Forged endorsement of check

[Alorac Jones]

An insurance company pays a claim by mailing to Person A a check for
$20,000 payable to A and to me, two totally unrelated people. Person A
crudely forges my endorsement and cashes the check at his bank. In due
course, the check is paid by the insurance company's bank. In a similar
case, an appellate court in my state, Texas, ruled that I would have no
cause of action against the insurance company. Of course, I have a cause
of action against Person A, but Person A cannot be found.

On what basis, if any, would I have a cause of action against Person A's
bank which negligently paid the forged check? Would I also have a cause
of action against the insurance company's bank?

[Stuart A. Bronstein]

Banks are normally strictly liable for paying over a forged
endorsement. There are two possible bank defendants here - A's bank
and the insurance company's bank. Check your state's version of the
Uniform Commercial Code.

--
Stu
http://DownToEarthLawyer.com

[Mitt's Shadow]

Unless the bank knows there is a forgery then there is little chance of
recovery from the bank. Besides such a small amount would be eaten by
lawyer fees and cost. If you loss you could also be required to pay the
banks court costs and lawyer fees. Your only recourse is against person A.
Find out if they own any property in any state and place a lien on it.

[Mike Jacobs]

On Sunday, October 6, 2013 12:57:28 AM UTC-4, Alorac Jones wrote:
> An insurance company pays a claim by mailing to Person A a check for
> $20,000 payable to A and to me, two totally unrelated people. Person A
> crudely forges my endorsement and cashes the check at his bank. In due
> course, the check is paid by the insurance company's bank. In a similar
> case, an appellate court in my state, Texas, ruled that I would have no
> cause of action against the insurance company.

I would agree with that conclusion. The insurance company did nothing
wrong (unless there are facts not stated which would make a difference
-- such as, you knew A was an untrustworthy habitual forger and had
specifically warned the insurance company to send the settlement check
to you instead of to A, but they ignored your instruction. Otherwise,
what fault did the insurance company commit, that in fairness would
subject them to double liability? I can't think of any. They didn't
have anything to do with what happened to the check by way of
endorsements, negotiation, etc. after it left their hands.

> Of course, I have a cause
> of action against Person A,

Yep, as the one who actually committed the fraudulent act. Basically,
the blame rolls downhill to that point, with everybody farther up the
"line" of negotiation being able to point the finger at someone farther
"downhill," until they find the real culprit. But, as far as I
understand the law of commercial paper (which is not my primary
practice area), anyone "up" the line (the bank to which A took the
check to cash it, any other transferee banks as it worked its way back
to the issuing bank (the insurance company's bank), and so on, who
honored a fraudulent endorsement might _also_ be liable to make good on
the check to the payee who was defrauded thereby (you).

Based on just the facts you described, I don't think any of those
persons in the "line" of endorsements and negotiations would be a bona
fide third party arms-length "holder in due course" who could avoid
liability if innocent of any knowledge of the fraud.

> but Person A cannot be found.

Doesn't it _always_ seem to be that way? Fraudsters rarely stick around
after they rip off the rubes -- they mostly move on to newer, greener
pastures to try to repeat the act.

> On what basis, if any, would I have a cause of action against Person A's
> bank which negligently paid the forged check?

You said it yourself, in so many words. If they wrongly paid on a
forged endorsement, they may be liable, with that liability giving rise
to a claim over against A on behalf of that bank.

> Would I also have a cause
> of action against the insurance company's bank?

Possibly, also. For the same reason.

If this is not simply a hypothetical based on your reading of this
Texas case, I strongly suggest you consult a real, live, local attorney
to help you resolve the matter. Otherwise, unless you know exactly what
you are doing _and_ have the law on your side, the outcome in such
cases is usually, "the bank wins." Don't count on being able to waltz
in and have the bank(s) involved simply fork over $10,000 to you.

--
This posting is for discussion purposes, not professional advice.
Anything you post on this Newsgroup is public information.
I am not your lawyer, and you are not my client in any specific legal matter.
For confidential professional advice, consult your own lawyer in a private communication.

Mike Jacobs
LAW OFFICE OF W. MICHAEL JACOBS
10440 Little Patuxent Pkwy #300
Columbia, MD 21044
(tel) 410-740-5685

[Barry Gold]

I'm not a lawyer, but this one looks fairly simple to me. A check is a
"negotiable instrument". In negotiable instrument law, the insurance
company (which signed the check -- either having an employee sign it or
using a machine to stamp the signature on) is the "Maker". A and B (B =
you) are the "Payees". A signed his name on the back, and forged your
signature. Those signatures are called "endorsements"(@).


The rule is fairly simple: each endorsee is responsible for the entire
chain of signatures before his. That includes the Maker's signature on
the front, the signatures of the payee(s), and also the signatures of
any intermediate endorsers.(*)

So A's bank is responsible, and is supposed to make you whole. You can
start by asking them to pay you back. If they refuse, you can hire a
lawyer to sue them -- or sue them yourself in small claims court.

But... I have to admit that the Texas appellate court decision doesn't
make sense. When the insurance company issues the check to you, that's
a "tender"(+) but it doesn't complete payment. So it seems to me that
you haven't been paid and are still owed the money.

Normally -- at least in CA -- what would happen is that you would fill
out an affidavit of forgery. You would send that to the insurance
company. They would present it to their bank, and their bank would put
the money back in their account. Then they would issue you a new check.
So the insurance company's bank _is_ responsible -- to the insurer, not
to you, because they didn't properly follow the insurer's instruction to
pay both A and you. But the insurance company's bank probably isn't
stuck -- they can reverse the check back to A's bank, which will either
end up "eating" the loss or finding a way to collect from A.

My guess is that if A can be found, he'll either pay the money back or
go to jail for forgery. Or maybe both -- pay it back and get a reduced
sentence.

What I would do in this situation:

1. COntact the insurance company and see what they are willing to do.
My guess is they'll ask you to make out an affidavit of forgery (that
involves going to a Notary Public and paying the standard fee, somewhere
around $10. If you are an auto club member, you may be able to get a
discount on that fee at your local office.) Then you would send it to
them, and they would go to their bank and get their money back, and
issue you a new check.

2. If the insurance company is uncooperative, talk to your personal
lawyer about what you should do next. Maybe he'll refer you to a
specialist in cases like this. But either way, your own lawyer will be
more familiar than anybody here with the ins and outs of TX law and how
it relates to the particular circumstances of _your_ case.

(+) "Tendering" payments stops interest, etc., but it doesn't _complete_
payment until it is accepted and turned into "real" money: a check isn't
real money, it's a writing telling a third party -- the insurance
company's bank -- to pay you the money.

(@) Because they go on/in the back (the dorsal side) of the check. And
A's bank is the Endorsee", the person to whom the check is "endorsed".


(*) If A endorses the check to C, who endorses the check to D, then D
will be liable if any of the previous signatures: A's, C's, D's, and of
course the Maker's. If any of those endorsements are forged, D gets
stuck unless he can recover from C or B (or A, if the Maker's signature
was forged).

[Alorac Jones]

On 10/5/2013 11:57 PM, Alorac Jones wrote:

I am the original poster. If I wanted to get divorced, file for
bankruptcy, be compensated for personal injury, or get acquitted of DWI,
it would be easy to find a lawyer. But how do I find a lawyer who (1) is
conversant with the law of negotiable instruments, (2) practices where
venue resides (in this case, Harris County, Texas), and (3) would be
suitable for a small case like this ($20,000)?

[Tom Jones]

You can always get the yellow pages for that area and start calling
lawyers. The problem you have is the cost that is involved in trying to
get a judgment in a court and if the person appeals then that will wipe
out any monetary award that is made. Your best bet is to see if you can
sell the debt to a third party debt collector. Most likely a lawyer would
charge you 40-50% to take the matter to court.

[nos...@isp.com]

The same way you would find an attorney if you had occasion to deal
with the other "If"s you hypothesize above: By asking lawyers you know
or family members, friends, or co-workers for recommendations,
provided if based on their direct personal experience, or, obviously,
by asking the Harris County, Texas, Bar Association Lawyers Referral
Service for recommendations, then by following up with some diligent
face-to-face comparative shopping.*
-----------------------------------------------------
* I say "obviously" because you are well aware even if a
casual reader of your postings who resides elsewhere
may not know that your reference only to Harris County
in general obscures the fact that it is located within the
Houston metropolitan area and has a population of more
than four million people -- in other words, it is not a
lawyerless backwater and is instead awash with attorneys.

If one assumes that you posted the relevant operative facts without
material omissions, then contrary to your apparent impression
otherwise, while your quest for a capable attorney would make it
desirable for you to confirm the person's ability and willingness in
general to litigate in a practical including cost effective manner if
need be, you probably would not require retaining an attorney with
extensive knowledge of all facets of negotiable instrument law. To
the contrary (continuing to make the noted assumption), you posed a
straight forward, comparatively narrow, and therefore probably
uncomplicatedly answerable question.

That is, you said, in substance, that you wonder whether PersonA's
bank may be liable to you to the extent of your interest in the
wrongfully paid out check based on these facts:
- An insurance company issued a check in satisfaction of a claim
by you and PersonA by mailing a $20,000 check to him which it made
payable to him and to you;
- PersonA crudely forged your endorsement on the check and,
despite his bank not verifying the genuineness of your signature, he
cashed it at his bank;
- Even if in theory PersonA would be liable to you for the
defalcation, he no longer is a realistic/practical target for recovery
since he absconded and no longer can be located.

Your apparently exasperated follow-up therefore is puzzling since it
suggests that you do not recall in this connection that, as Mr.
Bronstein suggested earlier in this thread, a bank generally is

strictly liable for paying over a forged endorsement.

Put somewhat differently in law-technical terms, the UCC generally
imposes the burden on the first bank in the check collection chain to
be sure that all requisite endorsements are present and authentic. As
a corollary, a check is deemed "converted" (wrongfully taken from or
denied to a rightful owner) by a depository bank if/when the bank
makes a payment purportedly based thereon to a person not entitled to
enforce it or receive payment; and while PersonA would of course be
such a person if the check's issuer had made it payable solely to him,
a forged endorsement of a payee of a check made payable to two payees
makes it not properly "payable" to the one payee who did endorse it
but also forge the other's endorsement.

It accordingly is puzzling that you imply that you've chosen not to
have already made a claim in writing against PersonA's bank. It is
not as if banks are unaware of the principle to which Mr. Bronstein
referred.

It therefore may be that you providing that bank it with copies of the
correspondence from the insurer that evidence the amount of the
settlement to which, respectively, you and PersonA were entitled
(one-half to each? other?) if the check itself does not contain this
information, with a true copy of the check (perhaps also including an
enlargement of the forgery), and of course with some samples of your
signature, so doing may result in payment to you without the need to
sue, especially if the forgery of your name is "crude" and therefore
obvious.

Alternatively or, after a not mutually satisfactorily consented to pre
suit resolution, cumulatively, you haven't posted facts that suggest
that suing would entail probably complex litigation.

You also suggest the possibility of recovery from the insurer's bank.
One theory for so doing relevant to a person in your position is that
the ultimate collecting bank is deemed to hold the converted check
(or, more precisely, the amount it had made payable to that person
based thereon) in trust for the victim; and there may be other
theories in support of such a lawsuit. However, you haven't posted
sufficient facts to enable dependably assessing the probabilities in
this connection.