SPOTLIGHT ON...Claims, Part III

Your depositor just walked up to your desk to tell you he got his statement yesterday in the mail, his checks were enclosed, and there are four checks in there that have been paid against his account that have his name forged on the maker's signature line. He knows nothing about the payees on the checks - never heard of them.

You take a good look at the checks. The signatures aren't bad, but they also are not good. A good way to compare is to take samples of his good checks, put the signatures in a row one right above the other, and then compare the signatures upside down. Yes - I said upside down. The difference in handwriting is much more apparent this way.

Once you have determined the checks are indeed forged, make some further comparisons with some of the good checks. Are they made out the same way, or are they different in style? Particularly notice the sequence of the numbers of the checks. You may find they are from a checkbook other than the one your customer is using. Let's assume that's the case with these four checks. All the others are in the 600 series, and these are 812 through 815.

Now you need to ask your depositor some questions. Where is the checkbook kept? Where is the new supply kept? Who knows where they are? If it is a business account, who has access to the checks? Are they kept in a locked and secure location? Although it might not be negligence for an individual not to lock up checks or check supplies, it is considered to be negligence for a business to accept the practice leaving checks where they are readily available. Negligence is an important factor in refusing claims of forgery.

Don't hesitate to learn how someone managed to get their hands on the checks. In the case of an individual, it may be that there were carpets recently cleaned or replaced, or painting or papering done, or other household activities that necessitated strangers being in the room where the checks were kept when the owner was not in attendance. Depositors take checkbooks to hospitals when they are patients and leave them in the cabinet by their bed. Nursing home guests are frequent targets of stolen checks. People who leave their cars in airport parking lots while they travel leave checkbooks in the glove compartments. You need to ask enough questions to determine how the checks were taken.

You'll also need to decide if all the checks that were stolen have been negotiated. If your customer brings in the new, never used checkbook and it has four checks out of the book, but the rest of the checks are intact, it may be fairly safe to assume there are no more stolen items out there. Check the account to be sure there are no more that have come in since the statement went out. If you are comfortable that there are no more stolen items, you may opt to leave the account open.

If, on the other hand, there are a number of checks still missing, and there are even several now in file since the last statement, close the account as quickly as possible. You may have the problem of direct deposit and automatic withdrawals to contend with. But unless you can guarantee checking the account every day for stolen items and can flag the account, you are taking a huge chance by leaving it open. Even putting a stop payment on the items that are still missing isn't a fool-proof way to be sure your financial institution will not take a further loss. One of the missing checks can come in after six months and still be paid if you haven't renewed the stop.

If you have to close the account, get a list from the depositor on the numbers, amounts, payees and dates of the outstanding good checks written against the account so you can pay those checks against the new account you open.

If you determine the checks were obtained through the negligence of the customer, don't be afraid to say so and deny the claim. Negligence is a much more viable defense against a claim from a business, particularly if it goes on for any length of time.

The ultimate liability on a forged signature claim, as we pointed out in the series on the Uniform Commercial Code, is you - the drawee financial institution. The length of time you are liable is important. In the case we looked at above, the customer came to you the day after he received his statement from last month in the mail. His notification of the theft falls within your requirements, which we will assume is ten days after receiving his statement. (Look on your depositor agreement - it should say something to the effect of : "...you have ten days to examine your statement and report any discrepancy or ..." ) That means you are liable for all the bad checks paid in the statement the customer received in the mail, and any that are sitting in your bookkeeping area for ten days after that mail was delivered. Check that deposit agreement! If it doesn't specifically say ten days, the Uniform Commercial Code says you are liable for 30 days. The customer actually has a whole year he can report the forgeries to you, but your liability doesn't change - it still is only the forged checks in the one statement and those paid during the ten days after delivery of that statement. - if that is what it says in your agreement.

A sticky situation is created if, in your questioning of the depositor, you learn the payee is a friend or family member . Here again you want a copy of the police report, and a signed affidavit from the customer declaring assistance in prosecution. Do not reimburse the depositor until you have both those items, and make sure it is known that you will prosecute in order to recover your loss.

If the account is a husband/wife account or if the payee on the checks is an estranged husband or wife, your investigation will include determining whether or not the owner of the account received any benefit from the checks. For instance, the husband's check may have been forged by his estranged wife, from whom he has separated. But the check is payable to the mortgage company on their jointly owned property. He cannot, under those circumstances, claim that he did not receive any benefit from the funds from the check.

If this is the first time your depositor has ever had such a theft, you will more than likely treat it as a one-time incident, and open a new account. If, on the other hand, this is the second or third time it has happened, you may want to carefully consider suggesting that person find other banking arrangements. Otherwise, you will have a continuing loss situation.

Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 13, No. 11, 1/04