Legal Problem 1: Desert Builders Inc. performs construction work at job sites throughout southwestern United States. Every Wednesday, the foremen at each jobsite telephoned Carla and gave her the names of the employees working on the job and the number of hours they had worked. Carla then conveyed this information to Automatic Data Processing (ADP). Under a contract with Desert Builders Inc., ADP prepared payroll checks for the company. After preparing the payroll checks based on the information given to it by Carla, ADP sent the checks to the offices of Desert Builders Inc. for authorized signatures. Carla was not an unauthorized signer. After the checks were signed, Carla sent the checks to the jobsite foreman to deliver to the employees.

Carla soon began conveying false information and hours worked. On the basis of this false information, ADP prepared payroll checks payable to persons who were actually employees but had not worked the number of hours Carla had indicated. After obtaining authorized signatures, Carla intercepted the checks, forged the endorsements of the payees, and either cashed them at Community Bank or deposited them into her own checking account at Community Bank, often presenting numerous checks at one time. Carla continued this practice for over a year, forging more than 100 endorsements.

The vice president of Desert Builders Inc. discovered the embezzlement after noticing payroll checks payable to employees who had not recently performed services for the corporations. Carla later admitted to forging the endorsements. Can Desert Builders Inc. recover against the bank for paying on checks with forged endorsements? Why or why not?

Legal Problem 2: Phil, an officer of ITI, drew six postdated checks on ITI's account. The checks were payable to Marketing International (Marketing) for marketing services to be subsequently performed for ITI. Financial Associates (Financial) purchased the checks from Marketing and collected funds on four of the checks. Payment was stopped in the last two when Marketing's services were terminated. Financial argued that it was a holder in due course and had the right to collect on the checks. ITI claimed that because the checks were postdated and issued for an executory promise, Financial could not be a holder in due course.

Who was correct? Why?