Recourse when a check is cashed by the wrong party
Bernie Cosell
:o)] about the check and discovers that B never received it. A checks with
their bank and discovers that C cashed the check. Obviously [barring
conspiracy or something], none of this is B's problem, so A needs to write
another check and get it to B. BUT: what recourse does A have? It'd be
nice if the bank that improperly cashed the check was liable for the
screwup but probably not... Would A's only recourse be to somehow track
down C and file a suit against C?
/Bernie\
--
Bernie Cosell Fantasy Farm Fibers
ber...@fantasyfarm.com Pearisburg, VA
--> Too many people, too few sheep <--
David Martel
>A sends a check to B. After a while, A checks with B [or B complains to A
> :o)] about the check and discovers that B never received it. A checks
> with
> their bank and discovers that C cashed the check. Obviously [barring
> conspiracy or something], none of this is B's problem,
Ok, you seem to indicate that B and C are not in cahoots. B must still be
paid. If you put the power company's check in the water company's envelope
then you still owe the power company.
so A needs to write
> another check and get it to B. BUT: what recourse does A have? It'd be
> nice if the bank that improperly cashed the check was liable for the
> screwup but probably not...
You lost me here, why isn't the bank responsible for giving your money
away? Have you spoken with your bank?
Would A's only recourse be to somehow track
> down C and file a suit against C?
A's recourse is to pay B, notify the bank, and C of the error. A has a
contract with the bank which will certainly discuss this type of error. If
this contract absolves the bank from responsibility then find another bank.
Could you explain your problem? I see 2 possibilities. In one I get your
check, wrongfully. Present it to your bank, in person, and walk out
enriched. The bank had the opportunity to ask me whether I am the power
company. The bank screwed up and the money is gone. You have no idea who C
is. You never will and I spent your money. It's gone and the bank screwed
up.
In the second case, the water company receives the power company's check.
They submit this check along with a thousand others to their bank for
payment. Their bank sends the check to your bank (electronically, via a
clearinghouse), and collects the money. The money goes to the water
company's bank account. Your bank should be able to follow this paper
trail. They deal with errors like this routinely. The water company will not
be surprised by this error. It happens every day. The water company and
their bank should fix the problem. If your bank is not helping you to follow
this paper trail and get the money back then you need a new bank.
As a first step request the check or it's facsimile and see who cashed
the check and what banks or clearinghouses were involved.
Your recourse is to ask your bank to deal with this. This is not uncommon
and they have people in every branch who should help you with this.
Good luck,
Dave M.
Stan
> A sends a check to B. After a while, A checks with B [or B complains to A
> :o)] about the check and discovers that B never received it. A checks with
> their bank and discovers that C cashed the check. Obviously [barring
> conspiracy or something], none of this is B's problem, so A needs to write
> another check and get it to B. BUT: what recourse does A have? It'd be
> nice if the bank that improperly cashed the check was liable for the
> screwup but probably not... Would A's only recourse be to somehow track
> down C and file a suit against C?
Something similar happened to my dad. He had written the final-
installment check to his former business partner, who had already
moved out of town. When he got the cancelled check back (back in the
good ole days when banks returned actual checks), he saw that the
endorsement was not his former partner's signature. He took the check
to his bank, and they sent it back as though it had bounced, but
first my dad had to sign some legal papers accepting financial
responsibility should it turn out that the check had been properly
endorsed and cashed. (It turned out that the partner's adult son was
picking up his dad's mail, and his dad had told him to take care of
any checks, which my dad found out when junior called him a few days
later, but my dad firmly told him he needed his father's endorsement,
as that's the only legal proof he would have that his father received
what he was due. There was no formal POA, nor was the endorsement in
the son's name under any sort of POA; rather the son just signed his
dad's name.)
Having said this, I don't know how long after the fact, or under what
circumstances, your bank would bounce your check back to the bank that
had accepted it for deposit. We know forged checks are sent back even
after they've cleared (i.e., scams in which people are slightly
overpaid with a forged check and asked to simply wire the difference
back to the check writer), but I don't know the legal burden you'd
have to meet with a check that was not cashed by your intended payee.
Grip
> A sends a check to B. �After a while, A checks with B [or B complains to A
> :o)] about the check and discovers that B never received it. �A checks with
> their bank and discovers that C cashed the check. �Obviously [barring
> conspiracy or something], none of this is B's problem, so A needs to write
> another check and get it to B. �BUT: what recourse does A have? �It'd be
> nice if the bank that improperly cashed the check was liable for the
> screwup but probably not... �Would A's only recourse be to somehow track
> down C and file a suit against C?
>
been an honest mistake and kindly ask them to correct it.
I own a business that has a similar name to another business in the
same industry in the same city. We are B a few times a year. It's not
a big deal (but an annoying one).
G
Stuart A. Bronstein
> A sends a check to B. After a while, A checks with B [or B
> complains to A
>:o)] about the check and discovers that B never received it. A
>:checks with
> their bank and discovers that C cashed the check. Obviously
> [barring conspiracy or something], none of this is B's problem,
> so A needs to write another check and get it to B. BUT: what
> recourse does A have? It'd be nice if the bank that improperly
> cashed the check was liable for the screwup but probably not...
> Would A's only recourse be to somehow track down C and file a
> suit against C?
The bank is strictly liable for paying a check over a forged
endorsement. If you prove it was forged (or not the correct
endorsement), the bank has to return your money and look for C
itself.
Gene E. Utterback, EA, RFC, ABA
news:mg9o955ldqroii424...@216.168.3.66...
Interestingly, I've seen this happen with estimated tax payments - clients
writes a check to the IRS for $1,000 and a check to Maryland for $500 and
manages to put them in the wrong envelopes, so MD gets the check for the IRS
and the IRS gets the check for Maryland. No problem for MD, they actually
got more than they should have, but the IRS is shorted and charges the
client interest on the underpayment.
Clearly this is wrong on all accounts - first, the IRS and MD should not
have tried to process checks that were not made payable to them. The real
problem here (IMNHO) is the use of drop boxes - where the payment actually
goes to the bank for processing the checks, then the payment coupons marked
paid go to the taxing authorities. The taxing agencies will argue that they
never really got the check, that their processor made the error -
technically correct, which brings me to
Problem #2 - The Banks - it is a crying shame what our banking system has
become. They are no longer a local supporter of community finances, they've
turned into a financial Wal-Mart (no wonder Wal-Mart wants to be a bank).
Banks no only don't hire people with a graduate background, they LOOK for
people with retail sales backgrounds - specifically so that teller can SELL
you on refinancing to add a room, go on vacation, buy a new car, put the
kids through college, ad nauseum. The tellers will remind you that your CD
for your IRA is coming due and they will gladly roll it over for you, yet
they aren't licensed securities professionals. And if you ask for
investment advice they will direct you to their in-house person who may be a
captive agent of the bank and may only be able to tell you about THEIR
products - but I digress.
Bank tellers are also the lowest paid people at the bank, except for
possibly the janitors. And they have to move lots and lots of paperwork.
So it should be no surprise when someone making just slightly more than
minimum wage is trying to process thousands of checks and fails to catch
that the check is made out to someone other than whose account they are
putting it in.
So, as is always the case, the real responsibility falls to us, or in this
case YOU. BTW, this is one of the best arguments I have for reconciling
your bank account each month when that statement comes in. If you do your
bank rec you'll catch the problem. I've had several clients catch such
problems over the years and the BANK has always fixed the problem right
away. But timing is everything - if you catch it quickly the bank has
little choice but to fix it. But you can't wait six months and expect them
to do anything about it.
This is similar to what happens when you cash a check drawn an account at
your bank by another account holder when that check bounces, the bank will
take the money back from your account.
Your other option is to try to explain to whomever cashed the check what
happened and hope they give you the money back.
Gene E. Utterback, EA, RFC, ABA
Barry Gold
Bernie Cosell <ber...@fantasyfarm.com> wrote:
>A sends a check to B. After a while, A checks with B [or B complains to A
>:o)] about the check and discovers that B never received it. A checks with
>their bank and discovers that C cashed the check. Obviously [barring
>conspiracy or something], none of this is B's problem, so A needs to write
>another check and get it to B. BUT: what recourse does A have? It'd be
>nice if the bank that improperly cashed the check was liable for the
>screwup but probably not... Would A's only recourse be to somehow track
>down C and file a suit against C?
No. The law is pretty clear on ths one, and AFAIK negotiable
instrument law has not changed significantly since I learned it in the
1950s.
Basically, the validity of a negotiable instrument (promissory note,
check, or letter-of-credit(*)) depends on a chain of signatures.
First, the signature on the front of check must be that of the maker --
the person whose account the check is drawn on -- or somebody that the
maker *authorized* to sign for him.
Then, each endorser's signature must be valid. Again, only the payee
can endorse the check (or somebody the payee *authorizes* to endorse
it on his behalf). If the payee endorses the check to yet another
person ("pay to D"), then that person "replaces" the payee -- only D
can now endorse it. Etc.
If you endorse a check "in blank" (just write your name), it's the
same as endorsing it to "bearer". That is, anybody with possession
can present it for payment, or endorse it yet again.
Each endorser guarantees the validity of all previous signatures in
the chain.
Let's take the simplest case. A makes out a check to B. B takes the
check to A's bank and gets the money for it. No third parties are
involved.
Now, assume B banks at a different bank from A. SO B takes it to B's
bank, which takes it and puts the money in his account (or gives it to
him in cash, if they feel confident that they aren't going to get
stuck for it). B's bank then transfers the check to A's bank, and
gets money overnight through the National Automated Clearing House
Association
http://en.wikipedia.org/wiki/Clearing_house_(finance)
B's bank isn't formally an endorser, but most of the same rules apply.
That is, B is guaranteeing to A's bank the validity of the chain of
signatures, with one exception: A's bank is supposed to know the
signatures of its own customer, so A's bank (in theory) checks the
maker's signature. If it's wrong, A's bank is supposed to return the
check the same night.
In practice, I have only had two checks I wrote returned for
"irregular signature" (because I left out my middle initial or the
strange runes I used to add to my banking signature). For at least
the last 20 years, everything is automated. That's how a bank can not
only provide "free" checking but pay you interest on your money as
well... it costs almost nothing to process the checks.
So, what happens if there's something wrong -- a forged or incorrect
signature in the chain?
Let's start with the maker's signature -- it's missing or forged, in a
way that A's bank can detect(+). In that case, A's bank returns the
check to the bank that accepted it for deposit or cash (the "cashing
bank"). It's up to the cashing bank to recover the money from _its_
customer (whoever deposited/cashed it), if it can. That's part of why
banks make you wait a day or two before you can access the money from
a check you deposited. (The other reason is, they earn money on the
"float" -- the interest they receive lending the money out, minus the
interest they pay you for "having" the money in your account.)
As I said, most banks don't actually check the maker's signature.
They just process the check and send you back the check, or a reduced
photocopy, or just put an image of it on a website for you to look at.
If you complain that's not your signature, _then_ the bank will
double-check. And they will ask you to make out an "affadavit of
forgery," where you swear (under penalty of perjury) that you didn't
sign the check, authorize anybody else to sign it for you, or get
anything of value in return for it. Then they will (usually) put the
oney back in your account(@) try to collect from whoever deposited the
check. They may ask the cashing bank to do that for them, but as I
mentioned, the maker's signature really isn't the cashing bank's
responsibility after the first day. If the person who cashed the
check can't be found, they _may_ be able to go after somebody earlier
in the chain. If nobody else in the chain can be found (or they are
all "judgment proof"), then A's bank may just be stuck for the money.
Now, let's say that instead of A's signature being forged or missing,
B's signature is wrong, forged, or missing. Well, that's the
responsibility of the cashing bank. So A's bank may send the check
back to the cashing bank weeks later, after A examines his bank
statement and discovers that something is wrong. Or even months
later, when B says, "Hey, whatever happened to that check you were
going to send me." WHen _that_ happens, the bank will want _B_ to
fill out that "affadavit of forgery". However it happens, the chances
are that the cashing bank will be out the money. Again, unless there
is somebody else in the chain (_after_ the broken link -- B in this
case) that they can find and who will pay (or can be made to pay by
suing them in court).
So, in the particular case that Bernie asked about...
A discovers the problem (either on his own, or when B complains he
wasn't paid. A takes the check back to his bank, which returns it
to C's bank. C's bank will probably ask B to make out the
affadavit of forgery(=), then they will try to get their money
back from C. If they can't, they will be stuck for it -- and
usually all the consequences as I mentioned above -- fees charged
to A or to other people because A's account balance was lower than
it should have been.
(*) AFAIK the only form of Letter of Credit commonly encountered any
more is a Traveler's Check.
(+) as opposed to a really good forgery, which passes initial
inspection.
(@) And, usually, undo the effects of having the money taken out --
that is, refund any overdraft/"overdraft protection"/over-limit fees,
and sometimes even pay for the fees that other people got charged for
having their checks returned as NSF when they shouldn't have. NSF =
"Not Sufficient Funds".
(=) This is usually done before a Notary Public. Most banks have
notaries in at least part of the time. They charge a standard fee
($10 in California) for notarizing a signature, but the bank usually
waives that if you are filling out the form _for them_.
--
Barry Gold, webmaster:
Alarums & Excursions, Xenofilkia: http://places.to/xeno
Conchord: http://www.conchord.org
Los Angeles Science Fantasy Society, Inc.: http://www.lasfsinc.org
Bernie Cosell
} On Aug 31, 3:39�pm, Bernie Cosell <ber...@fantasyfarm.com> wrote:
}
} > A sends a check to B. �After a while, A checks with B [or B complains to A
} > :o)] about the check and discovers that B never received it. �A checks with
} > their bank and discovers that C cashed the check. �Obviously [barring
} > conspiracy or something], none of this is B's problem, so A needs to write
} > another check and get it to B. �BUT: what recourse does A have?...
} This hypo is controlled by the UCC, which is notoriously complex and
} the result notoriously fact-intensive. Technically, A can sue the
} bank that accepted the check from C. But to hold the bank liable, A
} must prove some pretty clear negligence. And even when the bank did
} clearly screw up, it usually "wins" by attrition.
thanks (all) for the info. The particular question I was wondering about
is actually mundane: is it worth the $25 to stop payment on a check that is
AWOL, or just ignore it and assume/hope it'll turn up someplace benign? In
that case, no harm [as I get my uncashed check back] -- but there's trouble
if it shows up someplace *NOT* benign and gets cashed.
I spoke to my bank about it and they were a bit vague about what would
happen -- they said that they would contact whatever bank cashed the check
and try to get things fixed there. They did *NOT* say what happens next
[what I need to do to prove that the check was improperly cashed, what
happens if the other bank doesn't cooperate or isn't convinced, etc].
The particular check in question isn't near large enough for me to consider
putting my lawyer on the case and filing suit for recovery [and I guess
this would be against the bank that honored the check, *NOT* my bank, so I
potentially have to bring a suit against some huge corporation that might
be hundreds of miles away with whom I have no business relationship...
UGH!!!]
I did get the impression that my money would be gone until this mess is
resolved, and with no clear assurance that it would EVER reappear. I had
thought that stop-payment orders were primarily used in disputes to compel
a party to address some issue before they make off with a payment. But I
hadn't thought about stop-payment orders as providing "insurance" for a
check that may have gone astray.
Mike Jacobs
> :o)] about the check and discovers that B never received it. A checks with
> their bank and discovers that C cashed the check.
I had this happen once, Bernie, with a check I had sent to a doctor on
behalf of a client, from my escrow account. [Maybe the rules are
different _because_ it is an escrow account - I can't just "write
another check" because it's other people's money I'm guarding, not my
own] and I did get the (apparently stolen) check back with the next
month's statement, the cash having already been paid to whoever
intercepted it from the mail and negotiated it.
My bank had a form for this situation - an affidavit of fraudulent
negotiation and forged endorsement, to be filled out and signed BY THE
RECIPIENT of the stolen check. Once the intended recipient swears on
a stack of Bibles that he was NOT the one who cashed the check (nor
did it go to anyone affiliated with him), the bank will REFUND the
money to my account, at which point I can use the (refunded) money to
write a new check to my payee. The bank then does whatever it does to
identify, and go after, the person who forged the payee's endorsement.
I am NOT a banking lawyer, but my understanding is that typically, the
initial responsibility to make good for the money paid out on the
fraudulent endorsement devolves ultimately upon the bank that accepted
and cashed the fraudulently endorsed instrument from the thief, which
bank then of course has the right (if they choose, and if it's worth
it) to pursue the thief for reimbursement of their loss (and of
course, possible criminal penalties). If they do that, the general
rule, as I understand it, is "the bank wins."
> Obviously [barring
> conspiracy or something], none of this is B's problem, so A needs to write
> another check and get it to B.
I wouldn't assume that's so obvious - at least, A should tell his bank
what happened, first, before he goes around spending TWICE as much
money on whatever he was paying B for, than he has to. Besides, if A
just pays B again, what incentive does B have to cooperate in the
bank's investigation of the stolen check?
> BUT: what recourse does A have?
Other than my own single experience with this happening on an escrow
account, I don't know, but surely if A goes to his bank in person,
talks to a bank officer, and seeks advice, they will TELL him what his
options are (at least, the ones they are willing to cooperate in
helping him pursue). If A doesn't like THOSE options, well, that
would be the time for A to seek LEGAL advice from a lawyer who DOESN'T
work for A's bank, at least to get a second opinion, which may not be
any different than what the bank tells A.
> It'd be
> nice if the bank that improperly cashed the check was liable for the
> screwup but probably not...
They ARE, as I understand it. If some bum walks in to, say, Chase
Manhattan's home branch wearing raggedy clothes and a 3-day beard and
claims to be Donald Trump, and presents a (legit) check for thousands
of dollars (or more) made out to The Don, don't you think the bank
ought to ask the man at the window to show sufficient identification,
and maybe put his fingerprint on the back of the check too, in
addition to calling the issuing bank and/or the maker (the person who
wrote the check) to make sure that yes, they did write a check to Mr.
T, and yes, it was for amount X, and yes, there is enough money in
that account to cover the check? Should a bank get off free and
clear if they act so negligently? Ooooops.
> Would A's only recourse be to somehow track
> down C and file a suit against C?
I think, in the long run, that would be the job of the bank that first
accepted the fraudulent endorsement from C.
--
This posting is for discussion purposes, not professional advice.
Anything you post on this Newsgroup is public information.
I am not your lawyer, and you are not my client in any specific legal
matter.
For confidential professional advice, consult your own lawyer in a
private communication.
Mike Jacobs
LAW OFFICE OF W. MICHAEL JACOBS
10440 Little Patuxent Pkwy #300
Columbia, MD 21044
(tel) 410-740-5685 (fax) 410-740-4300
homeboy4
> A sends a check to B. �After a while, A checks with B [or B complains to A
> :o)] about the check and discovers that B never received it. �A checks with
> their bank and discovers that C cashed the check. �Obviously [barring
> conspiracy or something], none of this is B's problem, so A needs to write
> another check and get it to B. �BUT: what recourse does A have? �It'd be
> nice if the bank that improperly cashed the check was liable for the
> screwup but probably not... �Would A's only recourse be to somehow track
> down C and file a suit against C?
The bank is liable. That's why it is often such a god-awful experience
to cash a check if the bank has no relationship with you -- and
sometimes even when they do.
Gordon Burditt
>:o)] about the check and discovers that B never received it. A checks with
>their bank and discovers that C cashed the check.
Something similar happened to me once. My employer gave me a
paycheck. I lost it (unendorsed), possibly by dropping it in a
parking lot. Or maybe it was stolen out of my car. Someone cashed
it at a convenience store.
The employer had me fill out a form saying I didn't endorse the
check and didn't get any benefit from it. That went to the bank
and eventually back to the convenience store. They could go after
the guy who presented it, if they can find him. Eventually I got
a replacement paycheck.
The guy I talked to was used to the situation - my employer has a
lot of retail stores. He thought that the person who cashed it was
in cahoots with someone at the convenience store since the description
was nothing like me. Also I still had my ID. And the guy had guessed
(wrong) what my middle initial stood for.
>Obviously [barring
>conspiracy or something], none of this is B's problem, so A needs to write
>another check and get it to B. BUT: what recourse does A have? It'd be
>nice if the bank that improperly cashed the check was liable for the
>screwup but probably not... Would A's only recourse be to somehow track
>down C and file a suit against C?
I believe the check goes back the way it came. A sends it to their
bank, who sends it to the bank that presented it, who sends it back
to the person who deposited it, who goes after the person who gave
it to them. In this case, the convenience store gets caught in the
middle
Stuart A. Bronstein
> A Michigan Attorney <miatt...@gmail.com> wrote:
>
> > This hypo is controlled by the UCC, which is notoriously
> > complex and } the result notoriously fact-intensive.
> > Technically, A can sue the } bank that accepted the check from
> > C. But to hold the bank liable, A } must prove some pretty
> > clear negligence. And even when the bank did } clearly screw
> > up, it usually "wins" by attrition.
I disagree. Under the UCC the only things you need to prove are
that the signature is a forgery and that you notified the bank in a
timely manner. See UCC �3-401.
> thanks (all) for the info. The particular question I was
> wondering about is actually mundane: is it worth the $25 to stop
> payment on a check that is AWOL, or just ignore it and
> assume/hope it'll turn up someplace benign? In that case, no
> harm [as I get my uncashed check back] -- but there's trouble
> if it shows up someplace *NOT* benign and gets cashed.
With most banks a stop payment only lasts for six months. If it
shows up after that time and you haven't put another stop on it,
you'll be in the same situation.
On the other hand it might be a good idea to put the stop on just
to inform the bank of a potential problem. If it does turn up
later with a forged endorsement, you may be in a slightly stronger
position.
> The particular check in question isn't near large enough for me
> to consider putting my lawyer on the case and filing suit for
> recovery [and I guess this would be against the bank that
> honored the check, *NOT* my bank, so I potentially have to bring
> a suit against some huge corporation that might be hundreds of
> miles away with whom I have no business relationship... UGH!!!]
Since you wrote the check it is your bank that is primarily liable
for paying over a forged endorsement. Is the amoung small enough
to go to small claims?
Seth
Bernie Cosell <ber...@fantasyfarm.com> wrote:
>A Michigan Attorney <miatt...@gmail.com> wrote:
>} On Aug 31, 3:39�pm, Bernie Cosell <ber...@fantasyfarm.com> wrote:
>}
>} > A sends a check to B. �After a while, A checks with B [or B complains to A
>} > :o)] about the check and discovers that B never received it. �A checks with
>} > their bank and discovers that C cashed the check.
>thanks (all) for the info. The particular question I was wondering about
>is actually mundane: is it worth the $25 to stop payment on a check that is
>AWOL, or just ignore it and assume/hope it'll turn up someplace benign? In
>that case, no harm [as I get my uncashed check back] -- but there's trouble
>if it shows up someplace *NOT* benign and gets cashed.
The stop payment order is considered (legally) only a suggestion to
your bank: they can pay the check anyway if they choose. You might
get your $25 back if they do. (You would then have the same rights as
if the order hadn't been made.)
>The particular check in question isn't near large enough for me to consider
>putting my lawyer on the case and filing suit for recovery [and I guess
>this would be against the bank that honored the check, *NOT* my bank,
I think it would be against your bank, which has a relationship with
and responsibility to you; the distant bank has neither, and is not in
a position to know that the check was mis-presented.
>I did get the impression that my money would be gone until this mess is
>resolved, and with no clear assurance that it would EVER reappear.
That could happen.
> I had
>thought that stop-payment orders were primarily used in disputes to compel
>a party to address some issue before they make off with a payment. But I
>hadn't thought about stop-payment orders as providing "insurance" for a
>check that may have gone astray.
If you want real assurance, you can close that account and open a new
one. But that's a hassle, with any other outstanding checks, regular
automatic payments, etc. having to be dealt with.
Seth
Stuart A. Bronstein
>> The bank is strictly liable for paying a check over a forged
>> endorsement. �If you prove it was forged (or not the correct
>> endorsement), the bank has to return your money and look for C
>> itself.
>
> Hang on a sec. This only applies, IIRC, to a forgery of the
> signature of the drawee bank's *customer* (on the front of the
> check). When it comes to forgeries of a *payee's* signature (on
> the back of the check), a negligence standard applies because
> the bank isn't expected to know a payee's signature the way it
> knows its own customer's signature (from a signature card on
> file).
Sorry, you're right. Someone who takes an endorsed instrument in
good faith and without negligence can enforce it. UCC �3-405. If a
bank cashes the check, the issue will be whether they were negligent
in not discovering the discrepancy.
nos...@isp.com
and that C somehow obtained and cashed it and wondered whether, apart
from A suing C if A can find him, A would have a claim against the
bank that cashed the check (although the OP did not make clear whether
this was A's bank on which the check was drawn or another bank which
then forwarded the check to A's bank for collection via interbank
clearing house procedures).
Re. which Stuart A. Bronstein said:
> * * *
>> A Michigan Attorney wrote:
>>
>> > This hypo is controlled by the UCC, which is notoriously
>> > complex and } the result notoriously fact-intensive.
>> > Technically, A can sue the } bank that accepted the check
>> > from C. But to hold the bank liable, A } must prove some
>> > pretty clear negligence. And even when the bank did } clearly
>> > screw up, it usually "wins" by attrition.
>
> I disagree. Under the UCC the only things you need to prove
> are that the signature is a forgery and that you notified the
> bank in a timely manner. See UCC � 3-401.
Even though the OP in a follow-up posting clarified that his query was
a hypothetical projection based merely on A having learned that the
check he sent to B became lost then speculating about some "what
if...?"s if there later is some C who finds it and forges B's
indorsement then cashes or otherwise negotiates it, this and the
original posting's very sort of factual vagueness makes "A Michigan
Attorney" entirely correct.
The above rejoinder's "See, etc." is actually quite inapt since the
sole purport of the only cited statute is that a party is not liable
on an instrument requiring a signature unless the party or his agent
has signed it.
However, lawsuits by and against banks dealing with forged or
allegedly forged or altered checks and indorsements thereon very often
concern vigorously contested claims of negligence and of contributory
negligence.
E.g., in the sorts of scenarios to which the OP vaguely refers: did A
fail to exercise ordinary care in a manner that contributed materially
to an alteration or later forged endorsement? if there later is an
endorsement-forging C, did the bank to which C presented and which
cashed the check in fact pay on it in good faith? and in light of the
relevant parties' respective degree or not of negligence, should there
be an allocation of loss between/among A and whatever number of banks
may be involved and, if so, in what percentages?
Given these very commonly arising, and litigated, questions, a
supposition that "the only thing" some A would need to prove is that A
signed the check therefore is laughable at best.
But, sure, A should by all means "see � 3-401" -- but A should not
fail _also_ to see � 3-406 _and_ all the Code's other related
"Liability of Parties" and other relevant provisions, which in fact --
and, again, perhaps especially when banks are parties plaintiff or
defendant -- often make litigation of the sort about which the OP
wondered notoriously complex.
Barry Gold
>wrote:
>
>> The bank is strictly liable for paying a check over a forged
>> endorsement. �If you prove it was forged (or not the correct
>> endorsement), the bank has to return your money and look for C
>> itself.
A Michigan Attorney <miatt...@gmail.com> wrote:
>Hang on a sec. This only applies, IIRC, to a forgery of the signature
>of the drawee bank's *customer* (on the front of the check). When it
>comes to forgeries of a *payee's* signature (on the back of the
>check), a negligence standard applies because the bank isn't expected
>to know a payee's signature the way it knows its own customer's
>signature (from a signature card on file).
Oh? Have they changed Negotiable Instrument law when I wasn't
looking? The old standard was that each endorser (which implied
includes the drawee bank) is a _guarantor_ of each previous signature
in the chain.
As such, it doesn't matter if you were negligent, or if in fact you
went _beyond_ the level of care expected of the "reasonable prudent
man". You can examine the check under a microscope, ask for 5 pieces
of ID and examine each one under a microscope. Nonetheless, if the
person who negotiates the check to you isn't the payee named on the
face (or a valid subsequent endorser), then you have to make it good
to the maker (or maker's bank) and seek reimbursement from _your_
customer (who, in turn, guarantees his and all previous signatures to
you).
--
Barry Gold, webmaster:
Stuart A. Bronstein
>>Hang on a sec. This only applies, IIRC, to a forgery of the
>>signature of the drawee bank's *customer* (on the front of the
>>check). When it comes to forgeries of a *payee's* signature (on
>>the back of the check), a negligence standard applies because
>>the bank isn't expected to know a payee's signature the way it
>>knows its own customer's signature (from a signature card on
>>file).
>
> Oh? Have they changed Negotiable Instrument law when I wasn't
> looking? The old standard was that each endorser (which implied
> includes the drawee bank) is a _guarantor_ of each previous
> signature in the chain.
Technically a bank doesn't endorse a check.
I had remembered the law the same as you did, but looking through
the code it's not so clear. It says a signature is not effective
unless it's genuine or authorized. But in the case of payroll
checks someone who, in good faith and for value, takes a check with
a forged endorsement, it's not his problem.
The UCC also often protects holders in due course. I wouldn't be
surprised if the courts of many states would do that in this kind
of case.
Bernie Cosell
Now I'm confused/worried again. In the (hypothetical) case at hand: party
C finds a check made out to B and manages to cash it. It seems that things
are not good for me [I'd be party "A" who wrote the check].
1) someone [me??] has to attempt to show that the folks that paid the check
either did so not in good faith, or with some fraud on the part of some
employee. And that they didn't take "ordinary care" [whatever that is!!].
The next section would seem to make it clear that dealing with all this
will be *my* problem: "(c) Under subsection (a), the burden of proving
failure to exercise ordinary care is on the person asserting the
preclusion. Under subsection (b), the burden of proving failure to exercise
ordinary care is on the person precluded." since I assume it would be *me*
asserting that the check was improperly cashed.
2) Assuming that they did take ordinary care [e.g, in subsection (c) it
says "Under subsection (b), an indorsement is made in the name of the
person to whom an instrument is payable if (i) it is made in a name
substantially similar to the name of that person, or ..."] it *doesn't* say
who is stuck holding the bag. Assuming that I *can't* show any reckless or
fraudulent behavior on the part of the folks that paid the check, it looks
like I'm out of luck -- I'd end up having to track down and bring some sort
of suit personally against party "C", both my bank and the paying bank seem
to be spared having to deal with this [as long as everyone dealt in good
faith, etc]
Stopping payment on the check looks like a better and better choice!!
4-403 seems the safest course. Unlike the above requirements, this one:
"The burden of establishing the fact and amount of loss resulting from the
payment of an item contrary to a stop-payment order or order to close an
account is on the customer." seems easy: the fact and amount of the loss
would be basically the fact of the cashing of and amount of the check. I'm
glad I read it, though: my bank was willing to do a stop payment over the
phone, but I see that that's only good for 14days: to get the full
six-months of stopped-payment I'll need to put the stop-payment order in
writing.
