Reference no: EM131378991

Most of us are tempted from time to time to take shortcuts to solve our problems. Fortunately, most of us also resist that temptation. Instead, we work for what we have; we pay our bills, and we wait patiently for our next paycheck. There are times, however, when, for one or two of us, the temptation is just too great. A case in point involves the story of Lorna Lewis, a supervisor in the credit department of Getty Petroleum.

To appreciate what happened to Lewis we have to understand Getty's business. It worked something like this. Getty was in the business of distributing gasoline to its dealer-owned stations. The dealers accepted credit cards from motorists who would pay at the pump or at the indoor cash register. The payments from the credit card companies would go directly to Getty, which would then generate checks that were made payable to the individual dealerships. The plan was foolproof-almost.

There was one small glitch. The checks never went to the dealers. In fact, in a cleverly constructed accounting scheme, the checks were generated just to keep Getty's financial records straight. What actually happened was that Getty would void the checks and credit the accounts of the dealers against their future purchases. The plan might have worked well, had it not been for Lewis. Lewis was charged with voiding the checks. This gave her access to an enormous amount of money.

At some point along the way, Lewis decided to keep the checks and forge the indorsement of the payees. She then sent the checks to the credit card companies to pay off her own credit card debt. The credit card companies forwarded the checks to Chemical Bank which was where Getty kept its accounts. Eventually Lewis's game was discovered and Getty sued the credit card companies for the lost money. Now a good portion of the blame for this entire fiasco would seem to fall on Getty's shoulders. After all, it was Getty that came up with scheme.

It was Getty that hired Lewis in the first place, and it was Getty that failed to properly supervise her activities. Yet, Getty had no problem trying to get its money back from the credit card companies. Who is responsible for all of this and how would you decide if you were the judge? As you read the chapter, see if you can detect just how many of the rules of negotiable instruments were violated here.

(See Getty Petroleum Corp. v. American Express Travel Related Services, Co., Inc. 683 N.E.2d 311 (New York Court of Appeals).)

Opening Case Questions
1. What type of lawsuit did Getty bring against American Express? Was this a tort case or a contract case or something else? Explain.

2. Who is the legitimate payee on all of these checks? Explain.

3. Does the "fictitious payee" rule come into play in this case? Why or why not?

4. Which party was in the best possible position to prevent the losses from occurring? Ex

5. In most instances, what is the drawer's liability on a forged check? Does that rule apply here? Explain.