Our customer wrote a check to a business in the amount of $1,585.85. The check cleared our customer’s account on February 19, 2002. The payee notified our customer that they had not received payment. Our customer requested a copy of the cancelled check from us for proof of payment. However, upon examination of the check, it was noticed that the check was not endorsed by the payee. In fact, it was endorsed by someone altogether different (so the endorsement is not forged since they did not sign or write the payee’s name). We therefore charged the check back to the depositary bank for “improper endorsement” on June 6, 2002. The depositary bank then sent the returned item back to us without reimbursement stating “late return.”

Who is liable? If the liability is on the depositary bank, what specific regulation or UCC article do we reference in our demand for reimbursement to support our claim? What if they still won’t budge? I appreciate your comments.

The liability is on the depositary bank, but be careful about HOW you return the item. Do not use your standard return channels- you'll want to return the item 'without entry.' The way I do this is usually via certified mail, unless I am dealing with another local bank, in which case I'll drive it there myself. Also, include an affidavit of forged/unauthorized endorsement signed by the original payee.