Nominal-Payee Rule Law and Legal Definition

Nominal payee rule is a principle of commercial law that validates a person’s endorsement of an instrument like a check, when the instrument's drawer intended for the payee to have no interest in the instrument.

The following is an example of a caselaw defining the rule:

The nominal payee rule applies where the maker or the drawer executes the instrument naming the nominal payee in reliance on his agent's or employee's having furnished him with the name of the payee, and the intention of the agent or employee was that the payee shall not have any interest in the instrument. Here the agent or employee furnishing such information or anyone else may effectively indorse the payer's name and negotiate the instrument . [Underpinning & Foundation Constructors, Inc. v. Chase Manhattan Bank, N.A., 61 A.D.2d 628, 643 (N.Y. App. Div. 1st Dep't 1978)]