12/30/2023 0 Comments Drawee vs accountee![]() The insurance companies issued 91 checks, which were sent to Weisman's office. Over a period of five years, Mark Weisman, an authorized agent of three insurance companies, submitted fraudulent payment requests to insurers using various policy holders names. Guardian Life Insurance Company of America v. The court ruled as a matter of law that drawee banks are not obligated to review payee endorsements on checks received from depository banks. Can a negligent drawer in this situation divert a portion of liability back to the drawee bank by showing that the bank was also negligent in paying the items since it failed to detect the illegible endorsements? As illustrated in the following recently decided case the answer to this question appears to be no. Under the UCC, even if the drawer is negligent in issuing a check thereby substantially contributing to the making of a forged endorsement, the drawer still may be able to shift a portion of the liability back to the drawee bank if the bank also failed to exercise ordinary care in paying the item.įor instance, suppose a drawee bank pays several checks each bearing an illegible forged endorsement. Under these circumstances, the insurance company, the drawer of the checks, could be precluded from asserting the forged endorsements against the drawee bank. If the insurance company failed to take any steps to verify the legitimacy of the claims, a court or jury could conclude that the insurance company failed to exercise ordinary care in issuing the claim checks and that failure substantially contributed to the making of the forged endorsements. Suppose also that the checks are sent to the agent who forges the payees' endorsements and then deposits the items into his personal account. 3-406).įor instance, suppose an insurance company issues claim checks after it receives fraudulent payment requests from a dishonest insurance agent. For instance, both the drawee bank and the depository bank may escape liability for the payment of a check bearing the payee's forged endorsement if the drawer of the check failed to exercise ordinary care in issuing the check and that failure substantially contributed to the making of the forged endorsement (Revised UCC. Of course, the depository bank can look to the forger to recover its loss however, the likelihood of recovery is slim.Īs with any general rule, there are exceptions to the rule that a drawer may recover a loss resulting from the payment of a check over the payee's forged endorsement. It is the first bank to receive an item for collection and, thus, is in the best position to detect the forgery and prevent the fraud. ![]() The UCC places the ultimate risk of loss for the payment of checks bearing forged endorsements on the depository bank. If it turns out that the check does bear a forged endorsement, then the depository bank has breached its warranty and is liable to the drawee bank for the item. Put another way, the depository bank warrants to the drawee bank that the item does not contain any forged or unauthorized endorsements (Revised UCC. This is because the depository bank warrants to the drawee bank that it had the right to enforce payment of the item at the time it was transferred to the drawee bank for collection. In turn, the drawee bank may look to the depository bank for reimbursement. If the drawee bank pays a check bearing a forged endorsement, then it is obligated to recredit the drawer's account for the item. Under the UCC, a check bearing a forged endorsement is not properly payable (Revised UCC. In addition, the first bank to receive the check for collection is called the depository bank. And the financial institution that maintains the account on which the check is drawn, called the drawee. The person to whom the check is payable, called the payee. The person who writes the check, called the drawer. ![]() Remember, there are three primary parties to a check. Smith, J.D., Author, CCH DEPOSIT LAW NOTES.Īs a matter of law, a drawee bank does not have a duty to conduct any review of payee endorsements on checks received from a depository bank. 2022 Lending Compliance Triage Conferenceĭrawee Bank Not Required to Examine Checks for Forged Endorsementsīy Craig W.2022 Operations Compliance Triage Conference.
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