30-3-420. Employer responsibility for fraudulent indorsement by employee. (1) This section applies to fraudulent indorsements of instruments with respect to which an employer has entrusted an employee with responsibility as part of the employee's duties. The following definitions apply to this section:
     (a) "Employee" includes, in addition to an employee of an employer, an independent contractor and employee of an independent contractor retained by the employer.
     (b) "Fraudulent indorsement" means:
     (i) in the case of an instrument payable to the employer, a forged indorsement purporting to be that of the employer; or
     (ii) in the case of an instrument with respect to which the employer is drawer or maker, a forged indorsement purporting to be that of the person identified as payee.
     (c) (i) "Responsibility" with respect to instruments means authority to:
     (A) sign or indorse instruments on behalf of the employer;
     (B) process instruments received by the employer for bookkeeping purposes, for deposit to an account, or for other disposition;
     (C) prepare or process instruments for issue in the name of the employer;
     (D) supply information determining the names or addresses of payees of instruments to be issued in the name of the employer;
     (E) control the disposition of instruments to be issued in the name of the employer; or
     (F) otherwise act with respect to instruments in a responsible capacity.
     (ii) The term does not include the assignment of duties that merely allows an employee to have access to instruments or blank or incomplete instrument forms that are being stored or transported or are part of incoming or outgoing mail, or similar access.
     (2) For purposes of determining the rights and liabilities of a person who in good faith pays an instrument or takes it for value or for collection, if an employee entrusted with responsibility with respect to the instrument or a person acting in concert with the employee makes a fraudulent indorsement to the instrument, the indorsement is effective as the indorsement of the person to whom the instrument is payable if it is made in the name of that person. If the person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.
     (3) Under subsection (2), an indorsement is made in the name of the person to whom an instrument is payable if:
     (a) it is made in a name substantially similar to the name of that person; or
     (b) the instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to the name of that person.

     History: En. Sec. 129, Ch. 410, L. 1991.