Travco brought a suit against Citizens. Is the indorsement effective? Explain.

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Travco brought a suit against Citizens. Is the indorsement effective? Explain.

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While assistant treasurer of Travco Corporation, Frank Mitchell caused two checks, each payable to a fictitious company, to be drawn on Travco’s account with Brown City Savings Bank. In each case, Mitchell indorsed the check in his own name and then cashed it at Citizens Federal Savings & Loan Association of Port Huron. Both checks were cleared through normal banking channels and charged against Travco’s account with Brown City. Travco subsequently discovered the embezzlement, and after Citizens denied its demand for reimbursement, Travco brought a suit against Citizens. Is the indorsement effective? Explain.

Explanation & AnswerSolution by a verified expert

Explanation

Individual FM was an employee of Organization TC and the organization gave Individual FM the name of the fictitious payee. Individual FM still indorsed the checks in Individual FM's won name. Because of this action, Organization TC becomes free from any liability. But if Individual FM indorsed the checks with the name of the fictitious payee, Organization TC would have been responsible for paying back the withdrawn money to Organization C.

Verified Answer

The indorsement is ineffective. The checks were not indorsed by using the name of the named payee but by using the name of Individual FM. It makes Organization TC unaccountable to Organization C. If the checks were indorsed by using name of the named payee, Organization TC would have been liable.

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