Beware of Forged Endorsements on Checks

Forged endorsements on checks involve different procedures than more blatant cases of forgery, such as cases in which the drawer's signature has been forged. The checks might originally have been drawn with perfect legitimacy only to then be given a forged endorsement by someone who steals or finds the check. Such a case would still be considered one of forgery, however, and the forging party would still be held primarily accountable for the check.

In such a case of forgery, there might be four parties involved, and the responsibilities of each to the others are slightly different. The drawer is the individual who initially drew the check, upon whose bank account the check was drawn. The drawee is the bank holding that account, issuing payment for checks issued by the drawer. The payee is the original intended party and could refer to the very first person to whom the check was payable or to the current holder. In a case of forgery, however, the payee would likely be the forger. Finally, there is the bank into which the forged check was deposited, called the depository bank.

The drawee bank, in cases involving checks with forged endorsements, would be able to sue the depository bank, as the depository bank would be in violation of transaction warranty or presentment warranty, or both. The drawee bank has no responsibility to check for forgery on the checks upon which it makes payment, as the depository bank seeking payment from the drawee bank would be making a warranty that the checks in question were legitimate and that the depository bank had a right to seek payment on those checks. As such, the drawee bank might be able to recover some lost funds.

The drawer, however, can sue the drawee bank in turn, as the drawee bank holds liability for any checks it may have paid based on forgery or other improper circumstances. Thus, the drawee bank would have to make reparations to the drawer. The illegitimate payee would, of course, be unable to sue anyone, as this party would have committed the forgery and would hold general liability for all charges.

The intended payee might be able to sue the drawee bank under certain conditions. If, for instance, the intended payee had already discharged the services or obligation for which the checks had been drawn, then the intended payee would be able to sue the drawee bank or the drawer for restitution. This could lead to a situation in which the intended payee sues the drawer for payment, while the drawer sues the drawee bank, while the drawee bank sues the depository bank. The depository bank, in turn, might be able to sue the perpetrator of the forgery.

In the end, the banks making payment or accepting payment on forged checks hold more responsibility than do the customers injured by the forgery. Those banks thus will likely have to make some form of compensatory payment to the customers, as the customers engaged in no wrongdoing. The banks, therefore, have some obligation to protect the customers from the injurious effects of the forgery, especially because the banks hold liability for having breached their warranty in accepting or paying on those checks.

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