Shearson discovered Erb’s activities after Erb had left Shearson after two years. Shearson brought a suit against Wasatch Bank. Discuss who should prevail.
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Stanley A. Erb became a vice president of the Shearson Lehman Brothers, Inc., branch office in Provo, Utah. That year, Erb was contacted by McKay Matthews, the controller for the Orem, Utah-based WordPerfect Corporation and its sister corporation, Utah Softcopy. At Matthews’s request, Erb established and managed three separate investment accounts at Shearson. The accounts were for the benefit of the WordPerfect and Utah Softcopy corporations, and one account was for the WordPerfect principals, Allen Ashton, Bruce Bastian, and Willard Peterson. In March of that year, Erb personally accepted from Matthews a check drawn by Utah Softcopy for $460,150.23 and payable to the order of “ABP Investments.” At that time, there was no ABP investment account at Shearson, although the WordPerfect principals maintained accounts elsewhere in that name. Erb accepted the check, but rather than deposit it in one of the three authorized accounts, Erb opened a new account at Shearson in the name of “ABP Investments,” apparently by forging the signature of Bruce Bastian on the new account documents. Over the next eleven months, Erb induced Shearson to draft thirty-seven checks on the ABP Investment account, payable to ABP Investments, by submitting falsified payment requests to Shearson’s cashier. The checks were mailed to an Orem post office box unknown to WordPerfect and its principals. Erb would obtain the checks and indorse them in the name of ABP Investments. He took the checks to Wasatch Bank for deposit into his personal account. Wasatch accepted the deposits and later allowed Erb to withdraw $504,295.30, the entire amount, from the account. Shearson discovered Erb’s activities after Erb had left Shearson after two years. Shearson brought a suit against Wasatch Bank. Discuss who should prevail. |
Explanation
Individual E forged the signature of Individual BB and created an account. Individual W also issued checks with Individual BB as the payee. As Individual BB was not aware of such a situation and was not interested in the checks, Organization WB can get off the case on the grounds of a fictitious payee. Organization SLB would be liable here since Individual E was an employee of the organization while doing all such activities. There is also no evidence to support the argument that Organization WB acted in bad faith. If Individual BB was interested or was aware of the checks, then Organization WB would have also been proven to have acted in an illegal manner and Organization SLB would have won the case.
Verified Answer
Organization WB would prevail on the grounds of the fictitious payee defense. Individual E had Individual BB, who is one of the principals of Organization WP and has no interest in the checks, be the payee of the checks. If Individual BB also knew of the checks and had interest in them, then Organization WB would also have been liable.
