§ 41-03-42 — (3-405) Employer responsibility for fraudulent endorsement by employee

1. This section applies to fraudulent endorsements 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 endorsement" means, in the case of an instrument payable to the
employer, a forged endorsement purporting to be that of the employer or, in the
case of an instrument with respect to which the employer is the issuer, a forged
endorsement purporting to be that of the person identified as payee.
c. "Responsibility" with respect to instruments means authority to sign or endorse
instruments on behalf of the employer; to process instruments received by the
employer for bookkeeping purposes, for deposit to an account, or for other
disposition; to prepare or process instruments for issue in the name of the
employer; to supply information determining the names or addresses of payees of
instruments to be issued in the name of the employer; to control the disposition of
instruments to be issued in the name of the employer; or to otherwise act with
respect to instruments in a responsible capacity. "Responsibility" does not include
authority 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 the purpose 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 endorsement to the instrument, the endorsement is
effective as the endorsement 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 endorsement is made in the name of the person to whom an
instrument is payable if it is made in a name substantially similar to the name of that
person or if the instrument, whether or not endorsed, is deposited in a name
substantially similar to the name of that person.