Question

1. Forged Checks. Roy Supply, Inc., and R. M. R. Drywall, Inc., had checking accounts at Wells Fargo Bank. Both accounts required all checks to carry two signatures, that of Edward Roy and that of Twila June Moore, both of whom were executive officers of both companies. Between January 2006 and March 2008, the bank honored hundreds of checks on which Roy’s sig- nature was forged by Moore. On January 31, 2009, Roy and the two corporations notified the bank of the forgeries and then filed a suit in a California state court against the bank, alleging negligence. Who is liable for the amounts of the forged checks? Why? (See The Bank’s Duty to Honor Checks.)

2. Customer Negligence. Gary goes grocery shopping and carelessly leaves his checkbook in his shopping cart. His check- book, with two blank checks remaining, is stolen by Dolores. On May 5, Dolores forges Gary’s name on a check for $100 and cashes the check at Gary’s bank, Citizens Bank of Middletown. Gary has not reported the loss of his blank checks to his bank. On June 1, Gary receives his monthly bank statement from Citizens Bank that includes the forged check, but he does not notice the item, nor does he examine his bank statement. On June 20, Dolores forges Gary’s last check. This check is for $1,000 and is cashed at Eastern City Bank, a bank with which Dolores has previously done business. Eastern City Bank puts the check through the collection process, and Citizens Bank honors it. On July 1, on receipt of his bank statement and canceled checks covering June transactions, Gary discovers both forgeries and immediately notifies Citizens Bank. Dolores cannot be found. Gary claims that Citizens Bank must recredit his account for both checks, as his signature was forged. Discuss fully Gary’s claim. (See The Bank’s Duty to Honor Checks)

3. Protection for Debtors. Bill and Betty Ma owned half of a two-unit residential building. Betty lived in the unit, but Bill did not. To collect a judgment against the Mas, Mei-Fang Zhang obtained a writ of execution directing the sheriff to seize and sell the building. State law allowed a $100,000 homestead exemption if the debtor lived in the home and $175,000 if the debtor was also disabled and “unable to engage in gainful employment.” Bill argued that he could not work because of “gout and dizziness.” How much of an exemption were the Mas allowed? Why? [Zhang v. Tse, 2011 WL 500196 (N.D.Cal. 2011)] (See Laws Assisting Debtors.

Answer 1

Answering the first question as per Chegg Guidelines:

1. Banks do have the responsibility of authenticating and validating the signatory before processing the checks. The bank must also call and confirm the signatory if the check is of a big amount. However, the primary responsibility lies with the customers themselves. Whenever they find out that unauthorized transactions are happening from their account, they must inform the bank on an urgent basis.

In the given case, the forgery happened various times in the span of 2 years. Neither Roy nor the corporations tracked these transactions and reported forgery with bank. Usually customers are required to report about a forgery within 30 days of the transaction. This is specified under UCC 4-406. Roy and the companies had well passed the time period. They violated the norms of UCC 4-406 and hence their claim of negligence against banks is completely invalid. As Roy’s signatures were forged, he will be considered liable for the amounts of the forged checks.