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Who Is Liable For The Stolen, Negotiated Check

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Who is liable on a corporate check payable to a vendor that was stolen in the mail and the payee changed to an unrelated third party? The check was cashed and the funds were ultimately taken out of the corporation's account. Is the payor bank, drawee bank or the drawer corporation liable? Which UCC provision covers this situation?

Who will be responsible will depend upon other facts not presented. For example, what was the appearance of the alteration? Was it obvious or incapable of being detected? Did the bank provide or require positive pay procedures? Did the corporation avail itself of such procedures? What is the contract between the corporation and the paying bank? Was the perpetrator in the employ of the corporation or was this an "outside" job? When was the alteration detected and reported? Was it a single instance, or part of an ongoing scheme?

The sections of the UCC that cover this question are in the 4-400 series.

By the way, the payor bank and the drawee bank are synonymous.

First published on 10/18/04

First published on 10/18/2004

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