Impostor Rule/Fictitious Payee

The Impostor Rule is a rule stating that if an impostor endorses a negotiable instrument and receives payment in “good faith”, the drawer of the instrument is responsible for the loss. An example would be if an individual impersonates a person for whom a check has been cut or misrepresents himself as that person's agent. If the impostor receives the check, endorses it, and cashes it at the drawer's bank, the drawer is responsible for the loss, because the bank accepted the endorsement in good faith. The bank may be responsible for a percentage of the loss if it failed to exercise "ordinary care"; for example, if the bank did not check the impostor's identification. The imposter rule is based on the assumption that between the bank and the drawer, the drawer is in a better position to prevent the loss. The Fictitious Payee Rule is a principle of commercial law that if a drawer or maker issues commercial paper to a payee whom the drawer or maker does not actually intend to have any interest in the instrument, an ensuing forgery of the payee's name will be effective to pass good title to later transferees. Ordinarily, the drawer of a check is not liable on a forged endorsement. The "fictitious payee" rule is an exception to this principle, as it allocates the loss to the drawer if a person signing as or on behalf of a drawer intends the payee to have no interest in the instrument. The policy behind the fictitious payee rule is that it seeks to ensure that, the loss should be placed on the drawer of the check, rather than on the drawee or the depositary bank that took the check for collection because the drawer is in the best position to avoid the fraud that usually sets in motion such fictitious payee scenarios.