Asked by Blake French on May 22, 2024
Verified
Zachary, who has been authorized to write a check from a company account to pay employees, draws bonus checks from the company account for five fictitious employees, endorses the checks in their names, and deposits those into his own bank account. Which of the following is true regarding whether the company will be required to take the loss on the checks?
A) Under the fictitious payee rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
B) Under the imposter rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
C) Under the transferor rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
D) Under the employee-liability rule, in addition to its rights in regard to Zachary, the company will be able to recover from any bank that cashed the checks.
E) Under the banking liability act, in addition to its rights in regard to Zachary, the company will be able to recover from any bank that cashed the checks.
Fictitious Payee Rule
A legal principle that states if a negotiable instrument is made payable to a fictitious person, the entity that neglects to verify the authenticity of the payee can be held liable for any resulting loss.
Imposter Rule
A rule which holds that if one party obtains a negotiable instrument by impersonating another party and endorses it with the impersonated party’s signature, the loss falls on the drawer of the instrument.
- Differentiate primary from secondary liability within the realm of negotiable instruments.
- Understand the safeguards related to the enforcement of negotiable instruments and effects of carelessness.
Verified Answer
Learning Objectives
- Differentiate primary from secondary liability within the realm of negotiable instruments.
- Understand the safeguards related to the enforcement of negotiable instruments and effects of carelessness.
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