Miller does the payroll for Phoenix Company.In between Adams and Bates,he inserts the name Appleton and makes out a weekly paycheck in that name.He keeps the check for himself,signing "Appleton" and cashing it at a local bank.Auditors discovered the fake payee many months later.May Phoenix require the bank to recredit?
A) No,because of the holder rule
B) No,because Miller is an Phoenix employee and the fictitious payee rule applies
C) Yes,because the indorsement is forged
D) Yes,because the check was,in effect,stolen

Question

Quizplus · Accepted Answer

CThe fictitious payee rule (choice B) applies when an employee authorized to issue checks fraudulently makes a check payable to a non-existent person and then endorses and cashes it. The bank is typically protected in these cases because the employee's actions are considered to fall within their authority, making the endorsement effective. However, choice C is also correct because from the perspective of the law and banking regulations, an endorsement made in the name of a non-existent or fictitious person by someone not authorized to do so (like Miller acting as Appleton) can be considered a forged endorsement. This would allow the company to argue that the bank should not have honored the check with a forged endorsement, thus requiring the bank to recredit the account.

Miller Does the Payroll for Phoenix Company