Porter Cable hired a bookkeeper, Gerald Smith, and gave him general authority to issue company checks drawn on First Bank so Smith could pay employees’ wages and other company bills. Smith decided to cheat his employers out of $9,500 by issuing a check payable to Timkin Bearings, one of the suppliers of bearings. Smith does not intend for Timkin to receive any of the money, nor is Timkin entitled to the payment. Smith endorses the check in Timkin’s name and deposits the check in an account that he opened in Sunny Bank in the name “Timkin Bearing Co. Sunny Bank accepts the check and collects payment from the drawee bank, First Bank. First Bank charges Porter Cable’s account $9,500. Smith transfers $9,500 out of the Timkin account and closes it. Porter Cable discovers the fraud and demands that their account be re-credited.
Evaluate the arguments for Porter Cable and the banks.
Determine which party should win and support your answer.