Quiz 26: Liability for Negotiable Instruments


D forged $150,000 checks on employer's account. In the case of forgery the liabilities of company are as follows: • The company should reconcile its records with bank statement. According to section 4-406 of UCC Code, the customer should reconcile its account with bank statement within the reasonable period. W Incorporation fails to reconcile the statement. Hence, the bank is not liable. • According to section 3-406(b) and 4-406(e), the concept of comparative fault - where both the bank and company account failed to exercise due care, a loss can be apportioned on the basis of proportionate default. Banks are not required to physically examine every check. Hence, it is the responsibility of the W Incorporation to take care of the checks and prevent forgery. W Incorporation did not even check the sequence of checks issued and not took any action against the lost check. Hence, the bank is not liable to W Incorporation for the forged check.

Ways that Q protects himself from the fraud: At the time of dealing with strangers, Q must receive only cashier's checks. In this case, Q collected a cashier's check, which was not used for some time. The cashier check was invalid, when it was used to pay. He should have claimed that, when "S" gave him a cashier's check, and then bank would have been liable. For example, individual dealing with lower sums, use Pay-bal or some relevant service that will build good or bad transfer or payments.

A check has the following endorsements on the back: • PFrnk • Without recourse • GH • Payment guaranteed • AQ • Collection guaranteed • RO An endorser is a person other than issuer and acceptor. Endorser has the secondary liability for the payment if the issuer does not pay. If the payment is made by the issuer then the endorsers get discharged from their liabilities. Endorsers are not liable to pay under the following circumstances: • If they write the word "without recourse" next to their signature • When a bank certifies the check • A check is presented for payment for more than 30 days after the endorsement • A check is dishonored and endorser is not notified within 30 days a. Lack of notice of dishonor will not discharge the endorsers. It will discharge the endorser if check is presented for payment for more than 30 days after the endorsement. b. A check is presented for payment for more than 30 days after the endorsement. Hence, late presentment cannot discharge the endorsers. c. Insolvency of the maker will not discharge the endorsers. Hence, the options a, b and c are incorrect. d. Certification of bank will discharge the endorsers from their liabilities. The certification of check will discharge all the endorsers. Hence, the option (d) is correct.

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