CHECK FORGERY

Banks are tasked with the responsibility to guard the depositors and prevent fraudulent withdrawals. To this effect, the banks have put in place various verification methods to ascertain the identity of the drawer and ensure the correctness of the details in the instruments presented before it. Majorly, fraudulent withdrawals usually occur through the Automated Teller Machines (ATMs) services and checks. Banks normally use signature identification to ensure the correctness of the details of the client. Despite this, fraudsters are still able to manipulate the system by forging the signature on checks or altering the details of drawn checks (Geva, 2012). Depositors must guard the bank details and checkbooks from being used by unintended persons, as was decided in the case of†Arrow Transfer v. RBC. However, the banks have the bigger role of safeguarding the depositorsí money. Banks are not protected from liability in the event of a forgery.

 The Uniform Commercial Code (UCC) outlines the rights and remedies of parties affected by the forged check. Firstly, the check does not pass a good title to the third party, as there is neither privity nor negotiation between the drawer and drawee. However, an innocent third party who has derived rights under the arrangement has recourse under the Code (Geva, 2012). The party can sue the drawer by enjoinment. However, it is the fraudulent party who has to bear the consequences of the forgery as they benefited from the scheme (Geva, 2000). There is no room for rectification of a check. Once a check is drawn and it turns to be erroneous, it is cancelled forthwith. According to the facts in the case study, the store cannot legitimately claim $ 990 from Isaís bank. However, the store can claim the amount owing from Martin through the court process. There exists no privity or agreement between Isa and the store. The only circumstances when the check is transferrable are when it is not defective.

Under the Bill of Exchange Act (BEA), the collecting bank bears the risk of fraud (Booysen, 2012). Under s. 165(3) of the Act, the store had the responsibility to check and ascertain the correctness of the details on the check. It is apparent that the store did not conduct due diligence before cashing the check. In this case, the convenient store assumes the role of the collecting bank. Thus, the losses lie with the bank. However, the store can claim the money by pursuing fraud charges against Martin. However, the store cannot claim any money from the Isa since there is no privity or negotiation. Had the check not been altered, the store could have claimed the $90. However, in the present case, the store cannot claim from Isa, on account of the document being erroneous and adulterated.

The provisions of the ULB are modeled on the UCC. As in the former case, the store will not be able to recover any money from Isaís bank since there is no privity of contract. However, the store can successfully sue for the $90 from Isa. The store can only be able to do this by enjoining Isa in the court proceedings, as opposed to lodging a direct claim against Isa. With regard to the outstanding amount, the store can sue martin personally under fraud to recover the money. Overly, it is incumbent upon the receiving bank or convenient store to ensure the correctness of the details presented in the check.

References

Booysen, S. (2012). Verification Duties, Conclusive Evidence Clauses, and Fraud by Bank Employees. Banking and Finance Law Review p. 687.

Geva, B. (2000). Forged Check Endorsement Losses under the UCC: The Role of Policy in the Emergence of Law Merchant from Common Law. Wayne Law Review 45.4 (2000): 1733-1788.

Geva, B. (2012). Forgery Losses: Banks Beware! National Banking Law Review.Vol. 31, No. 6.