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in whole or in part.
QUESTION IN THE FEATURE
INSIGHT INTO ETHICS—CRITICAL THINKING—INSIGHT INTO THE BUSINESS ENVIRONMENT
(PAGE 287)
Why would banks say that they, too, are worse off because of the EFAA? The longer that
AT THE ENDS OF THE CASES
CASE 15.1—LEGAL REASONING QUESTIONS (PAGE 279)
1A. Why did the bank argue that UCC 4–402 did not apply in this case? What did the
court decide on this issue? UCC 4–402 concerns a drawee bank’s wrongful dishonor of
secure her own account. The bank controlled the funds and their dispersal, and decided when a
refund was appropriate.
The court determined that “in light of this correspondence from the bank, it is reasonable
to regard the refund check in this case * * * as the functional equivalent of funds coming from
plaintiff's own account. * * * We conclude that the distinctive circumstances of this matter can
CHAPTER 15: BANKING IN THE DIGITAL AGE 3
in whole or in part.
CASE 15.2—QUESTIONS (PAGE 284)
THE LEGAL ENVIRONMENT DIMENSION
As a practical matter, does it make sense for the customer to bear primary responsibility
for discovering instances of fraud? Which party is in a better position to detect any
irregularities? Why? It probably does make sense for customers to bear primary responsibility
for discovering fraud. Banking has become increasingly complex, and banks handle a quickly
growing volume of checks and transactions. As a practical matter, banks cannot employ people
to review every indorsement for the possibility of fraud. Customers should be much more
familiar with their own checks and are therefore in a better position to detect any irregularities.
were not possible, MBP should have more closely scrutinized its account statements within the
prescribed time limits to spot the item with the forged indorsements.
CASE 15.3—QUESTIONS (PAGE 290)
corporation selling a defective product or, as in this case, by a person engaging in a scheme of
questionable legitimacy and ethics. In the long run, even if the corporation or the person cannot
be convicted of a crime, such ill-advised conduct can lead to lawsuits, liability, and harm to the
corporation’s or person’s credit and reputation.
The drawee banks did not suffer the loss, however, and did not need to recredit their customers’
accounts, because the banks dishonored the checks before charging their customers for the
amounts.
in whole or in part.
in whole or in part.
in whole or in part.
CHAPTER 15: BANKING IN THE DIGITAL AGE 7
in whole or in part.
is found in the legal nature of an ordinary checking account. The relationship between a bank
and its customer is one of debtor and creditor: the bank is indebted to the customer and
promises to debit his account only at his direction. If the bank pays a check on a forged drawer’s
signature, the bank’s indebtedness to the customer is not reduced. If the bank debits the
customer’s account, the customer can compel the bank to recredit the amount. In some
circumstances, a bank may be able to recover from the forger of the check because it was the
bank’s money that the forger took. In this problem, Wells Fargo Bank paid out $590 as a result
of the forgeries. Because Wells Fargo Bank could not legally debit Rita E.’s account once it
learned the checks were forged, it had to absorb the loss. The bank was a direct victim of the
defendant’s crimes of forgery and is entitled to restitution. In the case on which this problem is
bank pays a check on which the drawer’s signature is forged, generally the bank suffers the
loss. A bank may be able to recover some or all of the loss from the customer if the customer’s
negligence substantially contributed to the forgery. A bank—or the customer—may also obtain
partial recovery from the forger of the check (if he or she can be found and there are assets
against which a recovery can be enforced).
for all forged checks that it pay before notification. The UCC places an absolute time limit on the
liability of a bank for paying a check with a customer’s forged signature. A customer who fails to
report his or her forged signature within one year from the date that the statement was made
available for inspection loses the right to have the bank recredit his or her account.
Here, Brooks did not exercise reasonable care in handling her accounts. She did not look
In the actual case on which this problem is based, the court dismissed Brooks’s claim.
15–6A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Honoring checks
Wells Fargo is liable to W Financial for the amount of the check. A bank that pays a customer’s
check bearing a forged indorsement must recredit the customer’s account or be liable to the
in whole or in part.
in whole or in part.
10 UNIT THREE: NEGOTIABLE INSTRUMENTS
in whole or in part.
even if he were held liable, he, like Johnson, may not have had enough funds to cover the
amount of a judgment.
Unethical behavior might be ascribed to all of the parties in this case, depending on the
actual circumstances. If Union was not incompetent until he was adjudged to be incompetent,
for example, he may have acted unethically in failing to oversee his own account. If the
Johnsons truly forged Union’s signature on his checks to steal from his account, they conducted
themselves unethically in committing the forgeries and failing to report them. If BB&T could have
been alert to the forgeries but carelessly or intentionally ignored them, this corporate behavior
would be unethical. And if Maxwell’s delay in contacting the bank about the forgeries was not
reasonable, he too might have acted unethically.
4–405]. Therefore, Southern Marine Bank’s payment on January 10, three days after Brian’s
death, is a proper payment.
(b) Joyce’s claim that Brian’s death and Southern Marine Bank’s knowledge of it re-
voked Southern Marine Bank’s authority to pay is incorrect. As noted in the answer to the
previous question, the UCC provides that the death of a customer does not revoke a payor
but this is a time of year during which many drawers mistakenly still use last year’s date. Thus,
consultation is not required and because payment in good faith is permitted, Southern Marine
Bank is not liable [UCC 4–404].
(c) A business partner might be in a better position to force Southern Marine Bank to
recredit Brian’s account than his widow. The death of a bank’s customer does not revoke the
days after Brian’s death, would not be a proper payment.
CHAPTER 15: BANKING IN THE DIGITAL AGE 3
in whole or in part.
CASE 15.2—QUESTIONS (PAGE 284)
THE LEGAL ENVIRONMENT DIMENSION
As a practical matter, does it make sense for the customer to bear primary responsibility
for discovering instances of fraud? Which party is in a better position to detect any
irregularities? Why? It probably does make sense for customers to bear primary responsibility
for discovering fraud. Banking has become increasingly complex, and banks handle a quickly
growing volume of checks and transactions. As a practical matter, banks cannot employ people
to review every indorsement for the possibility of fraud. Customers should be much more
familiar with their own checks and are therefore in a better position to detect any irregularities.
were not possible, MBP should have more closely scrutinized its account statements within the
prescribed time limits to spot the item with the forged indorsements.
CASE 15.3—QUESTIONS (PAGE 290)
corporation selling a defective product or, as in this case, by a person engaging in a scheme of
questionable legitimacy and ethics. In the long run, even if the corporation or the person cannot
be convicted of a crime, such ill-advised conduct can lead to lawsuits, liability, and harm to the
corporation’s or person’s credit and reputation.
The drawee banks did not suffer the loss, however, and did not need to recredit their customers’
accounts, because the banks dishonored the checks before charging their customers for the
amounts.
in whole or in part.
in whole or in part.
in whole or in part.
CHAPTER 15: BANKING IN THE DIGITAL AGE 7
in whole or in part.
is found in the legal nature of an ordinary checking account. The relationship between a bank
and its customer is one of debtor and creditor: the bank is indebted to the customer and
promises to debit his account only at his direction. If the bank pays a check on a forged drawer’s
signature, the bank’s indebtedness to the customer is not reduced. If the bank debits the
customer’s account, the customer can compel the bank to recredit the amount. In some
circumstances, a bank may be able to recover from the forger of the check because it was the
bank’s money that the forger took. In this problem, Wells Fargo Bank paid out $590 as a result
of the forgeries. Because Wells Fargo Bank could not legally debit Rita E.’s account once it
learned the checks were forged, it had to absorb the loss. The bank was a direct victim of the
defendant’s crimes of forgery and is entitled to restitution. In the case on which this problem is
bank pays a check on which the drawer’s signature is forged, generally the bank suffers the
loss. A bank may be able to recover some or all of the loss from the customer if the customer’s
negligence substantially contributed to the forgery. A bank—or the customer—may also obtain
partial recovery from the forger of the check (if he or she can be found and there are assets
against which a recovery can be enforced).
for all forged checks that it pay before notification. The UCC places an absolute time limit on the
liability of a bank for paying a check with a customer’s forged signature. A customer who fails to
report his or her forged signature within one year from the date that the statement was made
available for inspection loses the right to have the bank recredit his or her account.
Here, Brooks did not exercise reasonable care in handling her accounts. She did not look
In the actual case on which this problem is based, the court dismissed Brooks’s claim.
15–6A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Honoring checks
Wells Fargo is liable to W Financial for the amount of the check. A bank that pays a customer’s
check bearing a forged indorsement must recredit the customer’s account or be liable to the
in whole or in part.
in whole or in part.
10 UNIT THREE: NEGOTIABLE INSTRUMENTS
in whole or in part.
even if he were held liable, he, like Johnson, may not have had enough funds to cover the
amount of a judgment.
Unethical behavior might be ascribed to all of the parties in this case, depending on the
actual circumstances. If Union was not incompetent until he was adjudged to be incompetent,
for example, he may have acted unethically in failing to oversee his own account. If the
Johnsons truly forged Union’s signature on his checks to steal from his account, they conducted
themselves unethically in committing the forgeries and failing to report them. If BB&T could have
been alert to the forgeries but carelessly or intentionally ignored them, this corporate behavior
would be unethical. And if Maxwell’s delay in contacting the bank about the forgeries was not
reasonable, he too might have acted unethically.
4–405]. Therefore, Southern Marine Bank’s payment on January 10, three days after Brian’s
death, is a proper payment.
(b) Joyce’s claim that Brian’s death and Southern Marine Bank’s knowledge of it re-
voked Southern Marine Bank’s authority to pay is incorrect. As noted in the answer to the
previous question, the UCC provides that the death of a customer does not revoke a payor
but this is a time of year during which many drawers mistakenly still use last year’s date. Thus,
consultation is not required and because payment in good faith is permitted, Southern Marine
Bank is not liable [UCC 4–404].
(c) A business partner might be in a better position to force Southern Marine Bank to
recredit Brian’s account than his widow. The death of a bank’s customer does not revoke the
days after Brian’s death, would not be a proper payment.
