Liability on Negotiable Instruments

Woods, Johnson and Smith hired a bookkeeper, Janie Johnson, and gave her general authority to issue company checks drawn on Bank of America so that Johnson can pay employees’ wages and other company bills. Johnson decides to cheat her employers out of $7,500 by issuing a check payable to the Bayfood Distributors, one of the suppliers of seafood and fresh local produce. Johnson does not intend for Bayfood to receive any of the money, nor is Bayfood entitled to the payment. Johnson indorses the check in Bayfood’s name and deposits the check in an account that she opened in Wells Fargo Bank in the name “Bayfood Dist. Co.” Wells Fargo accepts the check and collects payment from the drawee bank, Bank of America. America charges [Name of Restaurant] account $7,500. Johnson transfers $7,500 out of the Bayfood account and closes it. [Name of Restaurant] discovers the fraud and demands that their account be re-credited.

-Evaluate which party bears the loss.