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Breach of Warranty Claims: Fictitious Checks (UCC)

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Recently we have been receiving Breach of Warranty Claims for fictitious checks and/or forged maker signature checks drawn on the Bank's submitting the claims. My understanding is that under the UCC the paying bank has until its midnight deadline to return a check for these reasons. We initially denied the claims, but have now received demand letters stating that are in breach of warranty provisions. Along with these claims, banks are providing hold harmless agreements stating that their customer has filed formal complaints with law enforcement. From what I can ascertain they are attempting to use the warranty to claim that the creation of a fake check is an "alteration". We don't belong to a clearing house that allows warranty claims on fraudulent checks. Any insight you can provide is most greatly appreciated.

Based on your description of the sequence of events, it sounds like the drawee banks are fishing to try and pass the liability to your institution. There is no warranty that has been breached and the hold harmless is likely an attempt to get your institution to accept the late return and debit your customer for whatever funds may still be in the account.

The responsibility under the UCC to identify a counterfeit check belongs to the drawee bank.

First published on 11/19/2017

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