Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

Exercise 4

Stephens delivered 184 bushels of corn to Aubrey, for which he was to receive $478.23. Aubrey issued a check with $478.23 typewritten in numbers, and on the line customarily used to express the amount in words appeared ''$100478 and 23 cts'' imprinted in red with a check-writing machine. Before Stephens cashed the check, someone crudely typed ''100'' in front of the typewritten $478.23. When Stephens presented this check to the State Bank of Salem, Anderson, the manager, questioned Stephens. Anderson knew that Stephens had just declared bankruptcy and was not accustomed to making such large deposits. Stephens told Anderson he had bought and sold a large quantity of corn at a great profit. Anderson accepted the explanation and applied the monies to nine promissory notes, an installment payment, and accrued interest owed by Stephens. Stephens also received $2,000 in cash, with the balance deposited in his checking account.
Later that day, Anderson reexamined the check and discovered the suspicious appearance of the typewriting. He then contacted Aubrey, who said a check in that amount was suspicious, whereupon Anderson froze the transaction. When Aubrey stopped payment on the check, the bank sustained a $28,193.91 loss because Stephens could not be located. The bank then sued Aubrey for the loss. Explain who should bear the loss.