In general terms, if someone forges a signature on a cheque, the person whose signature was forged is not then bound to honour the cheque, and their bank does not have to pay it. A cheque with a forged signature is simply a worthless piece of paper – a "nullity".
If a bank pays out on the basis of a forged signature on a cheque, it does so without its customer’s mandate and is generally required to make good any loss that the payment causes the customer. It does not matter how good the forgery is; a skilful forgery is no more valid than a crude one. That may seem unfair to a banking firm that acts in good faith on the basis of a skilful forgery – but if it were otherwise, a person could be bound by anyone who was able to make a good copy of their signature.
If a customer becomes aware that someone has forged their signature on a cheque or cheques, they have a duty to tell their bank without delay. If they do not do so, and the bank pays the cheques in good faith, then the customer will probably not be able to recover the value of the cheque or cheques from their bank.
The complaints that we see cover a variety of circumstances. In a simple case, the cheque book may have been stolen by a stranger who then used it to write cheques with forged signatures. That seems a straightforward situation, where it is obvious that the banking firm must refund the amount of the forged cheques. But if the customer knew that the cheque book had been stolen and just never bothered to tell the firm, we might decide the firm should reduce any compensation for cheques that went through after the customer had a reasonable opportunity to contact the firm.
We see an increasing number of cases where the firm accepts that it has paid out on a cheque with a forged signature, but argues that the forgery was made possible by the collusion of the accountholder – whose cheque book (often accompanied by credit and bank cards) was stolen "by arrangement" in exchange for money. If that is proved to be the case, then because of their involvement in the fraud, the customer would not be able to make a successful claim on the firm.
In other cases it is alleged that cheques were forged by someone close to the customer – perhaps a spouse or a carer – where the signatures may be skilful, because the forger has had the advantage of access to examples of the true signature, together with time to perfect their forgery. In such cases there may be a dispute about whether the signatures are forgeries or true signatures, made – but then subsequently forgotten about – by the customer (who may be elderly or otherwise vulnerable).
Where the forgeries have continued over a period of time, there is likely to be a dispute about whether (and when) the customer should have realised what was happening and alerted the firm. These cases can be complicated still further where the accountholder has died and the claim is brought on behalf of their estate, some time after the date of the alleged forgery. In such instances we obviously have no way of questioning the one person who could have shed light on the matter.
We are required to decide cases on the basis of what is fair and reasonable, and we assess each individual case on its own merits, reaching a decision based on the evidence and information provided by the customer and the firm. So it is in the interests of both parties to be as open with us as possible and to give us all the information they have.
Some people assume that a specialist report from a handwriting expert will decide the matter conclusively. Unfortunately, this is rarely the case. And if the disputed signature is very like the true signature, it is almost impossible for a handwriting expert to make a conclusive decision on the basis of a photocopy of a signature – which is often all that is available.
Often, compensating the customer for payment of a cheque with a forged signature will simply be a matter of refunding the account with the amount of the cheque, together with a sum to cover any lost interest or charges incurred as a result of the forgery.
But the customer may also suffer a knock-on effect from the payment of the cheque (for example, where genuine cheques are then "bounced" because of lack of funds). We would normally expect the firm to compensate its customer for any such additional loss or damage.
Sometimes the firm and the customer both accept that a signature was forged and that the cheque should not have been paid. However, they cannot agree about:
We can help the parties to reach an appropriate settlement, applying the relevant legal principles within the overall context of our ‘fair and reasonable’ remit.
The fact that a cheque with a forged signature has been paid does not, by itself, mean that we will always award compensation – we must be satisfied that the payment of the cheque has caused the customer some loss, damage or inconvenience.
In certain cases, that may be difficult for us to establish – for instance, where the forger was the customer’s business partner, who claims that the cheques were used to discharge the liabilities of the business. We have no power to compel third parties to answer our questions, so we may be unable to get to the bottom of how the money was used. In such circumstances we might conclude that the dispute is primarily between the business partners – and more suitable for the civil courts, where both partners can be questioned and made to disclose their respective finances.
Similar difficulties can arise where the forgery was carried out by a spouse and there have been subsequent matrimonial proceedings, including a financial settlement that appears to take into account the effect of the forgery.
The important points to note are that this is an assessment we make on a case by case basis, and that we – rather than the firm or the customer – have the final say about whether a particular case is one that we can fairly decide.
Sometimes customers sign a blank cheque – a very risky thing to do. If a third party then fills in the details, even if those details were not what the customer expected, the firm is usually entitled to pay the cheque – even if this takes the customer’s account overdrawn, or beyond its agreed overdraft limit.
Exceptionally, there may be surrounding circumstances that we consider should have put the firm on notice of some wrongdoing. In that case, we may decide that the firm must bear some or all of the loss – though that is not because we regard the signature on the cheque as a "forgery".
Mr B had a current account. His parents and his two brothers did not. For a long time he let them write cheques on his account and "sign" his name. But after a family argument Mr B decided to stop to this arrangement. He also went back over his bank accounts, and identified three cheques that he thought had been drawn by family members without his approval. He asked the firm to refund the amounts of these cheques but it refused, even though it accepted that he had not signed the cheques himself. Mr B then complained to us.
We said that the firm did not have to refund the amount of the cheques in question, because Mr B had known about (and indeed tolerated) the family members "signing" his name on cheques.
Over a period of two years, Mr D reported numerous incidences of lost cheque books and credit cards to the firm. He also said that certain cheques had been signed by a fraudster, and that he should not be liable for them. When the firm rejected his complaint, he came to us.
The signatures on the cheques varied, and they were not particularly good matches for Mr D’s signatures. But Mr D’s true signatures also varied widely.
Overall, in the light of the evidence, we thought it most likely that although Mr D had not signed the cheques himself, he had colluded with the fraudster. We rejected his complaint.
Miss C contacted the firm after receiving a copy of her bank statement and finding that there had been a cheque withdrawal of £1,000. When the firm showed her the paid cheque, she saw that it had been signed with her name by her former partner, Mr H.
Mr H had moved out of her flat some months earlier, but had apparently taken a cheque from her cheque book before leaving. Miss C very rarely wrote cheques, so had not noticed that anything was wrong.
When she asked the firm to refund the amount of the cheque it refused. It told her that she should have kept her cheque book locked up and it suggested that she should pursue a claim against Mr H. Miss C thought this was unreasonable, particularly since she no longer had any contact with Mr H and did not know his current whereabouts. However, the firm refused to change its position, so Miss C came to us.
We did not consider it realistic to expect a customer to keep their cheque book under lock and key at home. And we did not agree that Miss C should have realised that the cheque had been stolen and alerted the firm before it was paid, as the firm had suggested.
We were satisfied that Miss C had not owed Mr H any money at the time he moved out. And it was clear that the payment of the cheque had caused a loss for Miss C. We therefore required the firm to refund the £1,000 to her account.
ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.
The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.