Question

Case Problem Analysis: Mid-Pacific Tennis Courts (MPTC), a small family-held corporation, hired Leroy Jacob as a salesperson. Jacob devised a scheme to defraud MPTC. Using MPTC customer leads, Jacob entered into contracts with potential customers to build tennis courts without informing MPTC. Jacob accepted checks from potential customers made payable to MPTC. Jacob then deposited those checks in his personal bank account with Peoples Bank & Trust Co. (Peoples Bank) without indorsement or permission by MPTC. Jacob took the money and disappeared. When MPTC learned of the fraud and discovered that the checks were accepted for deposit by Peoples Bank in Jacob’s personal account, MPTC sued Peoples Bank to recover the amount of the checks in question. Did Peoples Bank properly accept the checks for deposit?

Identifying the Facts and Issues

The Uniform commercial Code (UCC) has the following requirements for instrument to be negotiable: the instrument must be in writing, the instrument must be payable to order of or to the bearer, the instrument must include an unconditional promise, the instrument must state a fixed amount of money, the instrument must be payable on demand, and ______. A transfer of an order instrument requires the ______ of the payee. An indorsement is a _____ which is typically placed _____. Generally, the purpose of an indorsement on an instrument is to ______. The checks deposited by Jacob _____ indorsed by MPTC. Therefore, Peoples Bank ____ accepted the checks for deposit.

What If the Facts Were Different?

Assume that Jacob convinced the potential customers to write checks out to him personally, rather than MPTC. Jacob then signed the checks and deposited them with Peoples Bank. Peoples Bank had no notice of the fraud.

In this case, _____ is the drawer, and _____ is the payee.

MPTC’s name ____ appear on the check. The checks _____ negotiable. Therefore, Peoples Bank ____ accepted the checks for deposit.

Answer 1

The Uniform Commercial Code (UCC) requires certain criteria for an instrument to be negotiable, including being signed by the maker or drawer and having a fixed amount of money. The checks deposited by Jacob were not properly accepted by Peoples Bank because they were not endorsed by MPTC.

Step-by-step explanation:

The Uniform Commercial Code (UCC) has several requirements for an instrument to be negotiable, including that it must be in writing, payable to the order of or to the bearer, include an unconditional promise, state a fixed amount of money, be payable on demand, and be signed by the maker or drawer. A transfer of an order instrument requires the endorsement of the payee. An endorsement is a signature, which is typically placed on the back of the instrument. The purpose of an endorsement is to transfer the rights of the instrument to another party. In this case, the checks deposited by Jacob were not endorsed by MPTC. Therefore, Peoples Bank did not properly accept the checks for deposit.

If the facts were different and Jacob convinced potential customers to write checks out to him personally, rather than MPTC, and then signed and deposited them with Peoples Bank, then Jacob would be the drawer and himself the payee. MPTC’s name would not appear on the check and the checks would not be negotiable. Therefore, Peoples Bank would have properly accepted the checks for deposit because they did not have notice of the fraud.