§ 34.1-3-404 — Impostors; fictitious payees

(a) If an impostor, by use of the mails or otherwise,
induces the issuer of an instrument to issue the instrument to
the impostor, or to a person acting in concert with the
impostor, by impersonating the payee of the instrument or a
person authorized to act for the payee, an indorsement of the
instrument by any person in the name of the payee is effective
as the indorsement of the payee in favor of a person who, in
good faith, pays the instrument or takes it for value or for
collection.
(b) If (1) a person whose intent determines to whom an
instrument is payable (section 34.1-3-110(a) or (b)) does not
intend the person identified as payee to have any interest in
the instrument, or (2) the person identified as payee of an
instrument is a fictitious person, the following rules apply
until the instrument is negotiated by special indorsement:
(i) Any person in possession of the instrument is its
holder;
(ii) An indorsement by any person in the name of the
payee stated in the instrument is effective as the indorsement
of the payee in favor of a person who, in good faith, pays the
instrument or takes it for value or for collection.
(c) Under subsection (a) or (b), an indorsement is made in
the name of a payee if (1) it is made in a name substantially
similar to that of the payee or (2) the instrument, whether or
not indorsed, is deposited in a depositary bank to an account in
a name substantially similar to that of the payee.
(d) With respect to an instrument to which subsection (a)
or (b) applies, if a 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 payment of the instrument,
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.