Could California accept an IRS check payable jointly to two corporate owners when only one named payee had endorsed it?

Plain-English summary

California could not deposit the IRS check because it was payable jointly to two people and only one had endorsed it.

Under the cited commercial-law rule, an instrument payable to “X and Y,” or naming multiple payees without alternative wording, was payable to all of them and could be negotiated only by all. One payee could sign for the other only with authority.

The Board had procedures for some missing or obviously mistaken entries on checks taxpayers themselves prepared, but no rule allowed it to cure the missing endorsement on a third-party check.

Common questions

Did both named payees have to endorse?

Yes, unless one was authorized to endorse for the other.

Did it matter that the check came from the IRS?

The key point was that it was prepared by a third party and jointly payable.

Could the Board correct the missing endorsement itself?

No.

Citations and references

• California Commercial Code section 3110(d) — negotiation of instruments payable to multiple persons
• Feldman Construction Co. v. Union Bank (1972) 28 Cal.App.3d 731 — cited for joint-payee endorsement requirements

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-0600.pdf

Original ruling text

170.0600

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

~

•

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 445-6496
FAX: (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
KATHLEEN CONNELL
Controller, Sacramento
___
JOHN CHIANG
Acting Member
Fourth District, Los Angeles
_____

September 10, 1997

E. L. SORENSEN, JR.
Executive Director

Ms. B--- W. B--P.O. Box XXXXXX
---, California XXXXX-XXXX
Re:

Permit No. SB -- XX-XXXXXX

Dear Ms. B---:
Your letter addressed to Frankie Bennett concerning the Board’s refusal to accept a three party check as payment on your account has been forwarded to this office for response. In your letter, you requested a written explanation from the Board's Legal Section as to the reason that the Board will not accept a check “written to two owners of a corporation from IRS.” Under California law, a negotiable instrument (such as a check) payable to two or more persons, if not in the alternative, is payable to all of them, and may be negotiated only by all of them. This rule covers an instrument payable to “X and Y.” Both named payees must endorse in order to negotiate the instrument, except that one may be authorized to endorse for the other. The rule also covers the situation where the names of the payees are not connected by “and” or by any other word (See Feldman Constr. Co. v. Union Bank (1972) 28 Cal.App.3d 731, California Commercial Code § 3110(d).) In certain circumstances, the rules which pertain to the Board’s procedures (and that of state agencies generally) permit the Board to deposit checks received from taxpayers when certain entries made by the taxpayers on those checks are missing or are obvious errors. There is

Ms. B--- W. B---

-2-

September 10, 1997
170.0600

no rule which permits the Board to deposit a check prepared by a third party and made payable to two payees, not in the alternative, when only one payee has endorsed the check. Very truly yours,

Thomas J. Cooke
Tax Counsel
TJC/cmm
cc:

Ms. Kaylyn Warren (MIC:95)