Miriam issued two checks. The first check was made payable to her neighbor for a used car that the neighbor sold to Miriam. The second check was a rent payment to Miriam's landlord for the current month's rent. The car was purchased on the basis of the

neighbor's written assurance that the car had only 38,000 miles of use. After Miriam took possession of the car, Miriam's mechanic checked the vehicle and substantiated that the odometer had been turned back. The car had actually been used for 79,000 miles. Miriam stopped payment on the check and offered to return the car. Meanwhile, the neighbor had purchased a computer and had negotiated Miriam's check to the vendor in payment. Discouraged by the problems with the car, Miriam decided to take a vacation. She issued a written stop payment to her bank on the rent check because she intended to use this money for the vacation. Although the drawee bank had ample time to act, it made an error and paid the rent check instead of stopping payment. Two lawsuits resulted. In the first, the vendor of the computer sued Miriam on the check. In the second, Miriam sued her bank for paying over her timely stop payment order. Decide both cases.


Miriam loses both cases. In the first, she is liable despite her stop payment order to the vendor of the computer because the vendor would be a holder in due course and Miriam's defense(s) would be limited in nature, and not available against a holder in due course. In the second situation, although the bank made an error in failing to obey her stop payment order, the bank's error did not cause her a loss. She owed the rental payment.

Business

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