CO Code § 4-3-403 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 3 - Negotiable Instruments|Part 4 - Liability of Parties|§ 4-3-403. Unauthorized Signature

  Unless otherwise provided in this article or article 4 of this title, an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith pays the instrument or takes it for value. An unauthorized signature may be ratified for all purposes of this article.    If the signature of more than one person is required to constitute the authorized signature of an organization, the signature of the organization is unauthorized if one of the required signatures is lacking.    The civil or criminal liability of a person who makes an unauthorized signature is not affected by any provision of this article which makes the unauthorized signature effective for the purposes of this article.     History. Source: L. 94: Entire article R&RE, p. 863, § 1, effective January 1, 1995.    Editor's note:   This section is similar to former § 4-3-404 as it existed prior to 1994.   OFFICIAL COMMENT   1. “Unauthorized” signature is defined in Section 1-201(43) as one that includes a forgery as well as a signature made by one exceeding actual or apparent authority. Former Section 3-404(1) stated that an unauthorized signature was inoperative as the signature of the person whose name was signed unless that person “is precluded from denying it.” Under former Section 3-406 if negligence by the person whose name was signed contributed to an unauthorized signature, that person “is precluded from asserting the * * * lack of authority.” Both of these sections were applied to cases in which a forged signature appeared on an instrument and the person asserting rights on the instrument alleged that the negligence of the purported signer contributed to the forgery. Since the standards for liability between the two sections differ, the overlap between the sections caused confusion. Section 3-403(a) deals with the problem by removing the preclusion language that appeared in former Section 3-404.   2. The except clause of the first sentence of subsection (a) states the generally accepted rule that the unauthorized signature, while it is wholly inoperative as that of the person whose name is signed, is effective to impose liability upon the signer or to transfer any rights that the signer may have in the instrument. The signer's liability is not in damages for breach of warranty of authority, but is full liability on the instrument in the capacity in which the signer signed. It is, however, limited to parties who take or pay the instrument in good faith; and one who knows that the signature is unauthorized cannot recover from the signer on the instrument.   3. The last sentence of subsection (a) allows an unauthorized signature to be ratified. Ratification is a retroactive adoption of the unauthorized signature by the person whose name is signed and may be found from conduct as well as from express statements. For example, it may be found from the retention of benefits received in the transaction with knowledge of the unauthorized signature. Although the forger is not an agent, ratification is governed by the rules and principles applicable to ratification of unauthorized acts of an agent.   Ratification is effective for all purposes of this Article. The unauthorized signature becomes valid so far as its effect as a signature is concerned. Although the ratification may relieve the signer of liability on the instrument, it does not of itself relieve the signer of liability to the person whose name is signed. It does not in any way affect the criminal law. No policy of the criminal law prevents a person whose name is forged to assume liability to others on the instrument by ratifying the forgery, but the ratification cannot affect the rights of the state. While the ratification may be taken into account with other relevant facts in determining punishment, it does not relieve the signer of criminal liability.   4. Subsection (b) clarifies the meaning of “unauthorized” in cases in which an instrument contains less than all of the signatures that are required as authority to pay a check. Judicial authority was split on the issue whether the one-year notice period under former Section 4-406(4) (now Section 4-406(f)) barred a customer's suit against a payor bank that paid a check containing less than all of the signatures required by the customer to authorize payment of the check. Some cases took the view that if a customer required that a check contain the signatures of both A and B to authorize payment and only A signed, there was no unauthorized signature within the meaning of that term in former Section 4-406(4) because A's signature was neither unauthorized nor forged. The other cases correctly pointed out that it was the customer's signature at issue and not that of A; hence, the customer's signature was unauthorized if all signatures required to authorize payment of the check were not on the check. Subsection (b) follows the latter line of cases. The same analysis applies if A forged the signature of B. Because the forgery is not effective as a signature of B, the required signature of B is lacking.   Subsection (b) refers to “the authorized signature of an organization.” The definition of “organization” in Section 1-201(28) is very broad. It covers not only commercial entities but also “two or more persons having a joint or common interest.” Hence subsection (b) would apply when a husband and wife are both required to sign an instrument.   ANNOTATION   Law reviews. For article, “Payee v. Depository Bank: What is the UCC Defense to Handling Checks Bearing Forged Indorsements?”, see 45 U. Colo. L. Rev. 281 . For article, “Commercial Law”, which discusses a Tenth Circuit decision dealing with bank liability on forged commercial paper, see 62 Den. U. L. Rev. 84 (1985). For article, “Civil Liability for Check Forgeries in Colorado”, see 16 Colo. Law. 959 (1987).   Annotator's note. The following annotations include cases decided under former provisions similar to this section.   Where the officers of a corporation are given full power and authority to negotiate and execute loans for and on behalf of the corporation for its declared purpose and benefit and the corporation has benefited materially as a result of their activity, then under such circumstances, it would be wholly inequitable to permit it to be absolved of its just obligations. Sec. Sav. & Loan Ass'n v. Colo. Real Estate Dev., Inc., 163 Colo. 155 , 429 P.2d 288 (1967).   Want of authority may not be asserted. A corporation may not give its officers “carte blanche” authority to borrow money for its authorized business purpose and then assert want of authority when the venture turns unprofitable; even if loans were not originally authorized, they are ratified by acceptance of the benefits. Sec. Sav. & Loan Ass'n v. Colo. Real Estate Dev., Inc., 163 Colo. 155 , 429 P.2d 288 (1967).   It is error to require lender to show express authority. A court errs when it rules that the lender must show, through the corporation's articles, bylaws, or minutes, express authority for such loans from the corporation or its board, inasmuch as the application of the doctrine of estoppel has kept pace with the rapid development of corporate enterprise, so that, while ancient rules regarding limits upon powers of officers of corporations have not been abrogated, they are conclusively presumed to have been complied with or compliance to have been waived by the corporation where justice so requires. Sec. Sav. & Loan Ass'n v. Colo. Real Estate Dev., Inc., 163 Colo. 155 , 429 P.2d 288 (1967).   A forged or unauthorized signature of one of two joint payees destroys the negotiability of a check, and the holder of the check acquires only as an assignee of a nonnegotiable chose in action the interest of the payee who did indorse, and, as such an assignee, his interest in the proceeds of the check is to be determined. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954); Skinner v. Mortgage Inv. Co., 165 Colo. 241 , 438 P.2d 504 (1968).   A payee whose signature has been forged, or whose check has been cashed without indorsement, can treat the entire transaction as a nullity and may demand payment of the debt from the drawer of the check, his debtor. Since the check was never delivered to the payee and was not negotiated by him, it cannot be legally binding and thus the debt owed by the drawer to the payee continues outstanding. United States Portland Cement Co. v. United States Nat'l Bank, 61 Colo. 334 , 157 P. 202 (1916); Denver Elec. & Neon Serv. Corp. v. Gerald H. Phipps, Inc., 143 Colo. 530 , 354 P.2d 618 (1960).   A payee can sue the collecting bank directly, but the legal effect of his doing this constitutes adoption and ratification of the collection and payment of the check, notwithstanding that it was not indorsed, and the legal consequence of no indorsement is considered to be the same as a forgery for such purpose. United States Portland Cement Co. v. United States Nat'l Bank, 61 Colo. 334 , 157 P. 202 (1916); Denver Elec. & Neon Serv. Corp. v. Gerald H. Phipps, Inc., 143 Colo. 530 , 354 P.2d 618 (1960).   Institution of an action for conversion against bank for wrongfully paying corporate funds into the personal account of the treasurer is not a ratification of the actions of the collecting bank, but rather an election not to sue the drawee bank. Cent. Inc. v. Cache Nat'l Bank, 748 P.2d 351 (Colo. App. 1987).   On theory that it collected and misappropriated check proceeds. The payee of a check whose indorsement had been forged by a fraudulent agent can ratify payment by the drawee bank and maintain an action against the collecting bank on the theory that it collected and misappropriated the proceeds of the check and is thereby accountable to the payee for the proceeds. United States Portland Cement Co. v. United States Nat'l Bank. 61 Colo.; Denver Elec. & Neon Serv. Corp. v. Gerald H. Phipps, Inc., 143 Colo. 530 , 354 P.2d 618 (1960). 334, 157 P. 202 (1916).   By ratifying such payment the payee releases the drawer and drawee of the check. United States Portland Cement Co. v. United States Nat'l Bank, 61 Colo. 334 , 157 P. 202 (1916); Denver Elec. & Neon Serv. Corp. v. Gerald H. Phipps, Inc., 143 Colo. 530 , 354 P.2d 618 (1960).   Assignee need not sue maker. In an action against indorsers of a note where one of the makers' names has been forged, an assignee is not precluded by failing to sue the makers. Cannon v. Serrel, 15 Colo. App. 99, 61 P. 187 (1900).