Who must bear the loss on the raised check
Course:- Business Law and Ethics
Reference No.:- EM131389208

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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?

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?

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