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

Exercise 2

Wal-Mart issued a check on a Wachovia Bank account payable to Alcon laboratories Inc. (Alcon) for $563,288.95 and mailed the check to Alcon. A week later, Pit Foo Wong deposited the check in his account at Asia Bank in Flushing, New York. The payee had been altered from "Alcon Laboratories Inc." to "Pit Foo Wong." Asia Bank presented the check to the Federal Reserve Bank (FRB) of New York, which then presented the check to the FRB in Richmond, which presented the check to Wachovia, and Wachovia paid it Although Asia Bank allowed Wong to deposit the check, it was suspicious and put a hold on the funds. Wong's account had a balance of $108.55, and its highest balance was $8 652.55. The next day, an Asia Bank employee called Wachovia and was told the check was "good," and Wachovia had already issued payment. Asia Bank continued to hold the funds Alcon found out the check had been paid, but it had not received it. Alcon phoned Wal-Mart and was told that Wal-Mart's policy was to wait thirty days before tracing missing checks. Nine days later, Wong tried to wire a large portion of the funds to accounts in Malaysia by submitting five separate wire transfer applications to five different tellers. Because of this unusual behavior. Asia Bank contacted Wachovia again and was told the check had been paid. Asia Bank called Wal-Mart, and a Wal-Mart customer service representative could not confirm that Wong was the proper payee The Wal-Mart representative did not notify any superiors of Asia Bank's inquiry Asia Bank released the funds, and Wong made the wire transfers to Malaysia. When Wal-Mart discovered that the Alcon check had been altered, it notified Wachovia, wh.ch sought reimbursement from Asia Bank. Asia Bank refused, so Wachovia sued the FRB for breach of presentment and transfer warranties. Was the FRB liable?