Howard Harrison, a longtime customer of Western Bank, operates a small department store, Harrison’s Store.

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Howard Harrison, a longtime customer of Western Bank, operates a small department store, Harrison’s Store.

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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?

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.
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?

Explanation & AnswerSolution by a verified expert

Explanation

The customer must inform the bank about any wrong payment or erroneous transaction within a year of receiving the bank statement otherwise the bank will not be liable for the transaction. So, Individual H must face the consequences of not informing the bank on time about the wrong payment made by the bank.

Verified Answer

Individual H will have to take the responsibility for the losses as Individual H did not bring the case of wrong payment to the notice of the bank for 13 long months.

Explanation

As per the orders of Individual H, Bank S had to inform Individual H before making any payment, which involved an amount higher than $5,000. So, before making payment of $30,000, Bank S had to inform Individual H about it, but it did not do so. Thus, Bank S is liable towards Individual H in both cases, that is, when Individual H gets to know about the transaction in one month and when Individual H gets to know about the transaction in 13 months.

Verified Answer

Bank S is responsible for the losses suffered by Individual H as it was the responsibility of Bank S to inform Individual H about any transaction that involved any payment above $5,000. The bank will be held responsible irrespective of when Individual H gets to know about the erroneous transaction.

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