Business Law Case Study: Nephew

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Wayne Brooks C155762 144. Joseph Goodheart was the owner and manager of Goodheart Home for the aged. He was also the payee of a promissory note for $1,000 given him by Nick Nephew to pay for three months' care Goodheart had given to Nephew's elderly aunt, Strange Molly. One day Strange Molly, who was not responsible for her actions, sneaked into Goodheart's empty office and ransacked his files. She found her nephew's promissory note and took a pen and deftly changed the amount to $1,000,000. Does this operate, under §3-407, to discharge Nephew from his maker's obligation? This would not release the nephew from his obligations, especially considering the fact that “Strange Molly” is not responsible for her actions, in a court of law given…show more content…
Octopus bank seems to have acted in good faith using “reasonable” procedure in not noticing the alteration. Yet under the “Properly Payable Rule. The bank must pay out the customer's money only if it exactly follows the customer's orders. §4-401(a). A customer is not liable for the amount of the overdraft if the customer did not sign or benefitted from the proceeds of the action. §4-401(b) This is a difficult scenario, the bank may be forced to re-credit Smiths account the $495. Is the bank without a remedy? According to 4-208: When a check is deposited into a bank and sent through to the bank upon which it is drawn, the depositary bank warrants that the item has not been altered and that it is entitled to enforce the instrument. If there is a problem with the indorsements, or if the check has been altered, the payor bank can bring a claim against the depositary bank for breach of the warranty. This fits right in with the UCC's general scheme which seeks to place the risk of loss on the party in the best position to prevent the loss. Depositary banks should exercise caution when accepting a deposit

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