SW Legal studies in Business

Payee Owed No Special Duty to Drawer of Forged Check
Description Appeals court affirmed that a payee of a check that contained the forged signature of the boss of the employee who forged the signature, was an innocent recipient of the forged instrument and does not have to repay the funds to the drawer.
Topic Negotiable Instruments/Commercial Paper
Key Words Forgery; Conversion; Negligence
C A S E   S U M M A R Y
Facts For three years a secretary and a bookkeeper conspired to defraud their employer, Simmons, a lawyer, of funds he kept in various account. His signature was forged on numerous checks drawn without his knowledge. One check, for $13,000, was payable to Lennon, who sold a vehicle to the secretary and received the forged check in payment for the vehicle. This check was written and cashed more than a year before Simmons discovered the fraud. According to Simmons, Lennon knew, or should have known that the check was forged when he accepted it and sued to recover the $13,000. Lennon had once been romantically involved with the secretary, who had cheated him out of money, so he should have been on notice of her behavior and suspected the fraud. The trial judge granted summary judgment in favor of payee Lennon. Simmons appealed.
Decision Affirmed. The drawer, Simmons, was not entitled to recover against the payee. Under UCC § 3-419 the drawer may not sue the payee for conversion of the check paid on the drawer's forged signature. Similarly, under common law, the drawer could not successfully sue the payee for conversion of the check. The payee owed no duty to warn the drawer of his employee's history of forgery; there was no contractual privity between the parties. Lennon accepted the check in good faith and properly endorsed it to cash it. The UCC was redrafted after this incident occurred and § 3-420 was added concerning conversion, but it would not change the outcome of the case.
Citation Simmons v. Lennon, - A.2d - (2001 WL 611445, Ct. App., Mary., 2001)

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