Sun was unaware of any of the facts surrounding the theft or forged indorsement and presented the check for payment. Central County Bank, the drawee bank, paid it. Who will bear the loss? Explain.

Sun was unaware of any of the facts surrounding the theft or forged indorsement and presented the check for payment. Central County Bank, the drawee bank, paid it. Who will bear the loss? Explain.

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Jack stole a check made out to the order of Bertha. Jack forged Bertha’s name on the back and made the instrument payable to himself. Jack then transferred the check to Sun for cash by signing his name on the back of the check in Sun’s presence. Sun was unaware of any of the facts surrounding the theft or forged indorsement and presented the check for payment. Central County Bank, the drawee bank, paid it. Who will bear the loss? Explain.

Answer and ExplanationSolution by a verified expert

Explanation

The bank can recover the amount of the cheque from Individual S as it was Individual S who was given the cheque by Individual J by forging the signature of Individual B. So, the holder in due course is Individual S,who will be held liable for the payment by the bank. However,if the bank is able to find Individual J, then Individual J will be considered to hold the liability to pay for the losses.

Verified Answer

The ultimate liability is that of Individual J if the bank can find Individual; otherwise, the bank can recover the amount from Individual S.

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