Has Austin Bank breached its warranty to First Wisconsin and Great Lakes due to the absence of proper indorsements? Explain.

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Has Austin Bank breached its warranty to First Wisconsin and Great Lakes due to the absence of proper indorsements? Explain.

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For a period of sixteen months, Great Lakes Higher Education Corp. (Great Lakes), a not-for-profit student loan servicer, issued 224 student loan checks totaling $273,152.88. The checks were drawn against Great Lakes’ account at First Wis c onsin National Bank of Milwaukee (First Wisconsin). Each of the 224 checks was presented to Austin Bank of Chicago (Austin) without indorsement of the named payee. Austin Bank accepted each check for purposes of collection and without delay forwarded each check to First Wisconsin for that purpose. First Wisconsin paid Austin Bank the face amount of each check even though the indorsement signature of the payee was not on any of the checks. Has Austin Bank breached its warranty to First Wisconsin and Great Lakes due to the absence of proper indorsements? Explain.

Explanation & AnswerSolution by a verified expert

Explanation

As per the Uniform Commercial Code, presentment may be defined as an "order made by or on interest of a person authorized to impose an instrument." A collecting bank is responsible for using ordinary care in the presentment of a check when the bank itself is indorsing the check. But when the bank is a third party, it needs to apply ordinary care in the routing of the check and the selection of the intermediaries. In this case, Bank A is a third party that only needs to send the check to Bank FW for indorsement. So, Bank A is responsible for choosing the proper way and an intermediary to send the check. Bank A is not responsible for checking the signature and its authenticity. The claim of the plaintiff regarding the breach of warranty and negligence on part of Bank A cannot be considered valid.

Verified Answer

Bank A cannot be held responsible for breach of warranty and negligence with respect to the indorsement of the check since Bank A is a third party, who is sending the check for presentment to Bank FW.

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