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What Happens If You Don't Endorse?

We accepted a check for deposit back in February. The check was charged to our corespondent account this month. When we originally deposited this item with our corespondent in February out bank endorsement was missing and when the paying bank did not honor it they couldn't figure out the bank of first deposit, so they sent it to our corespondent. The corespondent sent it back to the paying bank. This went on 5 times. Finally the corespondent ended up with the item in May and has been sitting on it ever since. They finally figured out it was presented by us and charged it back. The problem now is the payor account is closed (since March) and the deposit account at our bank is closed. What recourse do we have after 10 months?

We assume from your facts that you have determined your bank did not properly endorse the check and this is the primary reason the check was not returned to you in a normal and timely manner. Your failure to endorse the check most likely makes your bank liable for the amount of the check. And while the return ultimately took nearly nine months, the loss would still have been the same if it had been returned even in April, since your customer's account was closed in March.

You may have, however, a claim against your correspondent bank and/or the paying bank if either was negligent in the manner they handled the item. Section 229.30 of Regulation CC provides that if a paying bank determines not to pay a check, it is to return the check in an expeditious manner to the depositary bank. If the depositary bank is unidentifiable, the paying bank may return the check to any bank that handled the check for forward collection, but the paying bank is required to advise the bank to which the check is returned that the paying bank can not identify the depositary bank. In this instance it appears the paying bank returned the check properly to your correspondent, but you should try to determine whether they met the requirement of giving notice of inability to identify the depositary bank.

Regulation CC at Section 229.31 indicates a returning bank (your correspondent) that is unable to identify the depositary bank may send the check to any bank that handled the check for collection. In this situation, the returning bank could not identify your bank in order to return the check. You indicated the check was returned to the paying bank five times. It is possible your correspondent was hoping the check would finally clear the account at the paying bank, or it could have been error on the correspondent's part. You should inquire how your correspondent finally make the determination that you were the bank of deposit and returned the item to you. Why did they not discover earlier whatever information identified you as the bank of first deposit? If the check had been returned to you on a timely basis , you may have been able to charge the check back to your customer's account. On the other hand, your correspondent bank should not be required to do extraordinary research determine the bank of first deposit. The bottom line is that your bank's initial error set in motion the chain of events that resulted in the loss and it is likely your bank will have to absorb it. But while your bank may be ultimately liable for the item, you should always ask questions, investigate the facts, and look to the pertinent statutes or regulations for defenses/claims that may be available to you.

First published on 1/15/01

First published on 01/15/2001

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