Forgery and Alteration

Question 1

What is the essential determination when dealing with forgery or alteration?

Answer 1

Determine WHOSE signature was forged because different rules apply based on the identity/status of the person whose name is forged

Question 2

Forged MAKERS Signature

Answer 2

Alleged Maker not liable

Forger is liable

Question 3

Forged DRAWERS Signature

Answer 3

Alleged Drawer is not liable
Drawee bank must recredit alleged drawer’s account as check was not properly payable unless drawee bank has defense
Bank unable to pass on loss unless breach of presentment warranty

Question 4

Banks Defenses to Recrediting

Answer 4

Drawers Negligence- if drawers negligence substantially contributes, drawer may not raise forgery

Bank Statement Rule- Duty to inspect statement forged signatures must be reported to bank within 1 year

Question 5

Repeat Offender Rule

Answer 5

If the same person is forging a series of checks, the drawer must report the forgeries within 30 days of when the statement was available

Question 6

Forged Indorsements- Payee’s Name

Answer 6

Bearer Paper- irrelevant since indorser signature not necessary to negotiate

Order Paper- Forgery break chain of title and not payable

Question 7

Imposter Rule

Answer 7

The issuer will be estopped from denying validity of forged indorsement

Drawer or maker deemed to have acted carelessly in issuing the check and thus to have contributed to the forgery

Question 8

Fraudulent Indorsements by Employees

Answer 8

If an employer entrusts an employee with responsibility with respect to an instrument and the employee makes a fraudulent indorsement, it is effective

Question 9

Liability of Drawee

Answer 9

Conversion liability to payee
Not properly payable liability to drawer
Drawee protected from double liability

Question 10

Bank’s Defenses

Answer 10

Impostor Rule
Fraudulent indorsement by employee
Drawer’s negligence
Failure to timely sue- drawer must sue within 3 years

Question 11

Liability of Presenter

Answer 11

Drawee bank can sue the presenter and those prior to the presenter for breaching the presentment warranty of entitled to enforce

Question 12

Liability of Transferor

Answer 12

Liable for transfer warranties of entitled to enforce, all signatures authentic, and no good defenses

Question 13

Alteration Types

Answer 13

Change in obligation- attempt to modify obligations of party

Unauthorized Completion- unauthorized manner affecting obligations

Question 14

Alteration Effect on HDC

Answer 14

Change in obligation- HDC may enforce for original amount

Unauthorized Completion- HDC may enforce as completed

Question 15

Alteration effect on non-HDC

Answer 15

Fraudulently made by holder- total discharge of obligor

Not fraudulently made- obligor liable under original terms

Question 16

Not properly payable

Answer 16

An altered check is not properly payable

Question 17

Bank’s Defenses to altered check

Answer 17

Negligence

Bank Statement Rule