From the 1960s, James Johnson served as Bradley Union’s personal caretaker and assistant, and was authorized by Union to handle his banking transactions. Louise Johnson, James’s wife, wrote checks on Union’s checking account to pay his bills, normally signing the checks “Brad Union.” Branch Banking & Trust Co. (BB&T) managed Union’s account. In December 2000, on the basis of Union’s deteriorating mental and physical condition, a North Carolina state court declared him incompetent. Douglas Maxwell was appointed as Union’s guardian. Maxwell “froze” Union’s checking account and asked BB&T for copies of the canceled checks, which were provided by July 2001. Maxwell believed that Union’s signature on the checks had been forged. In August 2002, Maxwell contacted BB&T, which refused to recredit Union’s account. Maxwell filed a suit on Union’s behalf in a North Carolina state court against BB&T.

(a) Before Maxwell’s appointment, BB&T sent monthly statements and canceled checks to Union, and Johnson reviewed them, but no unauthorized signatures were ever reported. On whom can liability be imposed in the case of a forged drawer’s signature on a check? What are the limits set by Section 4–406(f) of the Uniform Commercial Code? Should Johnson’s position, Union’s incompetence, or Maxwell’s appointment affect the application of these principles? Explain.

(b) Why was this suit brought against BB&T? Is BB&T liable? If not, who is? Why? Regardless of any violations of the law, did anyone act unethically in this case? If so, who and why?