Banking · Banker Liability and Forgery
A domestic helper breaks into a customer's study, steals a cheque, and skilfully forges the customer's signature. The helper writes the name of a local contractor as payee and crosses it 'Account Payee'. The contractor receives it in good faith, endorses it to a grocery store, and the store deposits it. The paying bank, finding the signature matching reasonably well and seeing the crossing, honors the cheque. The customer discovers the theft and demands a refund. What is the legal responsibility of the bank?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank is not responsible because the cheque was crossed 'Account Payee' and collected by another bank.
- 2The bank is fully responsible to refund the amount because a forged drawer signature is not a valid mandate and provides no authority to debit the account.✓
- 3The bank is protected under Section 89 because the forgery was skilfully done and not apparent upon normal inspection.
- 4The customer is liable because leaving a chequebook in a house with staff constitutes gross negligence overriding bank liability.
Correct answer
The bank is fully responsible to refund the amount because a forged drawer signature is not a valid mandate and provides no authority to debit the account.
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