If a check is made payable to Company #1, endorsed by Company #1 and then made payable to company #2, can company #2 deposit it? If not, where do we find the regulation concerning this?
Is the negotiation of a check by the payee to another holder legal? Yes.
Is it legal if the payee is a business? Yes.
The problem seems to be one of endorsement authority and authentication. When the second business (Company #2) attempts to deposit the check, its bank won't be able to determine whether the endorsement made for Company #1 is legitimate. It also won't know whether the individual who made that endorsement was authorized by Company #1 to endorse and negotiate the check.
Endorsement problems can result in a claim on a bank that accepted such a check as long as three years after the deposit. That means that Company #2's account could have been closed out, and the bank would be left holding the bag for the unauthorized or fraudulent endorsement. There's no law that prohibits one company from negotiating checks to another, but best practices among businesses and banks generally don't permit it.
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Is the negotiation of a check by the 