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Options for Returning Check Besides SOR

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Question: 
I have a customer who had a check clear in December 2013 and the payee is claiming they did not receive it. I've sent a SOR (source of receipt) through FED to find where the check was negotiated, but what other options do I have in regards to returning the check?
Answer: 

The normal way to handle this sort of situation is for the payee to initiate action by making a claim on the check's issuer (your customer) for non-payment of whatever obligation the check was designed to pay. Your customer would respond to the claim by providing a copy of the check. If the indorsements on the copy reflect credit to the payee at the payee's bank, the payee may or may not be convinced. If the payee believes that it never received the check and that it was fraudulently negotiated and paid (for example, if any indorsement wasn't made by the payee or the depositary bank isn't the payee's bank), it would counter with an affidavit of non-receipt that includes a statement that the payee didn't indorse the check or receive any portion of the proceeds of the check.

That affidavit then becomes the basis for a claim by your customer that your bank made an improper payment, which your bank converts into a transfer or presentment warranty claim upon the depositary bank. If the depositary bank honors your bank's claim, it either reimburses itself by charging its depositor's account (perhaps a business account fraudulently established to process stolen checks that are fraudulently indorsed) or absorbing the loss itself.

Assuming that your claim against the depositary bank is honored, you then reimburse your customer for the improper payment, and your customer, if it hasn't already done so, makes a payment to clear up its obligation to the original payee.

It's circuitous, I know, but it's the way to resolve such an issue under the provisions of the Uniform Commercial Code (UCC).

In most states, the UCC imposes a three-year statute of limitations on claims like this. In a few states, that time period is cut back to one year.

First published on 01/26/2015

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