Where an indorsement on an instrument has been forged or is unauthorized,the general rule is that the loss falls on the party who first takes the forged instrument after the forgery.

Question

Quizplus · Accepted Answer

According to the principle of "prior party rule", when an endorsement on an instrument is forged or unauthorized, the loss falls on the party who first takes the forged instrument after the forgery, because that party had the opportunity to detect and prevent the fraud. Subsequent parties who take the instrument after the forged endorsement may also be liable if they were negligent in failing to detect the forgery.

Where an Indorsement on an Instrument Has Been Forged or Is