Question

Steve issues a 30-day negotiable promissory note, payable to the order of Henry, to cover the cost of Henry buying a car for Steve's racing operation. Steve signed the note, but the amount on the note is left blank. Henry has clear instructions that he is not to spend over $5,000 on the car. Tired of being Steve's lackey, Henry fills out the note for $10,000 and sells it to First Auto Bank for $9,500. The bank has no knowledge that the amount on the note was originally left blank or that the amount of the note was to be capped at $5,000. Thirty days later, the bank comes to Steve wanting $10,000. As the bank manager, what is your argument to Steve to collect on the note.

Answer 1

Answer:

As the bank manager, Steve should be informed that the promissory note met all conditions and the case cannot be seen in the same light as a fraud case because the bank had no reasons to suspect any kind of fraudulent activity as everything was filled correctly and no sign of tampering on the note, it was a genuine and verified promissory note. Aside from the amount and signature, there was nothing in the note to show the agreement that both Steve and Henry had, which is not going above $5,000.

So the bank has the right to collect all its money from Steve, it is a form of negligence on the part of Steve to leave the amount blank which Henry took advantage of.

Although Steve could sue Henry for going above the amount they both agreed on.