Atty. Jun De Zuñiga Second-endorsed checks are checks which are presented for payment not by the payees but by subsequent holders to whom the checks were endorsed by the payees. Normally, checks are deposited with a collecting bank with the payees signing their endorsement on the checks. This act constitutes the first-endorsement of these checks. If instead of depositing the check, the payee endorses the check to a third party and such third party in turn deposits the check to his bank account, such act by the third party now constitutes a second-endorsement. Such second-endorsement is not prohibited by law, as in fact, it is a recognized transaction under the Negotiable Instruments Law. Thus, acceptance by banks of second-endorsed checks is not illegal. Yet, some banks have adopted internal policies which disallow outright acceptance of these checks. Some other banks may allow acceptance in very limited instances and subject to strict risk controls. The policy on the acceptance of these checks differs from one bank to another. Related to this subject, the Bangko Sentral in a 2002 Circular Letter advised as follows: “(B)anks should limit the acceptance of second-endorsed checks from properly identified clients and only after establishing that the nature of the business of said client justifies, or at least, makes practical the deposit of second-endorsed checks. In case of isolated transactions involving deposits of second-endorsed checks by clients who are not engaged in trade or business, the identity or the first endorser should be established and the record of the identification shall also be kept for five years. It is also understood that banks shall at all times follow the Know-Your-Customer (KYC) rules whenever they handle or transacts second-endorsement checks.” The above-mentioned Circular Letter was supplemented by a 2004 Circular Letter which enjoined banks “to take the necessary precaution in accepting deposit of second-endorsed dividend checks, especially those in unusually large volume. Banks should examine thoroughly dividend checks with particular attention to the payee’s endorsement.” What can be gathered is that the acceptance of second-endorsed checks is a matter of serious policy concern. Unless the first-endorser is a client of the collecting bank, it would be very difficult for that bank to verify the authenticity of his endorsement, such that if it turns out that the same is a forgery, the bank can be held liable for the amount of the check. This is because once the collecting bank sends the check for clearing, it is required, under clearing rules, to warrant the genuineness of all prior signatures appearing on the check. Of course, the collecting bank can proceed against its depositor who deposited the second-endorsed check, and that is, if said depositor has remained a bank client and has sufficient funds or a credit line to cover the loss. The bank can adopt risk safeguards which may have to be maintained for a long time because, under the law, the payee (whose signature was forged) has five years to file a claim counted from the discovery of the forgery. That will be a long wait for the collecting bank. Another risk that the banks should guard against is the use of second-endorsed checks as a medium for money laundering arising, for example, from a syndicated theft of dividend checks and the forgery of the signatures of the payees thereof, or the evasion by money launderers of the KYC rules by endorsing checks payable to them to third parties. *** The above comments are the personal views of the writer. His email address is [email protected]