- Step one:
- Forged Signature of a Drawer/Maker - only someone who actually signs an instrument is liable; writing another person's name counts as the writer's signature, not the named person's. Moreover, the payor bank can't charge drawer's account for forged checks (b/c they aren't properly payable).
improper negotiation over forged indorsement = possessor is not a 'holder' and the instrument is 'not properly payable' to that person. For checks, the proper payee of a stolen check has a claim of conversion against a depository bank or a payor bank who gave payee's money to a thief over a forged indorsement.
Step 2: Negligence
If maker's/drawer's or payee's failed to use ordinary care substantially contributed
to/facilitated the forgery/alteration, he is precluded
from asserting the forgery/alteration against anyone who gave value for the instrument in good faith
(doesn't have to be HIDC).
However, the maker/drawer can in turn claim that the banks failed to exercise ordinary care in paying the item and the loss will be distributed via comp. neg.