Under the fictitious payee rule, the payee's indorsement is not treated as a forgery, and an innocent holder can hold the maker or drawer liable on the instrument.

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The fictitious payee rule holds that if an instrument is made payable to a fictitious payee or a payee who does not exist, the indorsement of the fictitious payee is not treated as a forgery. As a result, an innocent holder who acquires the instrument in good faith can hold the maker or drawer liable on the instrument. This rule helps to prevent fraud in situations where a dishonest payee might attempt to cash an instrument made payable to a third party who does not exist or is not actually intended to receive payment.

Under the Fictitious Payee Rule, the Payee's Indorsement Is Not