Two Forgery Issues: Stolen Check Affidavits & Using Images Instead of Originals
by Mary Beth Guard, BOL Guru
Question: I have some forgery questions. The first one is let's say there is a customer whose box of checks were stolen. Does she need to come and fill out forgery affidavits for each individual check when they come through her account, or can we fill out one forgery affidavit that states her box of checks were stolen? Also, we have a customer who has a free checking account. At our bank, that means they do not get back images of their checks. She now says that some of the checks that have been paid from her account were not written by either her or her husband. She claims they are forgeries. The checks go back to more than four months. We have shredded some of these checks. Can we get a copy of the checks and return them as forgeries, or do we need the original checks? Also, can the customer be held liable for not bringing this to our attention or for her not balancing her checkbook?
Answer: Your customer can put a stop payment order on the blank checks that were stolen (although, as a practical matter, since she has no idea of the amount for which they may be forged, it may be much better, operationally, for you to instead require her to close her account in order to prevent the checks from going through.) As for an affidavit of forgery, she can't swear that a particular signature is not her own until a signature is actually made. Once an item is presented for payment, she will be in a position to attest to the fact that it does not bear her signature. Until then, all she can attest to is the fact that certain checks with particular numbers were stolen. I would not recommend having her do a blanket affidavit of forgery because if she is wrong about even one of the check numbers and she really did sign one of those checks, it damages her credibility to have an affidavit saying the signature on that item is forged.
Where you have a customer with an account where she does not get back her checks or even images of her checks and is now claiming some of the items were forged, going back about five months, you have lots of possible defenses to the claim. First of all, the customer has a duty to promptly examine her bank statement and notify the bank within a reasonable time (not to exceed 30 days, but possibly even shorter if your deposit account agreement specifies a shorter time) of any alterations or forgeries. If the customer blows this deadline (which she obviously has), the customer is precluded from passing the loss on to your bank unless she can show that you failed to exercise ordinary care. Even if the customer can show such a failure, you could argue that the customer was negligent in a manner that contributed to the making of the forgery. (This will, of course, depend upon the circumstances. Who was the forger? How did they get access to the checks?)
The Repeat Wrongdoer rule also comes into play. Your customer's failure to alert you to the forgeries when she received the first statement in which the forged items appeared precludes her from passing on the loss for the items that appeared in subsequent statements. So, with the various defenses, you will probably, at most, be responsible for the ones that appeared in the first month's statement.
An issue may be raised about whether the customer should be required to "find and report" when their statement doesn't include the checks or even images of the checks. Credit unions have been using such statements for years, however, and courts have typically said that just seeing the amount of the item and the check number is sufficient to put the customer on notice if it is not a check the customer has written and issued.
As for returning the forged items to the other bank, you would be wasting your time, in my view. An item on which the drawer's signature is forged must be returned by your midnight deadline because the drawee bank (you) is in the best position to know it's a forgery. You're the one with the customer's signature on file. [Yes, I know. Almost no one sight examines every check anymore, but when you rely on automated processing and you don't sight examine, you're making a business decision that the cost savings realized by automated processing outweigh the possible losses you might incur. It's usually a good decision.] You're too late to return those items to the depositary bank -- even if you had the originals. On top of that, if your customer is precluded from passing the loss on to you (because the customer was tardy or negligent, for example), you are precluded from passing the loss on to anyone else.
For the most part, losses for forged drawer signatures will either fall on the drawee bank or its customer, unless the items are spotted and returned by the midnight deadline.
The original version appeared in the July/August 2003 edition of the Oklahoma Bankers Association Compliance Informer.
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