Banking Problems

question 72

Multiple Choice

Banking Problems.Constance and Blair are both loan officers at ABC Bank.Constance,being somewhat dishonest,tells Henry,a customer of the bank who is wealthy and rarely checks the status of outstanding loans and balances,that she is collecting money for a local animal shelter.She asks him to sign a pledge that he will contribute $50 to the animal shelter.In fact,she had him sign a promissory note made out to her for $5,000,which she later endorsed to Richard.Henry proceeds back to one of his businesses,a used car dealership.Taylor comes in to purchase a used car.He and Henry agree that Taylor will purchase a used car for $3,000.Martha also comes in,and she and Henry agree that she will purchase a used car for $4,000.Both Taylor and Martha make out promissory notes payable to Henry.At the end of the day,Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000.Henry mistakenly,but honestly,believed that the deal was for $3,500.Therefore,he changes the note to reflect that Taylor owed $3,500.Henry,on the other hand,simply did not like Martha.He decided that $4,000 was not enough for the car.Accordingly,he changed the note to $4,500.Which of the following is the most likely result if Henry refuses payment on the promissory note that was endorsed to Richard claiming that he never signed it?

• A)He will be liable,because an official banking document was involved.
• B)He will not be liable,because a party is never liable when the party signed a negotiable instrument without knowing that it is,in fact,a negotiable instrument.
• C)He will be liable without further inquiry,unless he can establish that the note had not been endorsed to a holder in due course.
• D)He can claim fraud in the factum,and whether he is liable or not will depend upon whether a court determines that he should have known what he was signing.
• E)He can claim fraud in the inducement.

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Definitions:

Compensating Balances

Minimum cash balances that a business agrees to maintain in its account as part of a loan agreement, often used to reduce the lender's risk.

Pledging Agreement

An agreement where a borrower pledges an asset as collateral to secure a loan, ensuring the lender can seize the asset if the loan defaults.

Warehousing

In finance, a method of securing the lender’s interest when borrowing is secured by inventories. The inventory is placed in a warehouse operated by a third party. When it is drawn out of the warehouse by the borrower, a pro rata share of payment on the loan is due.

Legal Control

The power or authority to direct the management and policies of a company or organization, typically through ownership of voting shares or by contract.