Generally, a bank customer is not responsible for loss due to fraud or forgery of their signature.  The situation described is of a forged drawer’s signature.  In these cases, this is a fraud perpetrated by someone forging the signature of the payor on a check.  This contrasts to a forged endorsement.  In most cases where a bank customer has a check that has been forged and subsequently honored by the bank, the customer is not responsible for the payment.

Section 4-401 of the Uniform Commercial Code (UCC) covers conditions regarding bank responsibility and liability with regard to unauthorized actions.  Section 4-401 states that an item is properly payable by a bank if it is authorized by the customer and is in accordance with any agreement between the customer and bank.  A customer is not liable for the amount if the customer neither signed the item nor benefited from the proceeds of the item.  Therefore, an item containing a forged drawer’s signature is not properly payable and should not be paid by the bank.

The drawer or payor on the account would be entitled under section 4-401 of the UCC to have the payor bank credit his or her account for any loss if the check was paid.

There are conditions that can impair the account holders right to be reimbursed for the loss.  One such condition is notifying the bank of the loss due to the forgery in a timely manner.  The customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized.

Additional conditions such as any culpability there may be on the part of the checking account holder may also impair the customers’ ability to be reimbursed for any loss.  Based on individual circumstances, the bank may investigate to determine if the customer is entitled to a credit for the amount of the cashed check.

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