Wilson was employed as the office manager of Palmer & Ray Dental Supply of Abilene, Inc.

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Wilson was employed as the office manager of Palmer & Ray Dental Supply of Abilene, Inc.

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Wilson was employed as the office manager of Palmer & Ray Dental Supply of Abilene, Inc. Soon after an auditor discovered a discrepancy in the company’s inventory, Wilson confessed to cashing thirty-five checks that she was supposed to deposit on behalf of the company. Palmer & Ray Dental Supply used a rubber stamp to indorse checks. The stamp listed the company’s name and address but did not read “for deposit only.” The company’s president, James Ray, authorized Wilson to indorse checks with this stamp. Wilson cashed all of the checks at First National Bank.
 
a. What are the arguments that First National Bank is liable to Palmer & Ray Dental Supply for converting the company’s funds by giving Wilson cash instead of depositing the checks into the company’s bank account?

Wilson was employed as the office manager of Palmer & Ray Dental Supply of Abilene, Inc. Soon after an auditor discovered a discrepancy in the company’s inventory, Wilson confessed to cashing thirty-five checks that she was supposed to deposit on behalf of the company. Palmer & Ray Dental Supply used a rubber stamp to indorse checks. The stamp listed the company’s name and address but did not read “for deposit only.” The company’s president, James Ray, authorized Wilson to indorse checks with this stamp. Wilson cashed all of the checks at First National Bank.
 
b. What are the arguments that First National Bank is not liable to Palmer & Ray Dental Supply?

Wilson was employed as the office manager of Palmer & Ray Dental Supply of Abilene, Inc. Soon after an auditor discovered a discrepancy in the company’s inventory, Wilson confessed to cashing thirty-five checks that she was supposed to deposit on behalf of the company. Palmer & Ray Dental Supply used a rubber stamp to indorse checks. The stamp listed the company’s name and address but did not read “for deposit only.” The company’s president, James Ray, authorized Wilson to indorse checks with this stamp. Wilson cashed all of the checks at First National Bank.
 
c. Explain who should prevail.

Explanation & AnswerSolution by a verified expert

Explanation

Organization PRDS gave Individual W the authority to only to deposit the checks and not to cash them. Organization FNB allowed Individual W to cash the checks, thinking that Individual W was authorized to do so. Organization PRDS can argue that Organization FNB should not have allowed Individual W to cash in the checks since it was not officially authorized by Organization PRDS. Organization PRDS can argue that the indorsements were unauthorized and Organization FNB did not have the right to convert them to cash. If Organization FNB did not allow the Individual W to convert the checks into cash, such an argument would not have arisen.

Sample Response

Organization FNB is going to be liable to the argument that the indorsements were not authorized by Organization PRDS. And this is why, the indorsements should not have been accepted and converted into cash by Organization FNB.

Explanation

Organization PRDS is going to accuse Organization FNB by saying that the indorsements were unauthorized. Organization FNB can argue that the indorsements did not have any for-deposit-only markings on them, making them free to be converted into cash. The official stamp of Organization PRDS makes the indorsements authorized.

Sample Response

Organization FNB is not liable to the argument that the indorsements are not authorized since all the indorsements had the official seal on them, which makes them authorized.

Explanation

The indorsement produced by Individual W was a blank indorsement with no specifications, such as deposit only, when compared to a restrictive indorsement. The official stamp only had the name and address of the organization, imposing no more limitations on the recipient. Individual W was performing under the apparent authority given by Individual R, who is the president of Organization PRDS. Organization FNB had no reason to doubt the actions of Individual W. If the stamp mentioned deposit only and Organization FNB still allowed Individual W to cash in the checks, only then would Organization FNB be responsible to Organization PRDS.

Sample Response

Organization FNB is going to win the case since it was working under the guidelines mentioned in the indorsement, which was a blank one. If it was a restrictive one saying deposit only, Organization FNB would not have allowed Individual W to cash it in.

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