Problem Set 5
5.1. Late one afternoon you get a call from Cliff Janeway, a
book-dealer friend of yours. He tells you that he is in Seattle and that
yesterday he received a $200,000 check as a finder’s fee for locating
some extremely rare books and manuscripts for an eccentric collector. He
is just about to get on the plane and has realized that he left the
check on the seat of the airplane. Does he have anything to fear if a
third party takes the check, forges his indorsement, and cashes it? UCC §§ 3-301, 3-310(b),
3-406, 3-420(a).
5.2. Sir Roderick Spode is a client that Bertie Wooster
referred to you, who operates a small women’s clothing store on the west
end of town. His business processes a large number of incoming checks
(paying for items that he has shipped to customers all over the country)
and outgoing checks (paying for supplies, materials, and payroll). He
has never had any losses from theft, but is worried about the
possibility. He tells you that he has a lot of customers and workers in
and out of his shop all the time. Because he has only a single very
large room for his business, it is hard to keep his checkbook and blank
checks in a completely inaccessible location unless he removes all of
those materials from the office entirely. Spode wants to know what he
needs to do to be sure that he is not stuck with any losses if somebody
steals some blank checks. Consider the following possible scenarios and
decide whether Spode would have any liability in any of those scenarios.
If so, what should he do to limit that liability? UCC §§ 3-404, 3-405,
3-406, 4-401(a), 4-406.
(a) August (“Gussie”) Fink-Nottle, an employee who packages
outgoing shipments (but has no check-writing authority) picks up one of
Spode’s blank checks, makes it out to himself, and forges Spode’s
signature as drawer. Gussie then indorses the check and deposits it in
his bank. After withdrawing the funds from his account, Gussie then
disappears (ostensibly on some type of newt-hunting expedition). UCC §§
3-406 & comment 3, 4-401.
(b) Stephanie (“Stiffy”) Byng comes to Spode’s office and
claims to be Madeline Bassett, a supplier to whom Spode owes money (whom
Spode has not met). Spode issues a check to Madeline Bassett and gives
it to Stiffy, who indorses the check in Madeline’s name, cashes it, and
then departs with the money for the Isle of Man. UCC § 3-404(a).
(c) Same facts as question (a), but instead of writing the
check to himself, Gussie writes a check to Madeline Bassett, intending
to give the check to Gussie’s friend Harold (the “Stinker”) Pinker.
After Gussie gives the check to Pinker, Pinker forges Bassett’s
indorsement and cashes the check. UCC §§ 3-110(a), 3-404(b)(i), 3-406,
4-208(a)(1).
(d) Same facts as (c), but Gussie makes the check out to
Catsmeat Potter-Pirbright (a wholly fictitious character). Pinker
indorses the check in Potter-Pirbright’s name and deposits it in an
account that Pinker maintains in Catsmeat’s name. UCC § 3-404(b)(ii),
(d) & comments 2 & 4.
(e) Same facts as question (c), but Gussie is the person in
Spode’s office responsible for issuing checks. UCC §§ 3-402(a),
3-404(b)(i) & comment 2.
(f) Same facts as question (d), but Pinker stole the check and
used Spode’s facsimile signature machine to sign the check. Spode’s
account agreement stated that any signature using that machine would be
treated as authorized by Spode. UCC §§ 3-404(b), 3-404 comments 1 & 2,
4-103(a).
(g) Gussie also is responsible for depositing incoming checks.
In that capacity, Gussie forges Spode’s indorsement on an incoming check
payable to Spode and deposits the check in Gussie’s account. UCC §
3-405.
(h) Gussie’s last task is to maintain a daily list of checks
authorized to be written. The list is processed early in the afternoon
each day to produce the checks indicated on the list. In an effort to
defraud the bank, Gussie adds names to the list that reflect fictitious
persons or close friends of Gussie willing to participate in the scheme.
He then intercepts the checks after Spode writes them, indorses them in
the name of the payees, and deposits them in his account. UCC § 3-405.
5.3. Jodi Kay also wants to discuss another problem that the
bank faces. Carl Eben (Jodi’s long-time customer from Problem 3.5) has
just been victimized by a lengthy forgery scheme by his accounts-payable
clerk. The clerk forged checks on the account for 18 months before being
caught, stealing a total of about $135,000. Because Carl never noticed
any of the forgeries on his statement, Jodi is guessing (but is not
sure) that the bank has no obligation to return the funds to Carl’s
account. Because of its long-standing (and highly profitable)
relationship with Carl, however, the bank has decided that it is better
to return the funds without getting into any messy arguments about who
is responsible.
Jodi wants to know what the bank can do in the future to mitigate
these problems. She wants both to mitigate the bank’s exposure to legal
liability and also to mitigate the possibility that the losses will
occur in the first place. But she has to be conscious of costs: “You
can’t ask me to do anything crazy like recommend that we actually look
at the checks to identify forged signatures.” Is the bank liable for losses
like this? If so, what can Jodi do to limit that liability and the
likelihood of future losses? UCC §§ 3-103(a)(7), 4-104(c), 4-406.
