Allstate Insurance Company issued a check payable to Chuck N

Allstate Insurance Company issued a check payable to “Chuck N. Tang & Rosa C. Tang HWJT” with “Bank of America” on the second line and the following explanation on the front of the check: “Settlement of our rental dwelling loss caused by fire on 11/21/93.” The Tangs endorsed the check and forged the endorsement of Bank of America. When Bank of America objected, the Tangs claimed that only they needed to sign the instrument for further negotiations. The check was intended as a joint payment for Bank of America as the mortgage on the Tang’s rental property because the insurance policy required that the mortgage be paid first before any proceeds went to the property owners. Bank of America sued Allstate. Is Bank of America entitled to recover for the lack of its indorsement? Was its indorsement necessary for further negotiation?

Solution

According to Uniform Commercial code(negotiable instruments)

\"Indorsement\" means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring indorser\'s liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement.So in this case Bank of America is entilted to recover the lack of its indorsement.Bank of America indoresent was necessary for further negotiation.

Negotiation\" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.

(b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.