Check forgery remains a major concern in the French banking sector. Although the use of checks has declined in favor of electronic payment methods, associated fraud persists, leading to disputes between check issuers and banking institutions.
In this article, we will examine in depth the obligations and liabilities of banks in France regarding forged checks, with a focus on the concept of apparent irregularities.
What Is Check Forgery and What Are the Issues at Stake?
To understand the legal issues and the bank’s liabilities, it is first necessary to clearly understand the difference between a fake check and a forged check.
What Is the Difference Between a Fake Check and a Forged Check?
Definition of Concepts
Fake check:
A check is classified as “fake” when it was issued from the outset with a signature that is not that of the account holder or when it was never validly issued by the account holder. In other words, it is a check that never had legal existence as an authentic instrument. For example, a fake check may be created by a person who forges the account holder’s signature or who fabricates a non-existent check.
This constitutes a forgery from the outset, as the check was never issued in a regular manner. Forgery is defined as the fraudulent imitation or reproduction of an instrument that never legally existed.
A fake check never had legal validity as a payment instrument. It is therefore considered legally non-existent.
In this case, if the banker processes the payment of a forged check, even in the absence of any apparent irregularity, in their capacity as depositary they must therefore re-credit the client’s account for the amount of the check (Com. 2 July 2002, No. 00-10.121). The victim does not need to demonstrate any fault on the part of the bank with respect to its duty of vigilance.
However, if the creation of this fake payment order was made possible as a result of a fault by the account holder, or one of their employees, the banker is only liable to them if the banker has also been negligent, and only for the proportionate share of liability arising therefrom (Cass. com., 25 Oct. 2017, No. 16-10.168).
Forged check:
A check is considered “forged” when it was validly issued at the outset but was subsequently altered fraudulently. This alteration may concern elements such as the amount, the payee’s name, or other details appearing on the check. For example, a forged check may be a check whose amount has been overwritten or whose payee has been changed after issuance. In this case, the situation differs from a fake check: the drawee bank may be held liable if it failed to detect an apparent irregularity on the forged check.
A forged check is a payment instrument that has been fraudulently altered. The most common acts of forgery include altering:
- the amount;
- the payee’s name;
- the date;
- or the signature.
These manipulations can be carried out by scraping, overwriting, or chemical washing.
When a forged check is cashed, the issuer may suffer significant financial loss, hence the importance of understanding the available remedies and the liabilities at stake.
What Are the Banks’ Obligations Regarding Verification?
In terms of check processing, banks are subject to a legal duty of vigilance aimed at preventing and detecting fraud.
This obligation includes the verification of the formal regularity of the check, in particular the authenticity of signatures and the absence of visible alterations or apparent irregularities (Cass. com., 9 July 1996, No. 94-17.119, No. 1329 P; Cass. com., 28 Nov. 1995, No. 93-15.472, No. 272 P).
In the event of a breach of this duty of vigilance, the bank’s liability may be engaged.
The Concept of Apparent Irregularities
An “apparent irregularity” refers to any irregularity visible to the naked eye on the check, such as:
- a crossing-out;
- scraping;
- overwriting;
- or a suspicious alteration of the payee’s name.
Case law holds that if an irregularity is apparent, the bank must refuse payment of the check. Failing to do so, it incurs liability and must reimburse the check issuer for the debited amount. (Cass. com., 17 Sept. 2013, No. 12-18.202)
Burden of Proof of Forgery in Case of Dispute
In case of a dispute concerning a forged check, it is incumbent upon the issuer to prove that the check was forged.
However, if the bank cannot produce the original check, for example due to its destruction, it must demonstrate that the check was not affected by an apparent irregularity (Cass. com., 9 Nov. 2022, No. 20-20.031, No. 661 FS – B).
Remedies for the Issuer of a Forged Check
When an issuer discovers that a check has been forged and fraudulently cashed, they must act quickly:
- Stop payment on the check: Immediately contact their bank to stop payment on the check due to fraudulent use, in accordance with Article L131-35 of the French Monetary and Financial Code.
- File a complaint: File a complaint with the competent authorities for fraudulent use (note: if you mention too many details about the context, the bank may be able to use them against you to prove that you committed serious negligence such as to partially or fully exonerate it from liability).
- Request a refund: If the forgery is apparent, the bank is required to refund the amount of the check. Conversely, if the forgery is only discernible after thorough examination, the bank’s liability is not necessarily engaged.
Prevention of Forgery: Practical Advice
To minimize the risk of forgery, check issuers are advised to:
- Use an indelible ink pen to fill in checks;
- Avoid leaving blank spaces before or after the written entries by drawing lines to fill the gaps;
- Carefully complete the checkbook stub with relevant information, such as the amount, date, and payee.
These simple precautions can significantly help reduce the risk of forgery.
Recent Trends in Check Fraud in France
Despite a decline in the use of checks, associated fraud remains a concern. In 2023, payment fraud remained stable at 1.195 billion euros, with a slight increase of 0.2%.
Although the payment card is the preferred payment method of French consumers, checks still present a relatively high fraud rate. However, this amount is decreasing thanks to more effective measures to combat suspicious checks.
Conclusion
Check forgery poses significant challenges for both issuers and banking institutions in France. The concept of apparent irregularities plays a central role in determining liabilities in cases of fraud.
It is essential for check issuers to take precautions when issuing checks and for banks to maintain heightened vigilance when processing them.
Close collaboration between clients and banks, supported by a clear understanding of each party’s obligations and liabilities, is fundamental to effectively preventing and managing cases of forged checks.
