Forged Endorsement - Course of Action?

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Question:

We have a customer who sent a check for payment to a specific company. Company says they did not receive check, however, we found that check had been paid and endorsed by someone else not related to the payee company. Endorsement is not as drawn and not a forged endorsement. What course of action do we take for the customer?

Answer:

If you had identified the anomalous endorsement in time to return the check by your midnight deadline, this would have been easy. However, unless the check was quite large, it's unlikely you even saw it.

Now that the check has been paid, it's the payee that should take the first step (in fact, it may have done so). The payee should make a claim on your customer that it has not been paid, and should provide your customer with an affidavit of forged endorsement. That will require that your customer provide the payee with a copy of the check so that the affidavit can be facilitated.

Then your customer, with the paid check and the affidavit, makes a claim on your bank for improper payment. In turn, your bank enters a claim (directly or via intermediate collecting banks) against the depositary bank, on its transfer and/or presentment warranties and endorsement warranties under the UCC. Then the depositary bank attempts to collect from its depositor, usually is unable to do so, but remains liable on its warranties. The depositary bank pays you, you reimburse your customer, and your customer sends another check to the payee (perhaps he hand-delivers it, just to be safe). The order or timing of "settling up" the claims is not dictated in the UCC.

First published on BankersOnline.com 4/20/09