The California Court of Appeal has ruled that a merchant can not be held liable for accepting a forged third party check. In Burns v. The Neiman Marcus Group, Inc., the unfortunate plaintiff employed a shopaholic assistant who racked up over $1 million in charges at Neiman Marcus over the course of three years. The assistant funded these activities by paying her credit accounts by forging checks on the plaintiff’s bank account. Since the plaintiff did not discover the forgeries in time to seek recovery from his bank, he sued Neiman Marcus alleging that the store was negligent in taking third party checks as payment on the assistant’s account. The Court of Appeal ruled that, as a matter of law, Neiman Marcus could not be held liable simply for accepting checks from someone other than the account holder. The Burns court reasoned the burden on the merchant required to determine the legitimacy of every third party check would be greater than the benefit of detecting isolated instances of embezzlement.
There are a number of ways to reduce the likelihood of losses from forged checks, including having the account regularly reviewed by someone other than the primary bookkeeper and promptly reporting any discrepancies to the bank.