We do not believe that a bank that paid a forged check could hold the bank in which the check was deposited liable for its losses. In other words, the bank in which a forged check was deposited generally is not liable for the forgery.

In general, a bank on which a check is drawn (the “payor bank” or “drawee”) is liable for the check (provided that it does not return the check before its midnight deadline). 810 ILCS 5/4-302(a). There are exceptions to this rule, such as when the bank in which a check was deposited (the “presenting bank”) violated its presentment warranties to the payor bank. One of those warranties requires the presenting bank to warrant that it “has no knowledge” that the signature on the check is forged.  810 ILCS 5/4-208(a)see also 810 ILCS 5/3-417(a).

However, in most cases, the presenting bank has no knowledge of the forgery, and the presenting bank is not in a position to check the validity of the signature, as it does not have the customer’s signature card available for comparison purposes. (Of course, as you point out, the idea of a bank checking signatures is now almost obsolete.) As stated in an Illinois case, “in order for the warrantor . . . to be in breach of its presentment warranty, it must have knowledge that the signature of the drawer is unauthorized.” Clean World Engineering, Ltd. v. MidAmerica Bank, 341 Ill.App.3d 992 (1st Dist. 2003).