PEG Stamp & Forged Endorsements

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Question:

I came across several checks while completing a forensic examination which had a blank or restrictive endorsement followed by a Prior Endorsement Guarantee (PEG) stamp. These checks were part of a forged endorsement of the true payee. They were deposited at the fraud perpetrator's depositary bank. Does the PEG stamp constitute a second endorsement? What liability, if any, exists between the depositary and the true payee for the use of this stamp on items containing forged endorsements?

Answer:

The PEG (Prior Endorsements Guaranteed) stamp is surplusage, since the fact that a bank takes a check for deposit with or without its depositor's endorsement provides a warranty to subsequent transferees and the drawer of the check that the depositor obtained cash or account credit for the check, and the bank's subsequent endorsement of the check provides a warranty that all signatures on the check (prior to the endorsement) are both genuine and authorized. The warranty, however, does not provide the payee of the check any direct access to the depositary bank. Instead, the payee pursues the check's issuer for non-payment, and provides an affidavit that it didn't endorse or receive any benefit from the check. Because the check issuer doesn't want to be out the amount of the check, it pursues the paying bank for making an unauthorized payment, and the paying bank pursues warranty claims against the depositary bank.

First published on BankersOnline.com 10/12/09