In short, yes: the bank is a HDC and takes the check free of defenses that you h

Question

In short, yes: the bank is a HDC and takes the check free of defenses that you have against your former friend. If your friend sued you on the first check, you would have the defense of accord and satisfaction, i.e., you paid him. Because the bank is a super-plaintiff HDC, however, you do not have that defense and may be forced to pay the bank.

Before you repay anyone to whom you issue a check that was or may be dishonored (stop payment, insufficient funds, or account closed), keep in mind the HDC rule. If you know the rule, you know that you might end up paying twice if you are not careful

Explanation / Answer

1.The reserve ratio is 20%, or $100 which means that the chequing deposits increased by 100*100/20 = $500

The loaned out funds will equal = 500-100 = $400

Money supply will increase by 1/0.20*400=2000

2.

The money supply will only increase by the cash amount first borrower and not deposited in bank.

SO money supply will increase by only $400, the amount of loan to 1st borrower.

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