Duties and Liabilities of Parties

Question 1

Duties of Drawee Bank

Answer 1

1- honor customer’s check- must if there are sufficient funds
2- insufficient funds- bank may chose to honor anyway, in which case the customer is liable to the bank for the overdraft
3- Wrongful dishonor- If bank wrongfully dishonors, customer can recover for harm proximately caused by the wrongful dishonor.
4- Death of a customer- does not revoke authority to pay a check until bank knows of the death and has a reasonable time to act on that knowledge.
5- The bank must honor the check as drawn- cannot charge the customer’s account if the dawer’s signature was forged, for more money than original order, if the bank pays the wrong person, if the check is pose-dated (can’t pay before that date)

Question 2

Forgery or Material Alteration of Negotiable Instruments- The proper payable rule

Answer 2

the proper payable rule- the drawee bank that honors a forged or materially altered check must recredit the drawer’s account, as long as the drawer was not negligent.

Question 3

Forgery or Material Alteration of Negotiable Instruments- drawee bank’s remedies

Answer 3

the thief is always liable

drawer is liable also, if negligent

Question 4

When is the drawer negligent?

Answer 4

leaving blanks or spaces on the instrument

failing to follow internal procedures designed to avoid forgeries

bank statement rule- negligence includes one’s failure to examine bank statement and report a forgery or alteration within a reasonable time

the fictitious payee rule- if an imposter induces the payee to write a check, drawer is negligent

the employee indorsement rule- an employer is libale for forgeries by an employee who was entrusted with responsibility for handling checks.