Reliable Janitorial Service, maintained a bank account with AmSouth Bank. Rosa Pennington was employed by Reliable as a bookkeeper/office manager. She deposited checks made payable to Reliable but did not have authority to write checks on Reliable’s account. Beginning in January, Pennington obtained counter deposit slips from AmSouth. She wrote on the deposit slips that the depositor was “Reliable Janitorial Services, Inc.,” but in the space for the account number, Pennington wrote the account number for her own personal account with AmSouth. 

She stamped the checks that were made payable to “Reliable Janitorial Services, Inc.,” with the indorsement “For Deposit Only, Reliable Carpet Cleaning, Inc.” Over an 11-month period, Pennington was able to deposit 169 checks so indorsed. AmSouth credited the deposits to Pennington, not Reliable. Pennington spent all the funds that she diverted to her account. When Reliable discovered the fraud, it brought suit against AmSouth for conversion and sought to have its account credited with the improperly paid checks. Was AmSouth Bank liable to Reliable for the value of the restrictively indorsed checks that it paid inconsistently with the indorsement?