McCarthy, a holder in due course, presented a check to the First National Bank, the drawee bank named on the face of the instrument. The signature of the drawer, Williams, was forged by Nash who took the check from the bottom of Williams' checkbook along with a cancelled check in the course of burglarizing Williams' apartment. The bank examined the signature of the drawer carefully, but the signature was such an artful forgery of the drawer's signature that only a handwriting expert could have detected a difference. The bank therefore paid the check. The check was promptly returned to Williams, but he did not discover the forgery until thirteen months after the check was returned to him.

Required:

Answer the following, setting forth reasons for any conclusions stated.

1. Williams seeks to compel the bank to credit his account for the loss. Will he prevail?

2. The facts are the same as above, but you are to assume that the bank discovered the forgery before returning the check to Williams and credited his account. Can the bank in turn collect from McCarthy the $1,000 paid to McCarthy?

3. Would your answers to 1 and 2 above be modified if the forged signature was that of the payee or an endorser rather than the signature of the drawer?