Question

Mrs. Gordon Neely hired Louise Bradshaw as the bookkeeper for a Midas Muffler shop they owned and operated as a corporation, J. Gordon Neely Enterprises, Inc. (Neely). Bradshaw's duties included preparing company checks for Mrs. Neely's signature and reconciling the checking account when the company received a bank statement and canceled checks each month. Bradshaw prepared several checks payable to herself and containing a large space to the left of the amount written on the designated line. When Mrs. Neely signed the checks, she was aware of the large gaps. Subsequently, Bradshaw altered the checks by adding a digit or two to the left of the original amount and then cashed them at American National Bank, the drawee bank. Several months later, Neely's hired a new accountant, who discovered the altered checks. Neely brought suit against American National Bank to have its account recredited for the altered checks, claiming American was liable for paying out on altered instruments. The bank contended that Neely's negligence substantially contributed to alterations of the instruments and thus Neely was precluded from asserting the alteration against the bank. Between Neely and American National Bank, who should bear the loss caused by Bradshaw's fraud?



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  • CreatedJuly 16, 2014
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