Joy steals a check from Kyle, forges his signature, and transfers the check to Loco Loans, Inc., for value. Unaware that the signature is not Kyle's, Loco Loans presents the check to Metro Bank, the drawee, which cashes the check. Kyle discovers the forgery and insists that Metro recredit his account. Can Metro refuse? If not, from whom can the bank recover?
What will be an ideal response?
Metro cannot refuse to recredit Kyle's account under the facts as stated in this problem. The general rule is that a bank must recredit a customer's account when it pays on the customer's forged signature. Thus, the bank here cannot collect from its customer. Furthermore, a bank has no right to recover from a holder who, without knowledge, cashes a check bearing a forged drawer's signature, which appears to be the circumstance in this problem. Therefore, Metro cannot collect from Loco Loans either. The bank can collect the amount of the check from the thief who forged the signature, however. The bank's best course of action is to charge Joy.
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