Question & Answer

Question: We have a claim from an insurance company. An employee of theirs, who is our depositor, had stolen some of the insurance company's checks, made them payable to policy holders, and then deposited them into her account with us, forging the endorsement of the payee.

If the insurance company gets an affidavit of forgery from the payee, do we have any defense?

Answer: Yes, if the facts are as you gave them to us. If the insurance company had no intention of making the checks payable to their policy holders, and the policy holders themselves had not made any request for the checks which were drawn payable to them without their knowledge or consent-then the impostor rule would be applicable. Back in the "old days", we used to call this a fictitious payee-a nonexisting person. The Uniform Commercial Code was updated to make this situation more clear.We refer you to UCC 3405: Impostors: signature in name of payee, which reads in part: An indorsement by any person in the name of the named payee is effective if: (1) an impostor by use of the mails or otherwise has induced the maker or drawer to issue the instrument to him or his confederate in the name of the payee; (2) a person signing as or on behalf of a maker or drawer intends the payee to have no interest in the instrument; or (3) an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no such interest.

Translation? Your depositor stole the checks, using the name of payees. There was no intention for the payee ever to receive the checks. Therefore, your endorsement is "effective." Under U.C.C. the action for claim must be taken by the insurance company against their employee (your depositor-by now, hopefully, your former depositor.)

Copyright © 1991 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 2, No. 8, 10/91