"deposit only to account XXXX" in endorsement section written on check by payer.
payee crosses it out completely (totally unreadable), endorsed the check, and cashes the check.

what is the banks liability?

I have only been able to figure out that this is a restrictive endorsement, and that restrictive endorsements must be enforced. But how were we supposed to know what it said? do we not acccept checks with words in the endorsement section crossed out or can we accept them but only for deposit.

if this is considered fraudlently altered, was the bank on notice because of the crossed out section on the back? do we have to give the payer back his money?

stumped.

The common practice is to require the payee to initial the alteration to make it clear that he was the one who changed it. Did the payee initial the change?

You may have to explain what it is that the drawer of the check had in mind when he added the restrictive endorsement. Did the account belong to the payee? A third party? What's going on?

Note that if the endorsement was obliterated the drawer is in no position to prove that it said anything in particular either. Depending on the circumstances, it may be that the entire dispute is between the drawer and the payee.

Payee did not inital the deletion, but he did sign right above it.

The payer made payment for misc labor done by the payee. But he wanted the payee to use the money as payment on his monthly rent owed to the payer.

I am mostly concerned about bank liability and going forward establiahing clear guidance for what the tellers should do in this situation.

Who's customer is it that wrote the check - yours? Look at your depositor's agreement as most indicate that the bank bears no responsibility for restrictive endorsement language placed on checks without the bank agreeing to specifically enforce them.

I would say the drawer fashioned a mechanism of his own design and it simply did not work. As you note, your bank cannot read something that is not there anymore. Any argument that would hold your bank liable would be premised on what you should have done and I don't see that you coulda/shoulda done anything differently.

In the same circumstance, I would have written the check to the payee, had him endorse it in blank, and then hand it back to me.

Initialing an alteration is a good practice, but it would not have changed anything here.

huh. I will look there. Hopefully it is there. Both the payee and payer are customers...

Well, there is a "restrictive legend" section, but does restrictive legend = restrictive(-ish) endorsement? The examples in the statute dont specifically mention "depoist only", but rather "void after 90 days, ect.".

In most British Commonwealth countries, there is a technique known as "crossing" a check that puts two diagonal lines across an upper corner (the left, as I recall). It creates a legal requirement that the check (or cheque, as they call them) be deposited in an account of the payee, and not negotiated in other ways. Such a technique is not provided for in the UCC here.

Joe,

A "restrictive legend" is a notice that normally appears above the signature line on the face of the check, not on the back of the check. It is not a synonym for "restrictive endorsement."

Your better position is that the check did not have a restrictive endorsement when you received it, not that you disregarded it.

Here is my more legal take... it is MN law, but should be UCC standard

There was a restrictive endorsement, MN Statue 336.3-206, that was removed, and therefore the check no longer “bears” the restrictive endorsement. Assuming that the crossing out did not negate the restriction .3-206(c)(2) also states “A depositary bank that purchases the instrument or takes it for collection when so endorsed converts the instrument UNLESS the amount paid by the bank with respect to the instrument is received by the endorser. .3-206(b) would also seem to allow the person to whom the check was written out to change the restrictive endorsement unilaterally (not 100% here).

The apt people could make the agreement that the check was altered (.3-407) or forged, but the change would have to be unauthorized (see -206(b) and the relevant section from the mba manual states that the payee can make certain appropriate alterations) and the apt people would have to prove that the “original terms” included the restrictive endorsement. We could say that the original terms for checks do not include restrictive endorsements, but rather only the terms on the front of the check are original(maybe week).


Worst case scenario, we would be liable for conversion. 336.3-420 (b) will likely limit our liability to the amount of the check.