Unauthorized Indorsements. Jerome Simon was the administrator of ...

[dmcintosh]

Unauthorized Indorsements. Jerome Simon was the administrator of the Retail Shoe Health Commission, a jointly administered employee welfare fund (the Fund). Simon, who was an authorized signatory to the Fund's checking account at Manufacturers Hanover Trust Company, over a period of eight years embezzled approximately 675,000 from the Fund by preparing duplicate vouchers and signing checks payable to fictitious payees for medical benefit claims submitted by the Fund's beneficiaries. Simon then indorsed the fictitious payees' names on the backs of the checks and deposited the checks primarily into a bank account at Bankers Trust Company. Simon's scheme was not discovered until after his death, when various discrepancies in check vouchers surfaced. After discovering the embezzlement, the Fund's insurer sued Manufacturers Hanover and Bankers Trust to recover the full amount of the checks on the ground of forged indorsements. Are the banks liable to the Fund for the disputed checks? Explain.

Question 2

Employee handbooks usually do which of the following?
 a. discuss grounds for discipline and dismissal
  b. communicate company policies and procedures
  c. eliminate liability for employers for any on-the-job injuries
  d. discuss grounds for discipline and dismissal and communicate company policies and procedures
  e. discuss grounds for discipline and dismissal and communicate company policies and procedures and eliminate liability for employers for any on-the-job injuries

[raili21]

Answer to Question 1

Unauthorized indorsements
The trial court denied the banks' motion for summary judgment, and the banks appealed. The appellate court reversed the lower court's ruling. Summary judgment for the banks was appropriate because the unauthorized indorsements fell under the fictitious payee rule of UCC 3-405 and hence the banks were not liable. The court noted that the principle underlying the fictitious payee rule rests on a fundamental public policy determination that losses arising from unauthorized checks payable to fictitious payees are more business risks than banking risks. As a general rule, the employerin this case, the Fundis in a better position to prevent such forgeries by reasonable care in the selection and supervision of its employees. Furthermore, employers often obtain insurance (called fidelity insurance) to cover losses sustained as a result of the malfeasance (wrongdoing) of employees entrusted with the handling of funds. The court said, the Fund admits that Simon was its administrator and, in such capacity, prepared duplicate claims vouchers and supplied the Fund with the names of the payees of the checks intending that such payees have no interest in them. Thus, Simon's endorsements of those checks in the names of the payees were effective,' and appellant banks have no liability to the Fund. Recovery by the Fund against the banks is barred by U.C.C. Section 3-405(1)(c), known as the fictitious payee or padded payroll rule. (This case was decided under the unrevised Article 3, but the result would likely by the same under the revised Article 3.)

Answer to Question 2

d

[dmcintosh]

Excellent

[jackie]

Gracias!