Question 1
According to UCC provisions under Article 3, U.C.C. § 3-406, failure by a party to exercise ordinary care contributes to the alteration of the instrument or forgery which is detrimental to the person who paid or was to collect it. The failure to exercise ordinary care by the said party leads to loss. The UCC provides that the burden of proving lack of ordinary care in the case where a person has contributed to altering an instrument or by forging a signature on the instrument against the person who in good faith takes the instrument for collection has the burden of proving lack of ordinary care as stated under sub section (c) of U.C.C. § 3-406. It also provides that the burden of proving lack of ordinary care is on the person who precluded (FindLaw, 2018). Based on these provisions, bank one had the burden of proving failure of lack of ordinary care. Auto-owners claimed the bank failed to exercise ordinary care during the registration of Wulf’s account and this led to its losses (Legal Information Institute, 2020). They claimed that if the bank had exercised ordinary care, by requesting registration documents while registering Wulf’s account, it would have prevented Auto-owners from suffering the losses as a result of Wulf depositing instruments, belonging to Auto-Owners to his account at Bank one.
Bank one had the burden of proving that it did not fail to exercise ordinary care by registering a new account for Wulf as it was not subject to any requirement of ordinary care for registering Wulf’s account. The bank had the burden of proving that it did not fail to exercise ordinary care or else if Auto-Owners proved that the bank failed in exercising ordinary are,then the bank would be responsible for the losses suffered by Auto-Owners. Under the provisions of U.C.C. § 405(b), there are no responsibilities vested on the bank to be more keen and invest more energy in ensuring the particulars of a customer while opening a new account for the said customer (Uniform Law Commission, 2018). The ordinary care is required when the bank is paying or taking an instrument but not during opening of a new account. The UCC has no such requirement but the bank normally exercises more care during opening of new accounts for their own protection and not protection of a specific customer. In this case, Auto-Owners should have exercised more care in ensuring that its employees are acting on its behalf I good faith and not in a fraudulent manner. The bank was not negligent and the employer should have monitored its employees to prevent such fraudulent activities.
Question 2
Subject to the provisions of the UCC, the Court decided that bank one did not fail to exercise ordinary care by opening a new account for Wulf. The account was opened manually and according to the provisions of UCC under § 405 the bank did not owe the employer such care. Wulf opened an account with the bank in 1991 and started depositing checks belonging to Auto-Owners from then until 1998 when he was caught. He managed his account manually hence the application of the UCC Article 4 that provides rules for bank collections and bank deposits and law for automated inter-bank collections and also processing of checks. If he operated and managed his account electronically, Article 3 provisions would be applied. U.C.C. § 3-103 subsection (9) provides that in the case where the bank takes an instrument for collection or for payment or for processing that is in automated means, there is no responsibility for the bank to examine that instrument if its failure to do so does not go against the bank’s set procedures mad these procedures do not differ with the provisions of Article 4 and are not against Article 3 (Upcounsel, n.d.). If Wulf managed his account by automated means, then the bank had the ordinary care of ensuring that failure to examine the instrument that is the checks from Wulf were not in contradiction with the banks operating procedures. The bank would have been obligated to examine the checks from Wulf if he managed his account electronically. Article 4 also provides that the bank has the responsibility of ordinary care in checking the checks it collects. This means that it would have discovered that the checks deposited in Wulf’s account were in the name of Auto-Owners an insurance company and did not match his account details which were his personal details and not those of his employer.
Question 3
U.C.C § 3-405 subsection (3) defines responsibility. In this case, Wulf was given job responsibilities by his employer and one of his responsibilities included depositing employers checks. Auto-Owners, the employer should have ensured supervision and monitoring of its employee to prevent fraudulent and activities and suffering loss. Another action it should have taken is proper book keeping and ensure that not only one employee was trusted with the responsibilities listed under Article 3. Another important step was to examine its instruments before they were sent out to be deposited and request receipts for examination after the checks have been deposited. This would have ensured that Wulf’s accounted for all the checks deposited and did not have a chance to deposit them to his personal account.
References
FindLaw. (2018). FindLaw’s Supreme Court of Indiana case and opinions. Findlaw. https://caselaw.findlaw.com/in-supreme-court/1387758.html
Legal Information Institute. (2020). § 3-405. EMPLOYER’S RESPONSIBILITY fraudulent INDORSEMENT by employee. LII / Legal Information Institute. https://www.law.cornell.edu/ucc/3/3-405
Uniform Law Commission. (2018). Uniform commercial code. https://www.uniformlaws.org/acts/ucc
Upcounsel. (n.d.). UCC section 3 | UpCounsel 2021. UpCounsel. https://www.upcounsel.com/ucc-section-3
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