Question 5:

This Question has two parts (a and b)and you must answer both of them fully and separately.

Bob Bookeeper is an employee of Drenched Raincoat Company (DRC). Bob has authority to sign checks and indorse checks on behalf of DRC.

a. Bob needs to pay Acme Button Company $1000. Bob writes a check to "cash" and signs it but accidentally writes out "One Hundred Dollars" in words even though he puts the proper number "$1000" on the check. Before delivering the check, Bob finds out that Acme breached the contract so he decides he will not pay them and puts a stop payment on the check. However, the check is stolen by Theron Thief (and Bob was not negligent) who then gives it to his landlord, Larry Landlord, who Theron already owes $1000. Larry has no idea of the theft or any claims on the check. Larry then gives the check to Gary Graduate, his nephew, as a graduation gift. When the check bounces, Gary makes a claim against DRC for $1000. DRC responds that Gary cannot collect on the check since it was stolen and Acme breached the contract for which the payment was made.

Can Gary collect on the check. Why or why not?

If so, how much can he collect?

b. Bob is angry at DRC since his annual bonus was too small. Bob decides to get even by creating an employee, Steven Even. Bob writes a check to Steven, signs it and then Bob indorses it with Steven's name. He deposits it an account he has opened in Steven Even's name and the check clears. DRC finds out and wants to hold the bank liable for paying the check when there was a forged indorsement.

Must the bank pay DRC back, why or why not?