Cheques

Chapter 6: Forgeries, Alterations and Protection of Banks

Chapter 6 Forgeries, Alterations and Protection ofBanks 6.1 Forgeries 6.1.1 The general rule is that a forgery has no effect Forgery is a· crime: the making of a false document in order that it may be used as genuine with intent to defraud or deceive. A forged document is illegal and usually a nullity. But if there were no exceptions to that rule the usefulness of negotiable instruments would be greatly re­ duced. Some balance must be struck between the interests of all the parties involved. The law does this through the provisions of BOEO. 6. 1.2 BOEO s24 sets out the basic rules which strike the balance: Subject to the provisions of this Ordinance, where a signa­ ture on a bill is forged or placed thereon without the author­ ity of the person whose signature it purports to be, the forged or unauthorized signature is wholly inoperative, and no right to retain the bill, or to give a discharge therefor, or to enforce payment thereof against any party thereto can be acquired through or under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority: Provided that nothing in this section shall affect the ratification of an unauthorized signature not amounting to a forgery. This section makes it clear that a 'forged or unauthorized signature is wholly inoperative'. 6.1.3 Forged signature. No one who takes a cheque on which the drawer's signature is forged can be a holder of that cheque as it then stands, 56 Cheques because there is no signature of the drawer and by definition nothing can be a cheque without one, BOEO s3(1); 3.3. But s24 begins 'Subject to the provisions of this Ordinance' and other sections, read together with s24, show that a cheque fonn with the drawer's signature forged may still become of value. 6.1.4 If the signature is not necessary for the cheque to be valid, its forgery is not a fatal flaw. A bearer cheque needs no indorsement; therefore a forged indorsement will not stop it working as a bearer cheque. It passes by delivery alone and when it is transferred with­ out indorsement intermediate holders drop out and keep neither rights nor liabilities. A cheque payable 'to A. Chan or bearer' is a bearer cheque. If someone forges A. Chan's signature on it, that forgery is a nullity. It will not make A. Chan liable. Later holders in due course will be able to recover payment from the drawer and from the person who transferred it to them but not from A. Chan. 6.1.5 The only exception to the rule that a person whose signature is forged is not liable on it arises where the signer is estopped from pleading the signature is a forgery. This estoppel arises when per­ sons do acts which preclude them from stating some fact in their pleading or in evidence. The husband who did not tell the bank when he found out his wife had forged his signature on cheques was estopped from denying the validity of the signatures after his wife committed suicide, Greenwood v. Martins Bank [1933] AC 51; 3.1.4. Mere carelessness in allowing a cheque book to fall into the wrong hands is not enough of itself to raise an estoppel. 6.1.6 Banks are vulnerable to forgeries. If a bank pays on a forged cheque it cannot debit the customer's account. If the drawer's signature is forged it is not the customer's cheque. The bank has received no instructions from the customer at all. The bank has a specimen signature form signed by the customer and by anyone else author­ ized to sign. It must inspect every cheque to make sure that it has been signed in accordance wit� that specimen by the customer and by no one without authority. Banks therefore are often faced with this dilemma: shall they pay on a cheque with a doubtful looking signature and take the risk that they will pay without authority and therefore not be able to debit the customer'saccount; orshall they risk the consequences of wrong- Forgeries, Alterations and Protection ofBanks 57 ful dishonour, an action for damages for any loss the customer has sustained as a result...