Nick steals two checks from Pauline—a blank check and a check payable to the order of Retail Outlets Company, drawn on Pauline’s account with State Bank. Nick forges Pauline’s signature on the blank check and makes it payable to himself. Nick forges Retail Outlets endorsement on the back of the check payable to Retail Outlets, and adds "Pay to the order of Nick." At United Credit Union, Nick endorses the back of both checks with his own name and gives them to United for cash. United does not know about the theft or the forged signatures and presents the checks to State Bank, which pays them. Pauline, who was not negligent, discovers the forgeries and asks State Bank to credit your account. Who suffers the loss on each check

When the signature of a drawer is forged, the drawer has not been negligent, and the drawee bank paid the check with the forged signature, it is the drawee bank who has to bear the loss, as it has to recredit the account of the affected drawer. On the other hand, when talking about a check with a forged endorsement, it is the bank that paid the check who suffer the loss. It must recredit the drawer's account, while the drawee bank can actually ask to recover the amount from the bank that paid the check.

In this case, State Bank was the drawee bank for both checks, but it only has to recredit Pauline for the check with the forged signature. United is responsible for recrediting Pauline for the check with the forged endorsement, however, while State Bank can recover the amount from them. State Bank and United can try to recover their losses from Nick, but this can prove very difficult.