978-1285770178 Solution Manual BL ComLaw 1e SM-Ch15

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.

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.

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.