normal three-year statute of limitations for transfer warranty claims.

Don't make the claim more than what it is. It is a claim by the drawee bank that you owe them $16,500. Whether or not you truly owe them this much is something we cannot tell without looking at all the facts. For example, you need to know when the drawer obtain the statement in which the allegedly altered check was contained or referenced, and how long it took the drawer to notify the drawee bank. Then you need to know how long the drawee bank took to notify you. If there are some extended periods of time there (over 30 days from knowing of the alleged alteration), and if you could have recovered money from your customer if there had not been delays over 30 days, you may not be liable for the whole sum.

On the other hand, the drawer of the check can certainly raise a strong argument that your depositor ought to have known there was something amiss, since it's probable that your depositor should have realized you don't win money in a lottery you haven't participated in.

My gut tells me you are on the losing end of this argument, and your depositor joins you there. You most definitely need to consult with an attorney versed in bad check cases, and you should start figuring out whether your depositor has any assets you can go after to recover after you pay this claim. Find out from your attorney whether there's a strong enough case to fight this in court; otherwise, be prepared to pay up and try to recover from your depositor.

First published on BankersOnline.com 5/2/05

First published on 05/02/2005

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