Problem 115: Mr.

Aristotle Wellborn was walking along the street when he

was surreptitiously relieved of his wallet by Art Dodger. In the wallet was a check
made out to Wellborn, who had already indorsed it. Suppose Wellborn indorsed in
blank.
Q: Is Dodger a holder of the check?
o Yes. The check is in bearer form, and all that is required for one to
be a holder of bearer paper is to have possession of it.
Q: Will Dodger be liable to Wellborn for conversion?
o The law applicable to conversion of personal property applies to
instruments. 3-420(a). Dodger has exercise of unauthorized
control or dominion over personal property of another, and that is
conversion. Here, even in absence of forgery, Dodger will still be
liable.
o Note: Holdership and ownership are different concepts. The thief or
finder of bearer paper is a holder, but he is not a rightful owner of
the instrument. True owner, Wellborn in this case, will be entitled to
recover in conversion, thereby indicating his ownership rights in the
check.
Problem 115
Yes. exercised dominion and control over property that wasnt theirs.
Dodger is still a holder b/c its bearer paper.
Can be a holder while not being a rightful owner.
Payable to Bearer or to Order

3-104(a)(i)what constitutes order paper

and bearer paper
3-109(a): bearer paper
3-109(b): order paper
o **an instrument payable to
ORDER is payable to an identified
person
o **an instrument payable to
BEARER is payable to anyone in
possession of that instrument
o If its not either of the above = nonnegotiable

Problem 116
Problem 116: When Portia Moot learned that the check she had given to her
landlord had been stolen from him, his name forged as payee, and the check had
been paid by her bank, she sued her bank in conversion.
Q: is she the proper P? Nob/c she was not the holder of the instrument,
she had no rights to it (she was the issuer; LL is the proper P b.c. is b/c he
was a holder b/c he had possession and it was order paper and he was
the identified payee.)
WHAT RELIEF DOES LAW GIVE HER
Q: May Moot sue her depositary bank in conversion?
o Yes. Merchants Bank committed the conversion because it took by
transfer from non-PETE. It also obtained payment on behalf of nonPETE. ONB made payment on behalf of non-PETE as well. Thus,
both banks have committed conversions.

Drawer cannot recover from them in conversion under 3-420(a)(i),

since he is the issuer of the check. An action for conversion of
instrument may not be brought by issuer of instrument.
o Rationale: Legally, drawer is not the owner of the check.
Conversion is supposed to vindicate rights of the true owner.
Drawer does not have property rights, but has an obligation. With
respect to negotiation of defenses, payees negligence might have
caused the loss.
Q: Against whom may payee recover and on what theory?
o Conversion against the forger under 3-420(a). Common law of
conversion applies with respect to negotiable instruments. Forger
has committed garden-variety conversion against payee by stealing
personal property.
o Payee may also have a claim against payor bank for conversion.
an instrument is also converted when bank makes payment on
behalf of non-PETE. 3-420(a).
o

(1) No b/c she was not a holder of the instrument; she had not rights to it
o

Portia = Issuer -- Drawer cannot recover from them in conversion

under 3-420(a)(i), since he is the issuer of the check. An action for
conversion of instrument may not be brought by issuer of
instrument.
Rationale: Legally, drawer is not the owner of the check.
Conversion is supposed to vindicate rights of the true owner.
Drawer does not have property rights, but has an obligation. With
respect to negotiation of defenses, payees negligence might have
caused the loss.

LL = proper P

(2) the landlord is b/c he was a holder b/c he had possession and it was order paper and
he was the identified payee.
o

. an instrument is also converted when bank makes payment on

behalf of non-PETE. 3-420(a).

(3) She can bring an action under 4-401(a) the properly payable rule b/c the bank did not
follow her instructions and paid on a forged instrument
(4) The collecting bank is liable; 4-420, any anyone else who handled the instrument after
the forgery/conversion occurred
o

Yes. Merchants Bank (depository bank) committed the conversion

because it took by transfer from non-PETE. It also obtained
payment on behalf of non-PETE. ONB made payment on behalf of
non-PETE as well. Thus, both banks have committed conversions.

Problem 116
o Not the proper plaintiff for a conversion claim. 3-420(a). Portia is the
issuer. Landlord is the proper plaintiff.
Portia can sue and say the check wasnt properly payable.
Payee is the one who can sue for conversion.
Problem 116
o Not the proper plaintiff for a conversion claim. 3-420(a). Portia is the
issuer. Landlord is the proper plaintiff.
Portia can sue and say the check wasnt properly payable.
Payee is the one who can sue for conversion.

Problem 117: After he won the lottery, Tim Isle decided to pay off the
mortgage on his home. He mailed a check for $80,000 to ONB, the mortgagee, but it
was stolen from the mail by an unknown person, who forged ONB on the back and
cashed the check at Sleepy Hollow State Bank, which then collected it from the
drawee bank.
Q: Since ONB, the payee, never received possession of the check, does it
have sufficient property rights therein to succeed in a conversion action
against payor, Sleepy Hollow State Bank, or the drawee?
o No, because ONB never received the check and thus never
acquired property rights in it. Action for conversion may
not be brought by payee or indorsee who did not receive
instrument either directly or through delivery to agent or
copayee. 3-420(a)(ii).
Only the person whose property rights are adversely
affected may sue for conversion
Holder = owner of instrument = is person with the property
rights therein
Problem 117
Cant sue under 3-420(a) b/c ONB never got possession/delivery of the
instrument. 3-420(a)(ii).
Tom Islecan say it wasnt PP. under 4-401(a) the properly payable
Properly payable rule: governs when the payor bank
(drawee bank) allowed to charge their customers account
bank may charge anything that is property payable
1. Authorized by the customer
2. In accordance with any agreement b/w the
customer and bank
any time forged drawee signature never
properly payable
or any time forged endorsement, issue being
properly payable
if not prop payablehave to recharge account
agreements b/w bank and customer can override
properly payable
ONBunderlying obligation (mortgage)nothing was suspended b/c it
was never received.

(2) can sue mortgagor (TIM) for outstanding underlying obligation, (TIM) mortgagor
can sue bank (ONB) for breach of properly payable rule, drawee/payor bank can sue
presenting back for breach of presentment warranty and collecting bank can sue the
wrongdoer or will have to bear the loss
a

Problem

What rationales support this result?

1 Legalistic rationale: without possession, payee
never became the owner of the check.
2 Negation of defenses: Drawers negligence
might have caused the loss.