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?

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Quizplus · Accepted Answer

DThe fictitious payee rule (A) applies when a check is made payable to a non-existent person and the person who forges the endorsement on the check is the same person who created the fictitious payee. In this scenario, the bank is typically held liable because it is assumed that the drawer's intent was not to pay the fictitious person. However, if the bank can prove that the company was negligent (e.g., by allowing the fraud to occur), the company may still bear the loss.The employee-liability rule (D) states that if an employee fraudulently endorses checks and causes a loss, the employer is liable for the actions of the employee because the employer is in a better position to prevent the fraud. This rule also allows the company to recover from any bank that cashed the checks, assuming the bank did not exercise due diligence in verifying the endorsements.

Zachary, Who Has Been Authorized to Write a Check from a Company