Part 1 – Dishonored Checks
The restaurant provides catering services to local businesses. Corporate clients paid by check or electronic transfers. A new customer paid for a catering order with a check for $575, made payable to [Restaurant Name]. Woods took the check to the bank the next afternoon and was informed that the customer’s bank issued a stop payment on the check.
-Evaluate the restaurant’s options related to the stop payment on the customer’s check and the potential liability of the customer and customer’s bank.
Part 2 - Liability on Negotiable Instruments
Woods, Johnson and Smith hired a bookkeeper, Janie Johnson, and gave her general authority to issue company checks drawn on Bank of America so that Johnson can pay employees’ wages and other company bills. Johnson decides to cheat her employers out of $7,500 by issuing a check payable to the Bayfood Distributors, one of the suppliers of seafood and fresh local produce. Johnson does not intend for Bayfood to receive any of the money, nor is Bayfood entitled to the payment. Johnson indorses the check in Bayfood’s name and deposits the check in an account that she opened in Wells Fargo Bank in the name “Bayfood Dist. Co.” Wells Fargo accepts the check and collects payment from the drawee bank, Bank of America. America charges [Name of Restaurant] account $7,500. Johnson transfers $7,500 out of the Bayfood account and closes it. [Name of Restaurant] discovers the fraud and demands that their account be re-credited.
-Evaluate which party bears the loss.