Are Checks Ever Transferred?

Law texts routinely present hypotheticals in which a check drawn by one person payable to another is indorsed and transferred by the payee to some other person. In fact, checks are hardly ever transferred outside the banking system. This chapter shows that the concept of transfer is completely unnecessary in the law of the check system. The chapter surveys reported decisions involving forged indorsements, showing that there are essentially none in which a check was actually transferred from person to person outside the banking system. The chapter shows how the confusion over check transfer...

Law texts routinely present hypotheticals in which a check drawn by one person payable to another is indorsed and transferred by the payee to some other person. In fact, checks are hardly ever transferred outside the banking system. This chapter shows that the concept of transfer is completely unnecessary in the law of the check system. The chapter surveys reported decisions involving forged indorsements, showing that there are essentially none in which a check was actually transferred from person to person outside the banking system. The chapter shows how the confusion over check transfer has distorted the profession’s understanding of the role of negligence in the basic rules for allocation of losses from check fraud.