Cengage Advantage Books: Law for Business 18th Edition by John Ashcroft ,Janet Ashcroft

Exercise 9

When Mark Shannahan refinanced his home, First Equity conducted the settlement and issued checks to pay off the refinanced mortgage and a second lien. It gave Shannahan a check for $87,764, payable to him, which was his "cash out" from the refinance, as well as a check payable to Farmers Bank in the amount of $40,760, drawn on First Equity's account at Allfirst. The check payable to Farmers was to pay off Shannahan's line of credit secured by a lien on the home. Shannahan went to Farmers check with his signature in and attempted to deposit it in his account. The letter took the check to the bank manager, who saw that the check was payable to Farners, and called Shannahan into his office. The manger allowed Shannahan to deposit and Farmers check in his account. Later, Farmers tries to foreclose on Shannahan's home because the $40,760 line of credit balance was delinquent. First Equity then found out Farmers had not applied the $40,760 check against the unpaid note. First Equity notified Allfirst and asked it to recredit its account. Allfirst refused. In addition to Shannahan's indorsement, two stamped indorsements of Farmer Bank were on the back of the check. First Equity sued Farmers Bank and Allfirst. Who had negotiated the $40,760 check?