Johnson And Sawyer Case Summary

Problem 143

The issue is whether Johnson was discharged by the alteration of the check and what reply should the bank’s attorney make.

UCC §§3-115, 3-407, 3-406, and 4-401(d), addressed the alteration of instruments, whether an instrument is properly payable, the issue of discharge, negligence of an altered instrument and the good faith rule. It also addressed which party is liable when an instrument is altered and when is the bank is responsible to re-credit an account. Specifically, for this issue, I will use UCC §4-401 (d):
A bank that in good faith makes payment to a holder may charge the indicated account of its customer according to:
(1) the original terms of the altered item; or
(2) the terms of the completed item, even though the bank knows the item has been completed un- less the bank has notice that the completion was improper.

Here, we see in the facts that George Johnson intended to make the check payable to Marmaduke Brown but could not remember to spell his name. Johnson, then just signed the check himself and forgot to sign Brown’s name to the check, which was then stolen and made out to Cash for $150. Johnson then argues that the check is altered and he is discharged, therefore, the bank should re-credit his account. According to UCC

the bank has the right to clear the check to whoever he is the holder of the instrument at that time. The bank was still acting in good faith when they cleared the check because it can charge the indicated account according to the original terms of the altered item. Johnson wrote and signed the check, but didn’t specify that it was made out to Brown. Although, an alternation occurred when the check was change made to “cash” the bank is not liable to re-credit the account because it was acting in good faith when the check was