Assume an insurance company Payor makes out a $40,000 check or draft Payable to the order of parties A and B and C, where C is the mortgage company on the insured property. The back of the check clearly is marked "Must be endorsed by all Payees."

Payees A and B (in sequence) then endorse the check, but not party C. Party B deliver the check to a fourth party "D", who is not a Payee. D then writes in the endorsement area "Pay to the order of D" , and (without signing) deposits it in D's bank account. D's bank accepts the check without verifying that all required endorsements have been made.

Assume party C has not given permission to D to endorse payments on C's behalf.

It seems like the check is "Properly Payable" only to party "C", but the funds are now improperly in "D"s control. Who is at risk?

How can the situation be resolved? E.g. Does the insurance company have to initiate some process reversing the payment since party D wasn't properly payable? Or can party C assert that their exclusive right to payment has been violated?

Does party D's endorsement constitute a forged endorsement?

Does party B have some liability for delivering the check to D rather than C?

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