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Negotiable Instruments Law: Liability Of Collecting Banks... - The Lawyer's Post
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“A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants “that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.” It has been repeatedly held that in check transactions, the depositary/collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. If any of the warranties made by the depositary/collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the check.
The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct.
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the materially altered checks. Since Equitable-PCI Bank is not a party to this case and the Bank allowed its account with Equitable-PCI Bank to be debited, it has the option to seek recourse against the latter in another forum.”
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