February 2008 Legal Briefs

  1. Replacing a Cashier’s Check Based on Declaration of Loss
  2. Basis for Charging “Unauthorized” Items to Customer’s Account
  3. Other Ways a Forged Signature is Not a Forgery

1. Replacing a Cashier’s Check Based on Declaration of Loss

As explained in my article of March 2007, the stop-payment procedure in UCC Section 4-403 cannot be applied to cashier’s checks.  This provision allows only a customer (or person acting with the customer’s authorization) to initiate a stop-payment order.  (A bank cannot do so.)  Further, this section permits a “stop payment” only if the item is drawn on a customer’s account.  It does not allow either the customer or the bank to stop payment on an item drawn on the bank’s own account. (A cashier’s check is always drawn on the bank itself.)

However, UCC Section 3-312 allows a bank to return a cashier’s check unpaid if (1) the bank has received a “declaration of loss,” (2) at least 90 days have passed since the date of that cashier’s check, and (3) the bank has already paid the person claiming loss of the check, either by replacing the cashier’s check with another one or refunding the amount of the original check.

In this “declaration of loss” situation, many people code the return of the original cashier’s check as a “stop payment,” although strictly that is not correct terminology:  Section 3-312 does not use “stop payment” language at all; and Section 4-403, which is the only section mentioning “stop payment,” is clearly not applicable to cashier’s checks, as explained above.  Returning a cashier’s check as “stop payment” may cause it to be bounced back by the depository bank, which reads 4-403 and concludes this reason for return is not available.

(A bank’s internal process may be similar for placing a hold on payment of a cashier’s check based on a declaration of loss, or a customer check based on a stop-payment order.  And this may lead to referring to the cashier’s check procedure as a “stop payment.”  However, there are some differences:  There  should be a permanent hold placed on an original cashier’s check (90 days or more after issuance) based on a declaration of loss—and not just the six-month period that applies to ordinary customer checks with stop-payment orders.  Also, the customer fills out different forms for the “declaration of loss” procedure—and the bank typically charges no fee for a declaration of loss.)

A bank could use the following reason for returning a cashier’s check based on a declaration of loss: “Payment refused; original replaced [or paid] based on declaration of loss/UCC 3-312.” 

I will discuss below the specific requirements of UCC Section 3-312, as well as some questions I am frequently asked concerning this procedure.

1. Some Definitions

As defined in Section 3-312(a)(1), a “check” to which the declaration of loss procedure applies can be either a “cashier’s check, teller’s check, or certified check.”  (A “teller’s check,” included in this list, is drawn by a bank on its account at another bank.  UCC Section 3-104(h).)

Section 3-312(a)(2) defines “claimant” as “a person who claims the right to receive the amount of a cashier’s check, teller’s check, or certified check that was lost, destroyed, or stolen.”

Based on Section 3-312(b), two categories of persons could file a declaration of loss with respect to a cashier’s check, depending on the circumstances:  (1) the purchaser (remitter), or (2) the payee.  However, the person who makes the claim needs to be (a) the last person in possession of the check before it was lost, destroyed, or stolen, and also (b) the one who would sustain a financial loss if the check is not replaced.

For example, if the purchaser loses the check, or he is robbed, or the check gets destroyed in a fire or lost in the mail (before a third party who is the payee receives payment), the purchaser is the one sustaining the financial loss, and is the correct person to fill out a declaration of loss.

However, in some cases the payee actually receives the check, and is the one in possession of it when it is lost, stolen, destroyed, etc.  (If the payee receives the payment, the purchaser is not required to replace it.  On this basis, the payee sustains the financial loss—and the payee becomes the only one entitled to fill out a declaration of loss.

When a cashier’s check has been outstanding for a long while, a bank may try to contact the purchaser to fill out a declaration of loss, so that the bank will not have to continue to reconcile it on the bank’s list of unpaid checks.  But the bank really ought to ask the purchaser some questions, to find out whether the purchaser delivered the item to the payee and got credit for the payment, or whether that item was lost or misplaced by the purchaser.  If the payee (before losing the item) already credited the purchaser for payment, the purchaser does not have to pay the payee again, and is not the one entitled to a refund of the amount of the check.  (The bank should take a declaration of loss from the purchaser only if the check was lost by the purchaser. If the payee has sustained the loss and is entitled to a replacement check, the bank instead should ask the payee to make the declaration of loss.)  

2. Declaration of Loss  

Section 3-312(a)(3) sets out the required contents of a declaration of loss, including statements that a claimant must (truthfully) make in order to be entitled to payment or replacement of a lost cashier’s check.  If a declaration of loss lacks any of these elements, the bank cannot rely on it as a basis for reimbursing the claimant or replacing the lost check.  (If a customer comes into the bank and tells a story not consistent with the facts required in Section 3-312, the bank should not then allow that person to fill out a declaration of loss that swears falsely.)

First, the declaration of loss must be in writing.  Second, it must state that is it given “under penalty of perjury.”  (The person can be charged in court with perjury if the sworn statement is false and the bank relies on it.)

Third, the purchaser (or payee) of a cashier’s check must state that he has lost possession of the check.  Fourth, he must state that he is the purchaser of the check, or the payee, as the case may be.  

Fifth, the claimant must state that his loss of the check was not as a result of a transfer by him, or a lawful seizure.  (For example, seizure of a check by the police as part of a drug-related case is not a “loss” of the check.) 

Sixth, the claimant must state that he “cannot reasonably obtain possession of the check because the check was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.” (For example, if an estranged spouse gets hold of the check and won’t give it back, this is not enough.  A “declaration of loss” situation doesn’t exist if the purchaser knows who has the check, and where–but just doesn’t want the hassle of trying to get it back.)

As an example of a situation the statute covers, a rancher buys a cashier’s check to purchase cattle, but first he goes to a bar, he gets drunk, and he wakes up the next morning with no idea what happened to the check—whether it was lost, destroyed, stolen, etc.

3. Procedural Steps

If an appropriate declaration of loss is presented to the bank (by the purchaser or the payee—whoever has the loss), the bank can honor that person’s claim for the amount of the check (or his request to have the check reissued), if the required time period has expired.  Payment or replacement (based on the claim) should not occur earlier than a date 90 days after the date of issuance of the cashier’s check or teller’s check.  If the declaration of loss is presented more than 90 days after the date of issuance of the check (and the original check has not yet been paid), the claim can be honored immediately. UCC Section 3-312(b)(1).

A check’s purchaser or payee is allowed to fill out a declaration of loss at any time after a loss has occurred. However, that declaration of loss cannot become effective earlier than the 90th day after the check was issued.  In many cases, a bank takes a declaration of loss and is waiting for the 90 days to run out, but the original check is presented before the end of that time.  If the original check has been properly negotiated, the bank must pay that original check, and the bank then should not pay the claimant who made the declaration of loss.

But assuming that the customer told the truth about the original check being lost and not reaching the actual payee, it’s very possible that the original check, if it is presented at all before the 90-day period has expired, will have a bad endorsement, and can be returned on that basis as “breach of warranty.”  UCC Section 3-417(a)(1).  The “risk” for the bank is that the customer may have lied, having delivered the original check to the real payee, or otherwise having properly endorsed the check, in which case the bank must pay the check if presented earlier than the 90th day following issuance.

If the bank pays the claimant who makes a declaration of loss (either paying cash for the lost check or issuing a duplicate check) and 90 days or more have expired after that check’s date of issuance, the bank will no longer be required to pay the original check, if it is presented at any time after the bank has paid the claimant.  UCC Section 3-312(b)(3) and (4).

So the bank declines payment of the original check because (a) 90 days have passed from issuance of the original check, (b) the bank has received a declaration of loss, and (c) the bank has already paid the claimant.  The claimant then will be become liable to a person (if any) who is entitled to enforce the original check, but the bank will not be.  If the bank pays the claimant (at least 90 days after issuance of the original check) and also pays the original check (for example, through error, because the original check clears at almost the same time that the bank pays the claimant), the claimant must repay what the bank paid to the claimant.  UCC Section 3-312(c).

4.  Indemnity Agreement

Most banks use some type of indemnity agreement in situations where a customer has lost a cashier’s check but does not want to wait 90 days before getting it replaced.  With various wording, the indemnity agreement basically says, “In consideration for XYZ Bank’s agreement to issue a replacement for cashier’s check number 1234 in the amount of $xxxx which has been lost, I agree to indemnify and hold the bank harmless for the amount of the original check if it is presented for payment by someone entitled to enforce it.”  (Language such as this is sometimes included on the same form as the declaration of loss.)

The risk here is that if the original cashier’s check is presented for payment earlier than the 90th day following the date of issuance, the bank is going to have to pay it—unless the bank has a defense to payment, such as a forged endorsement. If the bank has issued a “replacement” cashier’s check before the 90th day, the bank will have to pay that one too.  In other words, the bank may have to pay twice if it replaces the original cashier’s check earlier than 90 days from issuance.  To protect the bank from that result, the customer promises in the indemnity agreement to repay the bank the amount of the first check, if the bank ultimately is required to pay both checks.  

So far so good.  But the bank always needs to recognize what it is getting when it takes an indemnity agreement.  This is merely an unsecured promise to pay.  If the bank would not be willing to make the customer an unsecured loan in the amount of the check that is being replaced based on the indemnity agreement, the bank should not rely on that indemnity agreement, but instead should refuse to do anything about the check until 90 days have passed from the date of issuance.

The simplest situation is when a lost cashier’s check is for only a few hundred dollars.  Most customers would be good for that amount of money if actually required to repay that to the bank.

The hardest situation occurs where the lost cashier’s check is very large (possibly as proceeds of a one-time transaction), the customer badly needs a replacement check to accomplish the purpose for which the (lost) original check was intended, but there is no way the customer would be financially strong enough to reimburse the bank if both checks were presented and paid.  The bank officer who is considering using an indemnity agreement to adequately protect the bank’s position should consider the customer’s financial condition as closely as a loan officer might in deciding whether to make that person an unsecured loan for the same dollar amount. It’s legally possible to take a security agreement to secure the customer’s promise made in the indemnity agreement—although I have never seen anyone do it. 

A bank officer who asks the customer to sign an indemnity agreement should not just say, “Sign this so we can reissue the check.”  Before doing so, the bank officer should clearly explain to the customer that the original item could still be presented, and–if the bank is required to pay it–the bank will require the customer to repay the bank.  Failing to make this clear can result in a very angry and uncooperative customer, later.  (If the customer won’t sign the indemnity, the customer shouldn’t get a replacement cashier’s check before the 90 days have expired.)

If the bank is certain that the customer is telling the truth about the original check being lost and not having been endorsed, there is probably little risk that the bank will have to pay the original check. (That’s because the original will never be presented, or if presented will have a bad endorsement.)  In this scenario, the indemnity agreement may be only a “backstop” to ensure that nothing bad happens, because it’s unlikely that the bank will have to seek reimbursement. And this can be explained to a customer too:  “If you know your lost check cannot be in the hands of someone entitled to enforce it, there’s no chance you will have to make good on the indemnity.”

2. Basis for Charging “Unauthorized” Items to Customer’s Account

The general rule under UCC Section 4-401(a) is that a bank can charge against the customer’s account only those items that are properly payable from the account. This section states, “An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and the bank.”

Nevertheless, there are various technical grounds that allow an item charged to an account to remain paid on the account, although the customer says the item is unauthorized.  These grounds include (1) preclusion, (2) agency, (3) estoppel and (4) ratification.  (Any one of these is enough, but a pattern of events can involve more than one.)  I will discuss each of these below:

1. Preclusion

“Preclusion” is the technical term used in situations where the customer’s delay in reporting a bad item will bar him from recovery.  His own inaction or lack of focus on the situation eventually causes the loss to shift to him, so that he cannot obtain reimbursement, even for items that truly were unauthorized.

As I have discussed in previous articles, a common example of preclusion occurs when repeat unauthorized items (forgeries or alterations) continue to be paid on an account because a customer is negligent in failing to examine his statements that contain unauthorized items involving the same wrongdoer.  UCC Section 4-406(d). 

The UCC also imposes an “outside time limit” for reporting and seeking reimbursement for any unauthorized item (even where there is only one bad item, and no repeat items).  Section 4-406(f) of the UCC provides a maximum period of one year to report a bad item, although this period is usually shortened by each bank’s account agreement to allow only 30 or 60 days to examine a statement and report a bad item.  After the deadline passes, the customer who has not reported the item is precluded from arguing that it is unauthorized.

Where there has been a series of unauthorized items by the same wrongdoer over a period of months, the “repeat forger” rule (UCC 4-406(d)) will cut off the bank’s requirement to reimburse items presented after perhaps the first two months of activity, while the “late reporting” rule (UCC 4-406(f)—with the time period shortened to 30 or 60 days by modifying 4-406(f))—will cut off the earlier bad items.  Frequent result: No bank liability for any of the items. 

These time periods are quite helpful and often are sufficient to eliminate the bank’s liability in a particular situation, without any need to get into other legal theories that also may reach the same bottom line–that the items do not need  to be reimbursed to the customer, although “unauthorized.”  

2.  Agency

If someone appoints “authorized signers” on his account, they are “agents” who are permitted to sign in his place.  In other situations, someone who is signing on an account without any “signature-card” authority may also be viewed as an “agent” whose signature may legally bind the accountholder. 

Let’s consider the attorney or business owner who is frequently out of the office, who often gets “too busy” to sign things. When he’s away or in meetings, he often tells his secretary to “sign his name” on letters and other documents.  He also tells her to sign his name on checks that need to go out, such as payroll and expense checks.  She becomes really good at signing his name–and he feels it’s so much easier just to let her sign instead of him.

In one sense, everything the secretary signs “forges” his handwriting. However, by instructing her to sign his name, he has probably adopted her version of his signature as his own signature—making her “forgeries” good.

The secretary sees how loose all of this is, and decides to write some “unauthorized” checks to benefit herself.  She uses exactly the same signature as before.  Should the accountholder be liable for the items that he says he did not authorize, even though her signing has been going on for a long time, based on his direct instructions?  (The bank is placed in an impossible position if it must know which checks she should be allowed to forge, and which ones not.)

The bank probably can resolve this situation simply by using the “repeat forger” rule (above)—since this has probably gone on for a long time; or “negligence” would work, because what the accountholder did was really stupid.  Or it’s “ratification” (discussed below) because the accountholder clearly knew what she was doing and repeatedly treated her items as his own; or maybe it’s “agency” (as outlined above) because she was acting under the specific instructions of her boss in forging her name on most of these items.

A similar situation often exists between husband and wife, although perhaps less so today than formerly.  Particularly in smaller towns, by custom or habit, a woman would often sign her husband’s name to write checks on his account.  This practice continues today when a wife uses her husband’s credit card, signing his name on the charge slip—or on an account at a store.  Many spouses apparently believe that marriage entitles them to sign each other’s names on checks.  All of this comes down to “agency,” but you would have to prove in court what the opposite spouse expected or allowed to be done.

Let’s consider another example:  Mom goes into the hospital for a major illness, and then spends a couple of months in an assisted care facility before recovering her health.  Her daughter is not on the account as an authorized signer, but Mom instructs her daughter to write checks on the account to pay bills during Mom’s illness.  The daughter signs (forges) Mom’s name on various checks for appropriate expenses.  But the daughter also writes some checks that Mom now says were unauthorized.  Mom wants her money back.

Mom says she has not seen any of the statements for months (because she was sick).  Under UCC Section 4-406(c) the bank is only required to “send or make available a statement.”  If the bank does so, “the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized.” 

Assuming that the statements were delivered to the last address provided by the accountholder, the UCC imposes on the customer an absolute duty to examine the statements, and the customer is automatically negligent for not doing so.  (The customer’s travel plans, business schedule, health issues, etc., or the fact that the customer never saw the statements, have no relevance.)

Maybe a relative, embezzling employee or caregiver has hidden each statement as it was delivered; or an accountholder was out of state for several months.  Or in this case, the customer was extremely ill and not physically strong enough, or too medicated, to examine statements.  It doesn’t matter.

In the situation where the daughter forges Mom’s signature on some unauthorized items, the “repeat forger” rule might get a bank out, without anything more. Depending on what Mom states (“I told my daughter to write checks on my account”), the facts may prove that Mom made her daughter her “agent” for writing checks, which in turn makes the checks authorized.

3.  Estoppel

“Estoppel” is a legal term.  Basically it means that a court will “stop” the person from making a certain claim or argument—not because he has no technical basis for making the argument, but because it “wouldn’t be fair” to allow him to do so.  This requires “less than clean hands” on the part of the individual, or perhaps a lengthy delay in acting that has put the opposite party in a much worse position than if the issue were raised in a timely way.  Often, estoppel is applied against someone whose own action or inaction has directly contributed to the outcome he is complaining about.  Because of what he has done (or not done), he does not deserve to be allowed to raise his “injury.”

Let’s say a customer becomes aware that his girlfriend (who is not an authorized signer) is writing checks on his account (by forging his name), but he says nothing, and looks the other way.  He never says she can do it; but when he discovers it, he doesn’t tell her to stop.  In fact, he doesn’t even mention it to her.  (He’s happy with their relationship.) By silence, the forged checks continue.  

Then they have an ugly fight and break up.  Now they hate each other.  He comes to the bank and demands that the bank reimburse him for all of the checks that she has written while they were together–which he says are “forgeries.”  He also wants criminal charges to be filed against her.

Can he successfully take this position against the bank?  Almost certainly not, but it depends on what facts the bank can demonstrate.  I doubt that a district attorney would consider prosecuting his ex-girlfriend.  It matters how much he has blurted out to the bank officer or the district attorney about what he knew and when.  (In situations like this, it’s often good for the bank officer to write down what was said, because it may be useful in court, or may help the bank’s attorney to analyze where the bank stands in the situation.) 

This customer was certainly “lying behind the log”—saying nothing at all, which allowed his girlfriend to continue writing bad checks.  He silently acquiesced in what she was doing.  To allow him to claim now that the items were forgeries would be grossly unfair.  The legal basis is “estoppel.”

However, without having to prove what he knew or thought, the “repeat forger” rule (above) would probably limit or eliminate the bank’s liability. “Agency” (outlined above) doesn’t quite fit, because he never specifically told her to write the checks. And “ratification” (below) is a little difficult to prove by his actions alone, if he never told her, “It’s O.K. that you did it,” and he never told the bank, “I will accept those checks without requiring you to reimburse me.”

4. Ratification

“Ratification” is another (less common) means by which an item can become properly payable on an account, even though the customer did not authorize the item.  (To outline the cleanest distinction between this and other scenarios, let’s assume that the customer was not aware that bad items were being written on his account, but immediately reported them to the bank as soon as he discovered them.)

In talking with the bank officer, the customer says he knows who did it (his relative, friend, caregiver, etc.), but states no name.  The bank explains its policy of prosecuting forgers if the bank takes a loss.  The customer says, “Let’s leave things as they are.  You don’t have to reimburse me for the bad checks.”

This is “ratification.”  Although the customer did not write the checks or authorize them to be written, he states after the fact that he will accept them as if they were his own.  His words turn a bad item into a good item.

The bank gives up something of value in this situation. It withdraws its stated intention to prosecute, in exchange for the customer’s consent that the items remain paid on his account as if they were good.  These mutual understandings form a simple verbal “contract” between the parties.  Once the customer has ratified the bad checks, he cannot “unratify” them unless the bank also consents to undo their agreement.  He can’t come into the bank two months later and say, “No, I’ve changed my mind.  I want you to pay me back for those checks.  Go ahead and prosecute the forger.”  The second visit may be outside of the bank’s deadline for reporting bad items, anyway, but also fails because ratification, once given, cannot be revoked.  

Let’s modify the facts.  The bank calls a customer and tells him his account is overdrawn.  He goes through his check statement and discovers some bad items.  His ex-wife admits to him that she took a pad of checks and forged them.  (The forgeries are so good that someone examining the signature card probably could not tell which checks she wrote.)  The bank tells him how much his account is overdrawn, he closes it, and he says, (1) “I want everything to be paid,” (2) “I want to remain in good standing with businesses that took the checks,” and (3) “I don’t want the mother of my children to go to jail.”

A month later he returns to the bank and says, “Now I want to sign forgery affidavits so I can get my money back.” He says he didn’t have time to sign forgery affidavits when he came in a month before.  Now he has gone through all his statements carefully for the first time to look for bad items.  He discovered more forgeries than he previously knew of, and so he has changed his mind, wanting full reimbursement.

It could be argued (certainly by him) that he only meant to ratify as many checks as he knew of, and that he had no intention of ratifying the forged checks he was not specifically aware of at that time.(Technically, for ratification to be binding, the person must understand all of the material facts of what he is ratifying.)

This is somewhat of a sticky issue, but I would still conclude that he should be considered to have ratified all of his ex-wife’s forged items.

Why do I say this?  Because (1) he knew the amount of the deficit balance of his account before he closed it, (2) he knew that his ex-wife must have written any checks that he did not write, to bring the account to that balance, and (3) he agreed to make that deficit balance good by saying, “I want everything to be paid.”  He didn’t say, “Go ahead and pay the six bad items that I have found.”  He said, “Pay everything.”  A reasonable person could only interpret his statement to mean that any and all bad items that had already paid on the account should remain paid, so that the bank would not prosecute his ex-wife.

It is true that at the time he didn’t find all of the bad items (nor did he try).  He later said he “didn’t have time” to go through everything, so learning the specific details of what happened was obviously not very critical to his decision.  Instead he just said, “Pay everything.”

When he finally looked at his check statements again a month later, he certainly may have found more bad items than he previously realized, but at least he didn’t discover any bad items written by someone else that he was totally unaware of.(His decision to cover his ex-wife’s forged checks might not indicate an intention to cover another (unknown) party’s forgeries, if there had been any that he found only later; but there weren’t any.)

The only forgeries (after he found them all) were by the ex-wife.  Although he didn’t take time to discover exactly how many bad checks she had written, he did know the limit of the damage, because he knew the deficit balance of his account before he closed it, and he said, “Pay everything.”  I don’t believe he had to know the exact number of bad checks and the amount of each one, in order to give a binding ratification, if he knew the bottom-line dollar result, and he said, “Pay everything.”  

Furthermore, the stated motives for his decision would not seem to depend at all on whether there were six bad checks, twelve, or twenty-four: (1) He didn’t want to be in bad standing with merchants who took the checks, and (2) he didn’t want the mother of his children to go to jail.  That’s what he was trying to obtain from the bank in exchange, when he said, “Pay everything.”

As a result, although he came in a month later with additional facts and a changed attitude, I think there was still sufficient “ratification” to cover everything, and the bank should owe him nothing.  (It would be nice if the bank officer had written down exactly what he said on his first trip to the bank, because the bank later may need to prove what he said.  With a change in attitude, his own memory of what he said the first time may change.  Asking him to write it out on the first trip—“I agree to accept all bad items that have been paid on my account in exchange for the bank’s agreement not to prosecute the wrongdoer,” or similar language–would have been even better.)

As in many “customer complaint” situations, the bank sometimes makes a compromise to try to patch up the relationship with a good customer—not based on legal necessity, but public relations.  What I am outlining here is only the legal analysis, not the practical reality that a bank may need to address.

3. Other Ways a Forged Signature is Not a Forgery

This topic is a further extension of some of the issues raised above, and raises some “fun” legal arguments, but the situation may occur only rarely.

Let’s say that a husband and wife are joint tenants on an account, but they’re getting a divorce.  A check payable to the husband arrives in the mail.  The wife forges the husband’s endorsement on the back of that check and deposits it to the joint account.  Then she writes a check on the account, forging her husband’s signature on it, instead of using her own signature.

The husband receives the bank statement, sees the deposit that he was unaware of, and also finds the check with his forged signature, drawing out most of the money.  He gets a copy of the check on which he was payee, and sees that his endorsement was forged.  He recognizes his wife’s handwriting on both. He complains to the bank not only that the endorsement on the deposited check was forged, but also that his signature on the check written on the account was forged.  He says his wife did this, and he insists on being reimbursed.

First, let’s consider the endorsement.  An endorsement by the payee is unnecessary if the check is deposited to the account of the payee—in this case, an account on which the payee is a joint owner.  Maybe the check payable to the husband will be returned to the depository bank, along with an affidavit of forgery (forged endorsement), based on the fact that the wife wrote the husband’s name as an endorsement.  But I would say that reason for return does not work against the depository bank, because the point is irrelevant.  If no endorsement is necessary in this situation, it doesn’t really matter whether the check payable to the husband has no endorsement, has a forged endorsement, or is endorsed “Donald Duck.” If the check is credited to the husband’s account, the depository bank acquires good title to the check and can present it for payment to the paying bank. 

The wife’s forgery of her husband’s name (as an endorsement) would be ineffective to transfer title to a check that was payable to him.  However, an endorsement cannot gain her anything in the particular situation—because no endorsement is necessary to deposit the check to the joint account. I don’t think the husband could pursue a forgery charge against the wife, because no monetary benefit was gained by the endorsement that she put on the check, if an endorsement was unnecessary.

Based on UCC Section 4-205 a depository bank automatically warrants with respect to an unendorsed item that it either has paid the payee (in cash) or has deposited the item to the payee’s account—which is the case here.

(Technically, Section 4-205(1) requires the payee to be a “holder”–someone in possession of the check–before it is transferred to a bank that takes it for deposit to the payee’s account without endorsement.  However, mere delivery of the check to the payee’s address (by mail) and its receipt by an adult living at that address may amount to possession by the payee. Even if the payee claims that he was not in possession of the check before it was deposited, this argument probably has little weight legally because the bank’s defense is that the payee got the benefit of the check, in the form of credit to the payee’s account.  It’s not uncommon for someone else—a spouse, adult child, or employer—to bring an unendorsed check to the bank for deposit to the payee’s account—particularly if the payee is ill, at work, out of town, etc.–and banks don’t inquire whether that person is acting as agent of the payee (who may have never touched the check) in order that the payee would be sure to have “constructive” possession of the check through the agent, before deposit.  I don’t know that any of it really matters if the money goes into the payee’s account, and the bank knows of nothing wrong.)

The other warranty that applies to forged endorsements is found in Section 4-208(a)(1).  People speak of this as a “warranty against forged endorsement,” but actually it’s somewhat less than that.  It’s only a warranty that the depository bank got good title to the item and is entitled to enforce it.  If an endorsement is necessary, this amounts to a warranty that the endorsement is in good order.  If no endorsement is necessary to transfer title to a check (for example, because the check was deposited to the account of the payee), Section 4-208(a)(1) is not a warranty of “no forged endorsement,” but only a warranty concerning any endorsements that are actually required to negotiate the check.  In the case above, if the paying bank sends the item bank with an affidavit that the husband’s endorsement is forged, there’s still no breach of warranty.

Now let’s get consider the check that the wife wrote on the joint account by forging the husband’s name.  Using a very technical argument, I think the bank does not have to reimburse the husband for the check, if it can be proved that the wife forged the check.

I said the wife is also a joint tenant on the account.  UCC Section 4-401(a) states, “An item is properly payable if it is authorized by the customer.”  If we can prove that the wife wrote the check (although forging her husband’s name), it is basically impossible to deny that she authorized the item, although he did not.  (Either one of them is enough.)

UCC Section 3-401(a) provides, “A person is not liable on an instrument unless . . . the person signed the instrument.”  UCC Section 3-401(b) adds, “A signature may be made . . . by the use of any name . . .”  Granted, her forged signature of the husband is not a signature provided to the bank on the signature card.  But she should be “estopped” from arguing that the signature she signed does not bind her for legal purposes as her own signature.  The husband then loses his claim for reimbursement, because the check becomes one written by the wife, who is a joint owner with legal right to withdraw all funds in the account.

The same legal reasoning should apply to a customer who writes a check on his own account by signing some unknown person’s name in a modified signature, then tries to obtain reimbursement from the bank by claiming it is an unauthorized item. If the bank can establish that it is the customer’s own handwriting, the item should bind the customer as if he signed his own name.