Forgery

Question 1

What if you have a forged maker’s signature?

Answer 1

Alleged maker is not liable (though you could ratify)–forger is liable (even though they put your name)

Question 2

What if you have a forged drawer’s signature?

Answer 2

Alleged drawer not liable–drawee bank must re-credit your account because the check was not properly payable (unless bank has a defense)
* Generally, no presentment warranties will have been breached (forger is real drawer)
* Bank takes the risk that the drawer’s signature is unauthorized unless presenter knew it was unauthorized

Question 3

What are the bank’s defenses?

Answer 3

(1) Drawer negligence (e.g., leaving blanks or spaces on instrument, mailing instrument to someone with same name and failing to follow internal procedures designed to avoid forgeries)
(2) Bank statement rule–drawer has duty to inspect bank statements and cancelled checks and report forgeries and bank suffers loss (must report within 1 year)

Question 4

What is the repeat offender rule?

Answer 4

If the same person is forging a series of checks, the drawer must report the forgeries within 30 days of when the statement was available
* If the drawer doesn’t do so, the bank won’t recredit the account for subsequent forgeries by the same person

Question 5

What is the effect of forging the payee’s name on a check?

Answer 5

• Bearer paper–irrelevant since indorsement not necessary to negotiate
• Order paper–breaks chain of title and check is not properly payable (drawer may demand bank recredit)

Question 6

When is a party precluded from asserting forgery?

Answer 6

(1) Imposter rule–maker or drawer estopped from denying validity of forged indorsement if they act carelessly in issuing instrument
(2) Fraudulent Indorsements by Employees–if an employer entrusts an employee (or independent contractor) with responsibility of an instrument, employee’s fraudulent indorsement is effective

Question 7

What is the drawee’s liability for a forged indorsement?

Answer 7

• Payee conversion action OR
• Drawer not-properly-payable action (no double liability)

Question 8

What is the laibility of the presenter if the drawee bank pays payee or payor?

Answer 8

Can sue presenter and prior transferors for breach of entitlement to enforce warranty
* Presneter can sue prior transferors on transfer warranties