Unauthorized Indorsements. While Wanda Snow was married to Cary Byron, Byron established an account with Shearson Lehman Hutton, Inc—a securities brokerage firm—for Wanda's son by a previous marriage. Wanda was designated as the account custodian

Question

After Wanda and Cary had separated but before their divorce became final, Byron wrote a letter to Shearson instructing Shearson to close the account and send the proceeds (about $44,000) to a Florida bank account. Byron forged Wanda's signature on the letter. Later, Byron called Shearson, identified himself, and asked that the proceeds be sent instead to Wanda Snow in care of Byron's cousin in Connecticut. Byron obtained the check, forged Wanda's indorsement on it, and deposited the check into his bank account, later applying the proceeds to his personal use. Wanda sued Byron, Shearson, and the bank to recover the funds. In her claim against the bank, Wanda alleged that the bank was liable for paying the check over a forged indorsement. The bank raised the "imposter rule" as a defense. Is the imposter rule applicable to these circumstances? Why or why not?

Answer 1

Unauthorized indorsements
The court concluded that the imposter rule did not apply. Wanda Snow was not the drawer of the check but a payee suing the collecting bank for acceptance of the check bearing her forged indorsement. The court stated that "where the payee of a check is suing a collecting bank, there is no policy reason for shifting the risk of loss to the payee, since as between [Snow] and Southeast, the bank was in a superior position to prevent the fraud from occurring." The court added that "[e]ven if the imposter rule were applicable, * * * there is evidence to indicate that [Snow's] former husband, Cary Byron, did not act as an imposter, within the meaning of the statute, when he instructed Shearson to close the custodial account and send the funds to a Connecticut address. Byron argued below that he acted on the instructions of the appellant when he advised Shearson to liquidate the account. Furthermore, Shearson admittedly spoke with Byron during the process, and was therefore arguably on notice that it was Byron, not appellant, the account custodian, who ordered the closing of the account. The "imposter" rule does not apply where no impersonation took place." Finally, as between Snow and the bank, "it clearly cannot be argued that Byron was acting as an imposter when he presented the check bearing [Snow's] forged signature to [the bank] for deposit, since Byron purported to be no one but himself while he deposited the proceeds of the check upon which he had forged his wife's signature in a joint account in his and appellant's name."