Question

Forged Signatures

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 signature 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.)

Answer this using the IRAC writing Format

I-Describe the issue at hand (the question being asked)

R-Describe the rule that is applicable in this situation

A-Apply the rule to the facts of yor situation

C-Draw a conclusion

Answer 1

Issue at hand: Wells Fargo Bank had honored checks on which the signature of Edward Roy was forged by Twila June Moore one of the two executive officers of Roy Supply, Inc. and R.M.R. Drywall, Inc.

Rule That is applicable: Forged Drawers Signaturers and the Rule of Price v. Neal

i) The check is a complete forgery.

ii) The allocation of losses from that kind of forgery depends on whether the payor bank a) is duped into paying the check or b) notices the forgery and dishonors the check.

Payor Bank pays the Forged Check

i) Price v. Neal: Payor Bank bears the loss if it fails to notice the forgery and honors the check (check was not properly payable because the drawer never authorized it)

ii) 4-401(a): Payor Bank has no right to charge the account if drawer doesn't authorize it.

Application of the rule to the facts: As per the rule, it is the duty of the Payor Bank to notice the check is forged when it is presented for payment. In this case, the bank failed in its duty and charged the drawers account and has thus violated its rights. The negligence is of the bank.

Conclusion: Thus from the above, it is clear that the Payor Bank is liable for the amounts of the forged checks. However, it can recover the amount of liability from the theif or forger.