Specific Wording When Handling Non-endorsed Checks

by Mary Beth Guard

Question: Is there an absolute verbiage regarding items that are not endorsed by the payee that has to be included in the depositing bank's endorsement before a paying bank won't return it for "no endorsement"? Currently our proof machine endorsement shows our routing number and our bank's name and city. It doesn't say PEG. But if it wasn't endorsed in the first place, that is moot anyway, isn't it? Typically, when a bank returns an item for "no endorsement," we stamp it with a Credit to the Account of the Within Named Payee, Absence of Endorsement Guaranteed and send it back through. From what I have seen in the UCC that is the required verbiage.

As a rule, we are only reviewing large items drawn on us for endorsement. I think we should be returning more of them for lack of endorsement, but I am not sure, and limited stress in the past was put on the importance of a payee endorsement if the depositing bank's endorsement was on it even if it looked like ours.

Answer: If the item is payable to an individual or a single entity, you can safely pay it without an endorsement because under UCC 4-205, the bank that sends it through without an endorsement is warranting to you that the funds were paid to the customer or deposited into the customer's account. No special language is necessary to invoke this warranty. In fact, NO language is needed to invoke it. It is automatic by statute. If the item is payable to joint payees, however, this statute may not protect you adequately and items without the endorsement of all joint payees should be returned.

In reviewing only large items drawn on you for endorsement, you are simply taking a business risk -- believing that the risk of endorsement problems on smaller items is outweighed by the cost you would incur if you reviewed all those items. It's a good idea to check a random sample of endorsements on items below the cut-off amount.

Originally appeared in the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 9/17/01