Ala. Code
Code of Alabama

Ala. Code § 7-3-405 (2026)

Employer’s Responsibility for Fraudulent Indorsement by Employee.

✓ official Alabama Legislature (ALISON) text, current July 2026
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(a) 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:

(1) “Employee” includes an independent contractor and employee of an independent contractor retained by the employer.

(2) “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 the issuer, a forged indorsement purporting to be that of the person identified as payee.

(3) “Responsibility” with respect to instruments means authority (i) to sign or indorse instruments on behalf of the employer, (ii) to process instruments received by the employer for bookkeeping purposes, for deposit to an account, or for other disposition, (iii) to prepare or process instruments for issue in the name of the employer, (iv) to supply information determining the names or addresses of payees of instruments to be issued in the name of the employer, (v) to control the disposition of instruments to be issued in the name of the employer, or (vi) to act otherwise 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.

(b) 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 employer entrusted an employee with responsibility with respect to the instrument and the employee or a person acting in concert with the employee makes a fraudulent indorsement of 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.

(c) Under subsection (b), an indorsement is made in the name of the person to whom an instrument is payable if (i) it is made in a name substantially similar to the name of that person or (ii) 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.

(Acts 1965, No. 549, p. 811; repealed by Acts 1995, No. 95-668, p. 1381, §1; added by Acts 1995, No. 95-668, p. 1381, §1.)

Notes of Decisions
Cited in 6 cases, 2001–2020 · leading case: Smith v. AmSouth Bank, Inc., 892 So. 2d 905 (Ala. 2004).
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Smith v. AmSouth Bank, Inc., 892 So. 2d 905 (Ala. 2004). · cites it 6× “" § 7-3-405(a)(3), Ala.Code 1975. We note that the language in this definition does not require that some preponderance of these factors be present, but, by the use of "or" as the connector, states that any one of the listed factors will suffice.”
Am. Liberty Ins. Co. v. Amsouth Bank, 825 So. 2d 786 (Ala. 2002). · cites it 2× “1994) (discussing, without deciding, whether Ala.Code § 7-3-405( l ) displaces certain common-law claims of negligence and wantonness).”
Braden Furniture Co. v. Union State Bank, 109 So. 3d 625 (Ala. 2012). · cites it 3× “With regard to [Braden Furniture’s] claims under the Alabama Uniform Commercial Code, [Braden Furniture] amended [its] complaint to make claims pursuant to Alabama Code § 7-3-404, § 7-3-405, § 7-3-406.... Based on the allegations in the complaint and *627 the undisputed evidence…”
Cagle's Inc. v. Valley Nat'l Bank, 153 F. Supp. 2d 1288 (M.D. Ala. 2001). “The court did explicitly state, however, that § 7-3-405(1) “appears to displace an action for common law negligence or wantonness .”
Sec. Pest Control, Inc. v. Wells Fargo Bank, Nat'l Ass'n (CONSENT) (M.D. Ala. 2020). · cites it 2× “Section 405 of the UCC allocates the loss between an employer and a bank when an employer’s agent attempts to cash or deposit a fraudulently indorsed instrument.”
Am. Nat'l Red Cross v. ASD Specialty Health Care, Inc., 325 F. Supp. 2d 1322 (S.D. Ala. 2002). · cites it 2× “1994)(discussing, without deciding, whether Ala.Code § 7-3-405(1) displaces certain common-law claims of negligence and wantonness).”
— Ala. Code § 7-3-405(1) — 3 cases
Cagle's Inc. v. Valley Nat'l Bank, 153 F. Supp. 2d 1288 (M.D. Ala. 2001). “The court did explicitly state, however, that § 7-3-405(1) “appears to displace an action for common law negligence or wantonness .”
Braden Furniture Co. v. Union State Bank, 109 So. 3d 625 (Ala. 2012). “With regard to [Braden Furniture’s] claims under the Alabama Uniform Commercial Code, [Braden Furniture] amended [its] complaint to make claims pursuant to Alabama Code § 7-3-404, § 7-3-405, § 7-3-406.... Based on the allegations in the complaint and *627 the undisputed evidence…”
Am. Nat'l Red Cross v. ASD Specialty Health Care, Inc., 325 F. Supp. 2d 1322 (S.D. Ala. 2002). “1994)(discussing, without deciding, whether Ala.Code § 7-3-405(1) displaces certain common-law claims of negligence and wantonness).”
— Ala. Code § 7-3-405(a) — 1 case
Sec. Pest Control, Inc. v. Wells Fargo Bank, Nat'l Ass'n (CONSENT) (M.D. Ala. 2020). “Section 405 of the UCC allocates the loss between an employer and a bank when an employer’s agent attempts to cash or deposit a fraudulently indorsed instrument.”
— Ala. Code § 7-3-405(a)(3) — 1 case
Smith v. AmSouth Bank, Inc., 892 So. 2d 905 (Ala. 2004). “" § 7-3-405(a)(3), Ala.Code 1975. We note that the language in this definition does not require that some preponderance of these factors be present, but, by the use of "or" as the connector, states that any one of the listed factors will suffice.”
— Ala. Code § 7-3-405(b) — 1 case
Smith v. AmSouth Bank, Inc., 892 So. 2d 905 (Ala. 2004). “" § 7-3-405(a)(3), Ala.Code 1975. We note that the language in this definition does not require that some preponderance of these factors be present, but, by the use of "or" as the connector, states that any one of the listed factors will suffice.”
— Ala. Code § 7-3-405(l)(c) — 1 case
Braden Furniture Co. v. Union State Bank, 109 So. 3d 625 (Ala. 2012). “With regard to [Braden Furniture’s] claims under the Alabama Uniform Commercial Code, [Braden Furniture] amended [its] complaint to make claims pursuant to Alabama Code § 7-3-404, § 7-3-405, § 7-3-406.... Based on the allegations in the complaint and *627 the undisputed evidence…”
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