When it comes to forged business checks, the liability question isn't one with a black and white answer. There are most definitely shades of gray.|
Your bank is responsible for exercising ordinary care, which means "observance of reasonable commercial standards prevailing in the area [where the bank is located]." Under the generally accepted wording of the Uniform Commercial Code (you'll need to check your own state's version of section 3-103 for its definition of "ordinary care"), if your bank handles checks in an automated fashion (as most do), "reasonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the institution's prescribed procedures and the bank's procedures do not vary unreasonably form general banking usage not disapproved by [articles 3 and 4 of the Uniform Commercial Code)." That means that your bank might not be liable for not checking signatures if it has a policy, for example, of visually reviewing only checks greater than $XXX, and if that's similar to the practice of other banks in the area.
The business might assume some of the liability if there are a series for forgeries by the same individual and the business fails to give timely notification to the bank. There is also an absolute time limit for the business to make a forgery claim. Under most states' version of the Uniform Commercial Code, that limit is one year from delivery of the statement showing the payment of the check in question. A bank may shorten that one year period by contract.
As you can see, the question is a complicated one. Our experience is that depositors and banks often choose to negotiate on the sharing of liability in order to avoid the expense of filing and pursuing a lawsuit. Contact your bank to start discussing the problem. If there is a large sum involved, you should consider contacting an attorney about representing you in the process.
Published on BankingQuestions.com 3/26/07