Question: David M Fox was a distributor of tools manufactured and
David M. Fox was a distributor of tools manufactured and sold by Matco Tools Corporation (Matco). Cox purchased tools from Matco, using a credit line that he repaid as the tools were sold. The credit line was secured by Cox’s Matco tool inventory. In order to expedite payment on Cox’s line of credit, Matco decided to authorize Cox to deposit any customer checks that were made payable to “ Matco Tools” or “ Matco” into Cox’s own account. Matco’s controller sent Cox’s bank, Pontiac State Bank (Pontiac), a letter stating that Cox was authorized to make such deposits. Several years later, some Matco tools were stolen from Cox’s inventory. The Travelers Indemnity Company (Travelers), which insured Cox against such a loss, sent Cox a settlement check in the amount of $ 24,960. The check was made payable to “David M. Cox and Matco Tool Co.” Cox indorsed the check and deposited it in his account at Pontiac. Pontiac forwarded the check through the banking system for payment by the drawee bank. Cox never paid Matco for the destroyed tools. Matco sued Pontiac for accepting the check without the proper indorsements. Is Pontiac liable? Matco Tools Corporation v. Pontiac State Bank, 614 F. Supp. 1059, 1985 U. S. Dist. Lexis 17234 (United States District Court for the Eastern District of Michigan)
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