A Forged, Altered, or Stolen Business Check Was Paid: Who Bears the Loss in California?

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

Usually the bank, at least at the start. A forged or altered check is not properly payable as paid, so under California Commercial Code section 4401 your bank generally must put the money back. The loss can shift to your business if your carelessness contributed to the fraud or you did not review statements and report promptly. Suits against the bank generally must be filed within one year. Kolmogorov Law, P.C. litigates check fraud disputes between businesses and their banks in Orange County, Los Angeles, and across California.

Call (909) 235-6116 or contact us online to discuss a forged, altered, or stolen check and a bank that will not recredit your account.

The starting rule: the bank may charge only what you authorized

A bank may charge a customer's account for an item that is properly payable, meaning one authorized by the customer and consistent with the account agreement. (Com. Code, § 4401, subd. (a).) A check you never signed was not authorized. Neither was a check whose payee or amount was changed after it left your hands.

A bank that in good faith pays a holder may charge the account according to the original terms of the altered item. (Com. Code, § 4401, subd. (d)(1).) If only the amount was raised, the bank may charge what you wrote and no more. A changed payee is harder. The usual argument is that nothing was paid on the original terms, though the Code does not say so in those words.

Three kinds of check fraud

Altered checks. Someone intercepts a mailed check, washes off the ink, and writes in a new payee or amount.

Forged maker's signatures. Someone prints counterfeit checks with your account number, or takes blank stock, and signs for the company.

Forged endorsements. The check is real and correctly made out, but someone other than the payee signs the back and deposits it. Here the payee may have a claim for conversion against the bank that took the check. The issuer of the check may not bring that conversion claim, and neither may a payee who never received delivery. (Com. Code, § 3420, subd. (a).) Our conversion page covers that tort.

How the loss shifts back to the business

Banks raise two defenses.

The first is negligence. A person whose failure to exercise ordinary care contributes to an alteration or a forged signature is precluded from asserting it against a bank that paid in good faith. If the bank was also careless, the loss is split according to how much each failure contributed. (Com. Code, § 3406, subds. (a), (b).) Unlocked check stock and a signature stamp in an open drawer are the usual examples.

The second is the statement rule. Once a statement is available, the customer must examine it with reasonable promptness for alterations and forgeries of its own signature. A customer who should have found one must promptly notify the bank. (Com. Code, § 4406, subd. (c).) A customer who fails can lose the right to contest that item, if the bank proves the delay caused it a loss. Later items by the same wrongdoer can also be lost, if the bank paid them in good faith before it had notice and after a reasonable period to report, which may not exceed 30 days. (Com. Code, § 4406, subd. (d).) These duties do not mention forged endorsements.

The bank's own care still counts. If the customer proves the bank failed to exercise ordinary care in paying the item, and that the failure contributed to the loss, the loss is allocated between them. (Com. Code, § 4406, subd. (e).) For automated processing, a bank need not examine the instrument if its procedures are followed and do not vary unreasonably from general banking usage. (Com. Code, § 3103, subd. (a)(7).)

When the forger is your own employee

Employers face a harder rule. If you entrusted an employee with responsibility for checks and that employee forges an endorsement in the payee's name, the endorsement is treated as effective for a bank that paid or took the check in good faith. The loss starts with the employer. If the bank failed to exercise ordinary care and that failure contributed to the loss, the employer may recover from the bank to that extent. (Com. Code, § 3405, subd. (b).)

"Responsibility" is defined broadly: signing or endorsing checks, processing incoming checks for deposit, preparing outgoing checks, or controlling their disposition. Mere access to the mail or to stored check stock is excluded. (Com. Code, § 3405, subd. (a)(3).) A bookkeeper who processes or prepares checks is covered. A janitor usually is not.

Recovery often has to come from the employee. See our page on employee theft and embezzlement.

The one-year limits

Two separate one-year rules apply.

The first is a reporting bar. Regardless of anyone's care, a customer who does not discover and report its own unauthorized signature or an alteration within one year after the statement is made available is precluded from asserting it against the bank. (Com. Code, § 4406, subd. (f).)

The second is the deadline to sue. An action by a depositor against a bank for payment of a forged or raised check, or a check with a forged or unauthorized endorsement, must be filed within one year. (Code Civ. Proc., § 340, subd. (c).) The Court of Appeal has held that this period, not the three-year period in the Commercial Code, governs a depositor's claims against its bank for paying forged checks. (Chatsky & Associates v. Superior Court (2004) 117 Cal.App.4th 873.) The opinion adds that the year runs separately for each check, from the monthly statement reporting the charge. Section 340 does not mention a changed payee, so I treat one year as the deadline for every bad item.

Your account agreement may be stricter. The Code lets banks and customers vary its rules by agreement, within limits, and many agreements shorten the reporting window. (Com. Code, § 4103, subd. (a).)

What to do this week

Report in writing. Give the bank the check number, amount, date, and what is wrong with it.

Go back through earlier statements. The same thief often hit more than once, and the 30-day rule for repeat items is already running.

Get copies of each item, front and back, and ask the bank about positive pay.

Losses by electronic transfer follow different rules, covered on our wire transfer fraud page.

What to bring to the first meeting

Copies of each check, front and back, and your own record of how it was written.
Bank statements from before the first bad item to the present.
Your written fraud report and every reply from the bank.
The deposit account agreement and any positive pay or fraud service terms.

Frequently asked questions

Someone washed and altered a check we mailed to a vendor and the bank paid it. Who bears the loss in California?

In most cases the bank does, initially. An altered check may be charged to your account only according to its original terms under California Commercial Code section 4401. The bank can shift some or all of the loss by proving your carelessness contributed to the alteration, or that you reported it late.

How long do I have to report a forged check to my bank?

Report it immediately. For an alteration or a forgery of your own signature, California Commercial Code section 4406 requires reasonable promptness once the statement is available. Repeat forgeries by the same person can become your loss after no more than 30 days, and nothing reported after one year can be asserted against the bank. Many deposit agreements set shorter windows.

Can I sue my bank for paying a forged check?

Yes. A California depositor can sue to have the account recredited when the bank paid an item that was not properly payable. The suit generally must be filed within one year under Code of Civil Procedure section 340, subdivision (c), and the bank will usually argue that your negligence or late reporting shifts the loss.

Our bookkeeper forged endorsements and deposited customer checks into her own account for two years. Is the bank responsible?

Often only in part. Under California Commercial Code section 3405, an endorsement forged in the payee's name by an employee entrusted with responsibility for checks counts as effective for a bank that acted in good faith, so the loss starts with the employer. You can recover from a bank to the extent its own lack of ordinary care contributed. Older items may be time-barred.

Do I still owe the vendor if the check I mailed was stolen?

Usually, yes. Under California Commercial Code section 3310, an obligation is suspended when a check is taken for it. A check stolen before the vendor received it was arguably never taken, so the invoice likely remains unpaid. If it was stolen after delivery, the vendor's rights may be limited to the check itself.

Talk to a California business fraud attorney

If your bank paid a forged or altered check and will not make it right, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located at 327 Magnet, Irvine, CA 92618, and represents businesses in Orange County, Los Angeles, and throughout California.

This page provides general information about California law and is not legal advice. Outcomes depend on the checks, the account agreement, the reporting dates, and the court.