The Universal Commercial Code, Banks, and Fraudulent Activity
What happens when a bank accepts a check with a forged endorsement? Who suffers the loss? Who is liable? Where can these answers be found? Check fraud law is governed by Articles 3 and 4 of the Uniform Commercial Code (UCC). The National Conference of Commissioners on Uniform State Laws and the American Law Institute created the Uniform Commercial Code in a joint effort. It took over ten years to originally draft the UCC, and a further fourteen years for the UCC to be implemented across the country. The creation of the UCC began in 1940 in an effort to "attack major commercial problems with comprehensive legal solutions" The UCC allows commercial organizations to do business across jurisdictional boundaries with confidence because these organizations are fairly certain that the same rules apply in each jurisdiction. The UCC has been enacted in every state with the exception of Louisiana.
Recently revisions to the code have resulted in three significant changes to the causes of action available in check fraud litigation. First, a new cause of action for contribution based solely on shared culpability. Second, expansion of conversion as a cause of action in check fraud cases. Third, allowing a drawee bank to recover from upstream banks for encoding errors that may result in shifting liability in some counterfeit check cases.
It is important to know the relationships between parties typically involved in check fraud litigations. A customer is a person with an account at a bank. A drawer or maker is a person writing a check and is typically a customer of the drawee bank. A drawee is a party, typically a bank, required to pay out money when a check or draft is presented. A payee is the party entitled, by the creation of the check by the drawer, to receive funds from the payor bank, usually the drawee. Presentment is the delivery of a check or draft to the drawee or the drawer for payment.
A check written by the drawer moves downstream from the drawer to the
Recently revisions to the code have resulted in three significant changes to the causes of action available in check fraud litigation. First, a new cause of action for contribution based solely on shared culpability. Second, expansion of conversion as a cause of action in check fraud cases. Third, allowing a drawee bank to recover from upstream banks for encoding errors that may result in shifting liability in some counterfeit check cases.
It is important to know the relationships between parties typically involved in check fraud litigations. A customer is a person with an account at a bank. A drawer or maker is a person writing a check and is typically a customer of the drawee bank. A drawee is a party, typically a bank, required to pay out money when a check or draft is presented. A payee is the party entitled, by the creation of the check by the drawer, to receive funds from the payor bank, usually the drawee. Presentment is the delivery of a check or draft to the drawee or the drawer for payment.
A check written by the drawer moves downstream from the drawer to the