## Facts

- Telemedia Publications, Inc. published *Cablecast Magazine* and received subscription checks payable to “Cablecast Magazine.”
- Telemedia hired Jennifer Pennington as a temporary employee to process subscription payments.
- Telemedia authorized Pennington to use the company endorsement stamp and to prepare incoming checks for deposit into Telemedia’s account.
- Pennington deposited certain checks payable to “Cablecast Magazine” into her personal account at Premier Bank, representing she was “Cablecast Magazine.”
- Telemedia discovered subscription revenue shortages; Pennington admitted diverting the checks.
- The parties stipulated Telemedia’s loss was $7,913.04.
- Telemedia sued Premier Bank for accepting the checks and depositing them into Pennington’s personal account.

## Issues

1. Whether U.C.C. § 3-405 (as adopted in Louisiana) shifted the loss from the depositary bank to the employer because the employee was “entrusted with responsibility” for the instruments.
2. Whether Premier Bank acted in “good faith” so as to invoke § 3-405’s loss-allocation rule.
3. Whether Telemedia proved Premier Bank failed to exercise “ordinary care,” which would permit recovery despite § 3-405.

## Decision

- The court of appeal reversed the trial court’s judgment for Telemedia and rendered judgment in favor of Premier Bank.
- Pennington was an employee “entrusted with responsibility” for the checks because she was authorized to handle incoming subscription checks and use the endorsement stamp.
- Premier Bank acted in good faith in accepting the checks for deposit.
- Telemedia did not prove Premier Bank failed to exercise ordinary care in taking the checks payable to a business for deposit into Pennington’s personal account.
- Telemedia, not the bank, bore the $7,913.04 loss under § 3-405.

## Legal Principles

- Under U.C.C. § 3-405, when an employer entrusts an employee with responsibility for instruments and the employee makes fraudulent endorsements, the employer generally bears the loss if the bank acted in good faith.
- “Entrusted with responsibility” includes authority to process checks for deposit and to apply an endorsement stamp, even for a temporary or lower-level employee.
- A bank’s ability to rely on § 3-405 may be defeated if the employer proves the bank acted in bad faith or failed to exercise ordinary care and that failure contributed to the loss.
- The employer bears the burden to prove the depositary bank’s lack of ordinary care; mere suspicion arising from depositing business-payee checks into an individual account is insufficient without proof of departure from reasonable commercial standards.

## Conclusion

Because Telemedia placed Pennington in a position to handle and endorse subscription checks and did not prove Premier Bank acted in bad faith or without ordinary care, the loss from Pennington’s fraudulent deposits was allocated to Telemedia under Louisiana’s enactment of U.C.C. § 3-405.


Cable Cast Magazine v. Premier Bank, N.A., 729 So. 2d 1165 (La. Ct. App. 1st Cir. 1999)