Question

Sarah has a checking account at First Bank. Orrin steals one of her blank checks, writes a check for $250 to himself, and then forges Sarah's signature. Orrin then indorses the instrument to Paul in payment of a debt. Paul, who does not know of the forgery, presents the instrument to First Bank for payment. At First Bank's request, Paul indorses the instrument, and the bank then pays him $250. Which of the following is correct

Answer 1

Answer:

The correct answer is letter "E": Both (a) and (b) are correct.

Explanation:

Warranties on presentment state that for negotiable instruments both the issuer and the beneficiary must have full knowledge of the transaction. Besides, the issuer must sign the negotiable instrument authorizing the transaction and the document must not be altered.

In that case, Orrin is breaching the presentment warranty and if Paul knew about Sarah's signature forgery, he would be breaching the warranty as well.