South-Western Legal Studies in Business

Bank Liable for Accepting Embezzled Checks
Description Appeals court held a bank liable for losses suffered by a small business when an employee of the business stole checks made out to the business and deposited them in her personal account. The bank failed to follow proper procedure.
Topic Negotiable Instruments/Commercial Paper
Key Words Checks, Embezzlement, Negligence
C A S E   S U M M A R Y
Facts LaCombe practiced optometry as a sole proprietorship, LaCombe Eye Center. Slyfield worked for him at front desk, but was not involved in bookkeeping. Over a four-year period, Slyfield embezzled checks made out to LaCombe by patients, forged his signature, wrote her account number on it, and put the checks in her account at Bank One. LaCombe did not have an account at that bank. This worked for over 500 checks totaling $70,000 until discovered. LaCombe sued Bank One for negligence for accepting the forged checks for deposit and negotiation. The district court held for LaCombe. The bank appealed.

Affirmed. The bank was negligent in accepting checks made out to LaCombe with forged endorsements for deposit in the account of another person. The bank failed to follow its own procedures in depositing checks made out to a business in an account other than the businessís name. At some point, the bank should have noticed that the checks Slyfield was depositing were not to her. The cost to LaCombe, as a small business, to avoid such embezzlement, would have been far higher than to the bank, which has specific procedures that are supposed to be followed when checks made out to a business are deposited.

Citation LaCombe v. Bank One Corp., ---So.2d--- (2007 WL 675843, Ct. App., La., 2007)

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