Forged Signatures & Breach Of Warranty

Financial institutions who exchange items through a clearing house association may, by agreement, adopt language (Check Fraud Warranties Rule) which supercedes the UCC midnight deadline on forged maker or altered items as to the agreeing parties. Under this Rule, a clearing member bank of first deposit that presents a check to a clearing member payor bank, warrants that the check has no unauthorized signatures and that it is not counterfeit. If either warranty is breached, then liability for the item will transfer from the payor bank back to the bank of first deposit, in accordance with the provisions of the rule. The intent of this rule is not to transfer loss risk from one financial institution to another, but to place stronger responsibility with the party taking the item in exchange for goods or services. For additional information, check with your local clearing house association.

First published on BankersOnline.com 12/2/02