On November 9, Jane Jones writes a check for $500 payable to Ralph Rodgers in payment for goods to be received later in the month. Before the close of business on November 9, Jane notifies the bank by telephone to stop payment on the check. On December 19, Ralph gives the check to Bill Briggs for value and without notice. On December 20, Bill deposits the check in his account at Bank A. On December 21, Bank A sends the check to its correspondent, Bank B. On December 22, Bank B presents the check through the clearinghouse to Bank C. On December 23, Bank C presents the check to Bank P, the payor bank. On December 28, the payor bank makes payment of the check final. Is Jane Jones’s stop payment order effective against the payor bank? Explain
Q483 Howard Harrison, a longtime customer of Western Bank, operates a small department store, Harrison’s Store. Because his
store has few experienced employees, Harrison frequently travels throughout the United States on buying trips, although he
also runs the financial operations of the business. On one of his
buying trips, Harrison purchased two hundred sport shirts from
Well-Made Shirt Company and paid for the transaction with a
check on his store account with Western Bank in the amount
of $3,000. Adams, an employee of Well-Made who deposits
its checks in Security Bank, sloppily raised the amount of the
check to $30,000 and indorsed the check, “Pay to the order of
Adams from Pension Plan Benefits, Well-Made Shirt Company
by Adams.” He cashed the check and cannot be found. Western
Bank processed the check, paid it, and sent it to Harrison’s Store
with the monthly statement. After briefly examining the statement, Harrison left on another buying trip for three weeks.
a. Assuming the bank acted in good faith and the alteration
is not discovered and reported to the bank until an audit
conducted thirteen months after the statement was
received by Harrison’s Store, who must bear the loss on
the raised check?
b. Assume that Harrison, who was unable to examine his
statement promptly because of his buying trips, left instructions with the bank to carefully examine and to notify him
of any item over $5,000 to be charged to his account; assume
further that the bank nevertheless paid the item in his absence. Who bears the loss if the alteration is discovered one month after the statement was received by Harrison’s Store? If the alteration is discovered thirteen months later?