Drawee Bank Liability Forged Signature
Generally, a drawee bank is liable to its checking account customer for payment of a check on which the customer's signature has been forged. See 4-3-418, C.R.S. 1999; Travelers Indemnity Company v. Stedman, 895 F. Supp. 742 (E.D.Pa. 1995).
Further, when the drawee bank honors the forged instrument, the payment is deemed final for a person who or an entity which takes the instrument in good faith and for value.
See Bank of Glen Burnie v. Loyola Federal Savings Bank, 25 Md. 331, 648 A.2d 453 (1994); North Carolina National Bank v. Hammond, 298 N.C. 703, 709, 260 S.E.2d 617, 622 n.1 (1979).
However, when appropriate and timely notice of the forgery is given to a presenting bank by the drawee bank along with its statement of intent not to honor the instrument, the drawee bank can in some circumstances shift liability to the presenting bank.
The parties disagree on what type of notice is required under the Code for this purpose.
Nevertheless, it is unnecessary to decide this issue because they agree that Decibel's notice was sufficient if either presentment or transfer warranties were given by Pueblo Bank when it returned the checks to Decibel through the Federal Reserve System.