I. MISSING SIGNATURE OF INDORSER
If a customer delivers a check to a depositary bank for collection:
When the check’s payee is, in fact, a depositor of the bank, the check may be collected, regardless of missing indorsement. A depositary bank may but is not required to, supply a missing indorsement; regardless, the depositary bank warrants that the amount of the check was paid to the customer or deposited into the customer’s account. When a depository bank supplies payee’s missing indorsement on a check taken for deposit, this action has the same effect as if the payee had indorsed the check.
A payor bank, a drawer or a collecting bank may recover against the depositary bank if the proper party (the intended payee) did not receive funds under a breach of warranty theory.
II. IF INDORSEMENT NOT NECESSARY, RETURN OF CHECK FOR LACK OF INDORSEMENT MAY BE WRONGFUL DISHONOR
When a person presents a check to a depositary bank for collection, the depositary bank becomes a holder of the check when it receives it for collection if the customer, at the time of delivery, was a holder of the check. This rule applies whether the customer indorses the check or not. The depositary bank further warrants to collecting banks, the payor bank or other payors and to the drawer that the amount of the check was paid to the customer or otherwise deposited in the customer’s account (See, U.C.C. § 4-205). The bank becomes a holder in due course if it satisfies U.C.C. § 3-302 requirements.
A party to whom presentment is made may be found to have dishonored the check if it is returned for lack of indorsement. U.C.C. § 3-501 states that “without dishonoring the instrument, the party to whom presentment is made may (i) return the instrument for lack of a necessary indorsement.” Since the depositary bank may become a holder without obtaining or supplying the customer’s indorsement and since the depositary bank warrants that funds were paid to its customer or deposited into the customer’s account, then the customer’s indorsement is not necessary and the bank that returns the check for lack of indorsement may be found to have dishonored the check.