Question & Answer

Question: We have a customer who owns a proprietorship who comes in with checks made payable to the proprietorship and wants to cash them. Is that OK?

Answer: The new Uniform Commercial Code is pretty clear in warning us that if we cash checks payable to corporations, we could be liable to the corporation for the funds in the check if the resolution does not specifically state that the officer cashing checks has the right to do so. But there is no reference to proprietorships. The financial institution is not an arm of the government, and so is not responsible to oversee how a proprietor runs their business. It is a better banking procedure to deposit the check and then draw from the account. But if your customer insists on cashing the check, you should insist on the first endorsement with the name as proprietor as well as endorsed again personally.

Copyright © 1996 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 6, No. 3, 1/96