Kokua Line June Watanabe

Banks often try to verify signed checks

Question: There was an incident recently where an honest person found $50,000 in checks endorsed with the proper signatures and turned them in to a nearby bank. If I endorsed my paycheck or any other check and lost it, could a person who found it just cash it legally? What would be my options should this happen? Would there be any criminal or legal action taken against the person who found and cashed it? Many of us would like to know should this unfortunate scenario unfold.

Answer: Technically, the endorsed check could be cashed.

But practically speaking, it would be difficult for someone to do so and get away with it.

"When a check is endorsed, it changes from an 'order instrument' to a 'bearer instrument' and can be cashed by anyone," explained Gary Fujitani, executive director of the Hawaii Bankers Association.

But "from a practical basis," a bank would be skeptical in cashing it, to say the least.

If a bank is not familiar with a person, it would be difficult to validate that whoever endorsed the check authorized the payment, Fujitani said.

Most banks not only would ask for identification, but the question "more importantly (is) ... how do we know that John Doe actually endorsed that check."

Even if the person finding the check has an account at a bank and deposited the check into that account, the bank may not release the funds immediately.

"If the check is a large amount, (the bank) may hold it a few days just to make sure it clears properly," Fujitani said.

He also explained that when a "second endorsed check" (not signed by the person the check is made out to) is presented for cashing, a bank will decide "whether or not to negotiate the check based on the strength of the last endorser."

But if the second endorsed check is deposited at another bank, most banks will not check for proper endorsement in the process of "paying" the check, he said.

"The bottom line is that a payee should not endorse the check until he or she is at the bank and ready to negotiate it," Fujitani said.

As for criminal charges, "The first endorser can make a claim that he or she did not receive benefit from the check," he said.

This would prompt an investigation by the bank or banks involved and the first endorser may or may not be able to recover the funds.

If the investigation identifies and locates the person who found and cashed the checks (the second endorser), that person could be subject to criminal prosecution, Fujitani said.

If a check is made out to a business, an individual probably would not be able to cash it because it's not likely a business would endorse a check, then give it to someone to cash, he said.

"That's just not something that's done."

In short, Fujitani said, banks basically take "a common sense approach" when dealing with second-endorser checks.