Hoppy steals two checks from Eagle Retail Stores, Inc.: a blank check and a chec
ID: 2486575 • Letter: H
Question
Hoppy steals two checks from Eagle Retail Stores, Inc.: a blank check and a check payable to the order of General Supplies Company (GSC), drawn on Eagle's account with First National Bank. Hoppy forges Eagle's signature on the blank check and makes it payable to himself. Hoppy forges GSC's endorsement on the back of the check payable to GSC, and adds "Pay to the order of Hoppy." At Friendly Credit, Inc., Hoppy indorses the back of both checks with his own name and gives them to Friendly for cash. Friendly does not know about the theft or the forged signatures and presents the checks to First National, which pays them. Eagle, which was not negligent, discovers the forgeries and asks First National to re-credit its account. Who suffers the loss on each check?
Explanation / Answer
First National will suffer loss of the amount on blank check unless it can recover the same from Hoppy
Friendly will suffer loss of the amount on check with forged endorsement of GSC unless he too can recover the same from Hoppy.
When the signature of the drawer is forged the Drawer is not negligent and drawee bank who pays the check on forged signature will suffer the loss. Friendly did not know about the forged signature and presented the Check in good faith can not be held responsible.
In Case of Forge Endorsement the drawee bank has to recredit the amount to the drawer. In case of Forged Endorsement the Title is not passed to the holder. Hence First National should recredit the account of Eagle but at the same time he can recover the same from friendly as the title has not been passed to Friendly and he does not become the holder.
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