A Very Sticky Family Situation

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Question:

Two checks for $20,000.00 were deposited to a relative's account without endorsement of the payee. The money from the deposit was diverted to a mutual fund by the person who made the original deposit. If we go back to the issuing bank and sign an affidavit of forgery, will the bank that took the checks for deposit try to recover from all persons named on the account? Are all account holders liable for the actions of one of the account holders? This is a very sticky family situation.

Answer:

What are you saying was forged? The only way I can make sense of your scenario is to assume that you issued the two checks in question, payable to Party X, and they were deposited without Party X's endorsement into Party X's relative's account. The relative then moved the funds to the mutual fund.

Whether or not that is how the scenario played out, if a payee provides an affidavit of forgery/non-receipt and that results in a forged endorsement claim against the depositary bank, the depositary bank will look to the account holders, all of them, of the account into which the check was deposited, because in most cases, the deposit account agreement makes them jointly and severally liable on the account. In "sticky family situations", it's usually wise to consult an attorney to find out what your options are and the implications of each.

First published on BankersOnline.com 6/01/09