Lavinia Lane received a check from Wilmore Enterprises, Inc.,

Lavinia Lane received a check from Wilmore Enterprises, Inc.,

June 7, 2022

Lavinia Lane received a check from Wilmore Enterprises, Inc., drawn on the Citizens Bank of Erehwon, in the sum of $10,000. Mrs. Lane indorsed the check “Mrs. Lavinia Lane for deposit only, Account of Lavinia Lane” and placed it in a “Bank by Mail” envelope addressed to the First National Bank of Emanon, where she maintained a checking account. She then placed the envelope over a tier of mailboxes in her apartment building along with other letters to be picked up by the postal carrier the next day. Flora Fain stole the check, went to the Bank of Omaha, where Mrs. Lane was unknown, represented herself to be Lavinia Lane, and cashed the check. Has Bank of Omaha taken the check by negotiation? Why or why not?

Answer and ExplanationSolution by a verified expert

As per section 3-206, it is the due responsibility of the depository bank to confirm that the restrictive indorsement on checks is fulfilled. Individual L has restricted the future negotiability of the check by mentioning "deposit only" on the check. The stolen check was not a bearer check whose entitlement can vary, and Bank O had cashed the check on false representation of Individual L to a fraud. This can be considered a fault on the part of the bank that did not try to cross verify the real holder of the check. As the bank had dishonored the restrictive indorsement of Individual L, the bank cannot become the holder of the check.

Verified Answer
There is a lack of negotiation that must have been done by Bank O as Individual L has restricted the negotiable instrument by restrictive indorsement, but Bank O unknowingly dishonored the restrictions of Individual L.

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