Waukon Auto Supply v. Farmers & Merchants Savings Bank

LAVORATO, Justice.

The manager of Waukon Auto Supply embezzled funds from the business. He did so by first indorsing customer checks either by hand or with the business’s rubber stamp. He would then present the checks for cash at the Farmers and Merchants Savings Bank, where Waukon Auto had a checking account. The manager was not authorized to write checks on the account or to withdraw cash.

Waukon Auto sued the Bank for allowing the embezzlement to occur by cashing the checks. Conversion, negligence, and breach of contract were alleged. The district court found that the Bank was liable because…