Cashing Altered Checks

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Question:

We discovered some thirty days after payment that we honored an altered cashiers check. The check waspurchased and mailed, as a payment, to Chase and somewhere along the way Chase was removed as payee and a an individual name was entered on the face of the check (and it was a good job of alteration!). The individual got the item negotiated and now, because Chase asked the remitter why their payment was late, the remitter asked us about the check and we discovered we paid the altered cashiers check. Options??

Answer:

I'd suggest you first take a good look at the check. Is it an obvious alteration? Can you tell quickly just by looking at it that it has been altered? With the security features normally present in a cashier's check it would be interesting to know how the alteration was accomplished.

If you really can't tell that the check has been altered, then the other bank's defense may be that they accepted the check in good faith, and therefore are not at fault. The best you can do then is call the negotiating bank and see if they can help you make recovery. If they can help you recover any of the funds from this obviously fraudulent item, quickly send them a letter of indemnification. They should, at the very least, know who received the funds and this may be a small sign of a much bigger fraud.On the other hand, if it is a very obvious alteration - one that any normal teller should have noticed - you might have a better argument. You could return it on a without-entry basis with a demand for payment, based upon the presentment warranty under UCC 4-208, since the presenting bank warrants that the draft was not altered.

Have you contacted the postal inspectors? If it is a postal problem, either at your end or at the original payee bank's end, they'll want to know about it. And don't forget to file a Suspicious Activity Report.

First published on BankersOnline.com 6/4/01