Tanika has a checking account at First Bank.Orrin steals one of her blank checks,writes a check for $250 to himself,and then forges Tanika's signature.Orrin then indorses the instrument to Paul in payment of a debt.Paul presents the instrument to First Bank for payment.At First Bank's request,Paul indorses the instrument,and the bank then pays him $250.Which of the following is correct?
A) Paul has no contractual liability on the instrument.
B) Orrin has no contractual liability on the instrument.
C) Tanika has no contractual liability on the instrument.
D) Paul,Orrin and Tanika all have contractual liability on the instrument.

Question

Quizplus · Accepted Answer

Tanika is the only innocent party in this scenario and therefore has no contractual liability on the instrument. Orrin is criminally liable for stealing Tanika's check and forging her signature, and Paul would be liable if he had knowledge or reason to suspect that the check was stolen or forged, but not if he was an innocent third party. Since Tanika did not have any knowledge or involvement in the fraudulent activity, she cannot be held legally responsible for any contractual liability.

Tanika Has a Checking Account at First Bank