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Bank's Liability for Forged Checks
Question: We had a customer who brought in 28 checks that were paid against his account between July and December of last year that he says have a forged signature. He says the checks were stolen. He knows who the payee is, and has signed a police complaint, and has signed our affidavit saying he'll help prosecute. Do we have any defense left or do we have to pay for all these checks?
Answer: No, you should not have to pay for any of those checks. Your customer had a responsibility to notify you last July (when the first check was negotiated) that his checks had been stolen and his signature had been forged. He is guilty of the worst kind of negligence. At the very most, all things considered, your liability would have been the first statement in which the forgery appears - that would be July - and as many days into the second statement as you have in your deposit agreement. That would be the number of days you say he has to examine his statement and tell you about any discrepancy. That would be the most you would be liable for - but I would opt for no liability due to negligence. He needs to get his money back from the payee. And you might want to watch his account closely for awhile after you refuse the claim.
Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 13, No. 11, 1/04
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