The effect of the fictitious payee rule is that:
A) fictitious payees are entitled to collect on instruments.
B) the maker or drawer will be liable for payment of an instrument naming a fictitious payee.
C) makers and drawers are protected from liability resulting from paying an instrument naming a fictitious payee.
D) parties forging the signature of a fictitious payee can be liable for losses incurred by the forgery.
E) banks are required to positively identify any holder seeking payment at the bank on an instrument.

Question

Quizplus · Accepted Answer

The fictitious payee rule holds the maker or drawer liable for payment of an instrument naming a fictitious payee, even though the payee does not exist or is not entitled to the proceeds of the instrument. This rule is intended to prevent fraud and encourage parties to take reasonable measures to verify the legitimacy of a payee before issuing or accepting an instrument. Therefore, option B is the correct answer. The other options are incorrect or incomplete.

The Effect of the Fictitious Payee Rule Is That