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Who Is Liable For Altered Check?

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Question: 
We received a request from Bank A for reimbursement on an altered check that we accepted, in good faith, for deposit over three months ago and which Bank A paid. The check was "payable through" another bank. What is our liability in this case? What is the "payable through" bank's liability? What UCC Section should we reference in answering the request?
Answer: 

The applicable UCC sections are, I believe, Section Section 3-416, 3-417, 3-406, and 3-407.

In general terms, every transferor warrants that the item has not been altered. That works to put the liability for the fraud on the person altering the item (or as far back in the chain of endorsements as one can get). That said, standards of ordinary care may force an allocation of the obligation.

In any case, a holder in due course can always enforce the instrument, but only as originally issued (pre-alteration), except when alteration consists of unauthorized completion of an incomplete instrument, according to the terms of the instrument as completed.

First published on BankersOnline.com 06/2/03

First published on 06/02/2003

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