Case Study for Shearson Lehman Brothers vs. Wasatch Bank

Notwithstanding the absence of an account in the name of the payee, ERP accepted the check for deposit at Shearers.

Matthews suggested that a substitute check be correctly drawn and submitted for deposit from Shearers. ERP responded by assuring Matthews that he would personally guarantee that the check was credited to the appropriate account. However, rather than depositing the check into on of the authorized Workforce accounts, ERP opened a new account at Shearers in the name of ABA investments. ERP apparently forged the signature of Bruce Abstain on the new account documents.

No evidence In the record suggests that Abstain or any other Workforce or Utah Softy representative authorized or subsequently deified the creation of the new account.

ERP listed as the address of records for the ABA Investment account a post office box number in Room, Utah, which was unknown to Workforce and Its principals and was different from the record address for the other there Workforce accounts. ERP would obtain the check and Indorse them In the name of ABA Investments. He took the check to Wastage Bank for deposit into his personal account for which Wastage accepted the deposit.

Shearers brought suit against Wastage. Wastage move for summary of Judgment, claiming under the “fictitious payee” rule that is was not liable.

The issue is whether or not Wastage would be liable for cashing the forged check. My answer is yes they should. The court must grant Wash’s motion for summary judgment if, based upon the pleadings, affidavits, depositions and other evidence heretofore presented, thee Is no genuine Issue as to any material fact and moving party is entitled to judgment as a matter of law.

This case was first trialed in the District Court in Utah. The “fictitious payee” defense as articulated in section 3-405(1)(c) of the uniform Commercial Code operates under the facts of the present case to shield the electing bank, Wastage, from allowably resulting from Orb’s misconduct while In Shoehorn’s employ.

ERP deliberately induced the issuance of checks by Shearers. The payee named on those checks was never intended by ERP to take an interest in the checks.

In such circumstances the mandate of the Code Is clear ? the drawer shall bear the loss resulting from the misdeeds of Its employee. Wash’s conduct In the relevant transactions raises serious questions about whether the bank discharged its 1 OFF auto to act In a commercially reasonable manner. Nevertheless, no Tact NAS Eden alleged which would support the inference that Wastage acted in bad faith so as to preclude the operation of the fictitious payee defense.

Moreover, the defense is viable against Shearers whether Shearers stands in the position of the drawer of the checks or the payee. Finally, the defense is an absolute defense to both the statutory and common law causes of action alleged in the complaint. The court need not address the other grounds for Wash’s motion and summary Judgment is hereby GRANTED in favor of Wastage and all counts of Shoehorn’s complaint are hereby dismissed with prejudice.