Who is Responsible for the Loss?

Question:

We have a customer who wrote a check to a business to pay a bill. The check was cashed and he has the returned check. The following month, he got another bill saying that it had never been paid. Come to find out, a person at the business had stolen the checks from the company and deposited them into another account at another bank. We are not sure if the suspect opened the account at another bank in her own name, or if it was in the business's name with their Tax ID and information, as she would have had access to that information as well. Either way, who would be responsible for the loss? I am under the impression that it would fall back onto the business or the other bank, as they do have due diligence to verify and know who they are opening an account for, am I correct?

Answer:

In any case, the loss should not be yours. Your customer may come to you with an affidavit of forgery from the business. If so, you will make a claim against the depositary bank because they guaranteed the payee's endorsement. Their liability to your bank is clear enough. Whether the depositary bank absorbs the entire loss may depend on the status the employee held within the drawer's business and how much due diligence the depositary bank did when it opened the account. There's no clear cut answer except in the mind of a judge who will have all of the facts.

First published on BankersOnline.com 1/9/06