Legal Question in Banking Law in Michigan

One of our employees Deposited 91 checks into his account that were made out to our business. The total dollar amount was over $500,000. Can anyone tell me what the caselaw says regarding this issue? The bank is claiming they are not liable. The employee would forge my husbands name and make the check payable to his management company with the first name of my husbands business (Schrauben) but clearly a different account. The checks were made out to Schrauben-Lehman Funeral Home and the bank deposited them into Schrauben Management. He would forge my husbands name on the back and then write "make payable to Schrauben Mgmt". Any help would be greatly appreciated!

Asked on 1/11/13, 6:19 am

2 Answers from Attorneys

John Tatone John R. Tatone & Associates PLC

The bank is liable for forged signatures on checks that it clears. Your husband may also have liability if he is negligent in handling the checkbook. You should have reported this to the police so the criminal is arrested. Please call me to discuss this matter in more detail or 888-988-LAWS (5297). I have handled this type of case before.

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Answered on 1/11/13, 6:39 am
Francois Nabwangu Wright Cantrell PLLC

Under the UCC, a check bearing a forged endorsement is not properly payable (Revised UCC . 4-401). If the drawee bank pays a check bearing a forged endorsement, then it is obligated to recredit the drawer's account for the item.

In turn, the drawee bank may look to the depository bank for reimbursement. This is because the depository bank warrants to the drawee bank that it had the right to enforce payment of the item at the time it was transferred to the drawee bank for collection. Put another way, the depository bank warrants to the drawee bank that the item does not contain any forged or unauthorized endorsements (Revised UCC . 4-208(a)). If it turns out that the check does bear a forged endorsement, then the depository bank has breached its warranty and is liable to the drawee bank for the item.

The UCC places the ultimate risk of loss for the payment of checks bearing forged endorsements on the depository bank. It is the first bank to receive an item for collection and, thus, is in the best position to detect the forgery and prevent the fraud. Of course, the depository bank can look to the forger to recover its loss; however, the likelihood of recovery is slim.


As with any general rule, there are exceptions to the rule that a drawer may recover a loss resulting from the payment of a check over the payee's forged endorsement. For instance, both the drawee bank and the depository bank may escape liability for the payment of a check bearing the payee's forged endorsement if the drawer of the check failed to exercise ordinary care in issuing the check and that failure substantially contributed to the making of the forged endorsement (Revised UCC . 3-406).

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Answered on 1/11/13, 1:09 pm

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