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Bank Accepts, Deposits Checks into Wrong Account

A minority owner in my business has been intercepting checks from my customers and depositing them in a different business account to which he has access, and then withdrawing the money. The backs of the checks are not endorsed personally, but simply stamped "Pay to the order of the bank". Is the bank liable for the money, since they accepted checks into an account other than the company to which they were made out?


First things first. If you haven't already done so, eliminate this individual's access to your business's incoming mail. Arrange to get it delivered to you personally or have the Postal Service reroute it to a post office box if you have to, but get it away from the thief (to label him for what he is).

You said that the checks are deposited in "a different business account to which he has access..." and ended your question saying the checks were deposited "into an account other than the company to which they were made out." Have you talked with the bank about this other account? Was it set up under the guise of being part of your company? Is the name on the other account very similar to the name of your company (ABC LLC instead of ABC, Inc., for example)?

Is the bank liable? Probably yes. Checks being deposited into an account with a name that differs from the name of the payee is a big red flag that something isn't right.

If you have a good business relationship with that bank, consider talking with your account officer there and letting her or him know what has been happening, and make it clear to the bank that you will have to start the effort to reclaim the funds. The bank is likely to react by freezing that bogus account to prevent further losses.

Then, start contacting the issuers of the checks to inform them that their checks were diverted and that you have not yet been paid. Be prepared to issue an affidavit of forged endorsement for each of the checks, and to provide that affidavit to the check issuers. They, in turn, should enter claims against their banks for wrongful payment of the checks, and those claims will become claims against the depositary bank based on its endorsement of the checks and the warranties it made when transferring or presenting the checks for payment. Alternatively, you could take legal action directly against the thief, and pull the bank into the suit based on the fact that it had knowledge of the thief's breach of trust when depositing the funds to an account not owned by your company over which he exerted control.

Published on BankingQuestions.com 8/20/09