Hoppy steals two checks from Eagle Retail Stores, Inc.: a blank check and a chec

Question

Hoppy steals two checks from Eagle Retail Stores, Inc.: a blank check and a check payable to the order of General Supplies Company (GSC), drawn on Eagle's account with First National Bank. Hoppy forges Eagle's signature on the blank check and makes it payable to himself. Hoppy forges GSC's endorsement on the back of the check payable to GSC, and adds "Pay to the order of Hoppy." At Friendly Credit, Inc., Hoppy indorses the back of both checks with his own name and gives them to Friendly for cash. Friendly does not know about the theft or the forged signatures and presents the checks to First National, which pays them. Eagle, which was not negligent, discovers the forgeries and asks First National to re-credit its account. Who suffers the loss on each check?

Explanation / Answer

First national will suffer the loss of the amount on the blank of the check unless it can recover from happy. friendly will suffer a loss on the amount on the check with the forged indorsement of GSC unless friendly too can recover from hoppy. when the signature of a drawer is forged, the drawer has not been negligent, and the drawee bank pays the check over the forged signature, or from any party who does not take the check in good faith and for value, or who changes his or her position in reliance on payment or acceptance. here regarding the blank check, eagle the drawer was not negligent. its signature was forged and first national ,the drawee bank , paid the check over the forged signature. first national has right to recover from hoppy, but in most cases actual recovery from a thief is a remote possibility. because friendly took the check in good faith and for value. first national does not have right to recover the amount of check from friendly. A bank that pays a customer check bearing forged indorsement must recredit the customer amount. the forged indorsement doesnot transfer the title ,however and so whoever take checks with a forged indorsement cannot become a holder and will likely suffer loss on the check. In this problem, first national must recredit eagles account, but first national recover the amount from friendly, who did not acquire title to the check, and thus didnot become holder. friendly has right to recover from hoppy. but again actual recovery is unlikely.

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