Clyde issues a check payable to Discount Mart. Elle, Discount's cashier, forges the store's indorsement and deposits the check in her bank ac?count. Clyde's bank, First State Bank, pays the check. Clyde can recover from
A) Elle, but not First State Bank.
B) First State Bank, which cannot recover from Elle.
C) First State Bank, which can recover from Elle.
D) no one.

Question

Quizplus · Accepted Answer

When Elle forged the indorsement, she committed a fraudulent act and is liable for the damages caused. However, since Clyde's bank, First State Bank, paid the check in good faith and without any reason to suspect fraud, they are protected under the Uniform Commercial Code (UCC) and are not liable. However, First State Bank can still recover the money from Elle, who committed the fraudulent act. Therefore, Clyde can recover from both Elle and possibly First State Bank through their right to subrogation, but only if First State Bank is able to recover the money from Elle.

Clyde Issues a Check Payable to Discount Mart