2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 3 - Negotiable Instruments › Part 4 - LIABILITY OF PARTIES › Section 55-3-403 - Unauthorized signature.

(a) Unless otherwise provided in this article or Article 4, 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.
(b) 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.
(c) 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:
1978 Comp., § 55-3-403, enacted by Laws 1992, ch. 114, § 128.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1. "Unauthorized" signature is defined in Section 1-201(43) [55-1-201 NMSA 1978] 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) [55-3-403 NMSA 1978] 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)) [55-4-406 NMSA 1978] 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) [55-1-201 NMSA 1978] 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.
ANNOTATIONS
Repeals.
— Laws 1992, ch. 114, § 237 repealed former 55-3-403 NMSA 1978, as enacted by Laws 1967, ch. 186, § 9, relating to signature by authorized representative, effective July 1, 1992. Laws 1992, ch. 114, § 128, enacted a new section, effective July 1, 1992. For provisions of former section,
see
the 1991 NMSA 1978 on
NMOneSource.com
. For present comparable provisions,
see
55-3-402 NMSA 1978.
Compiler's notes.
— The cases in the following notes were decided under former law.
Effect of denial of signature by alleged maker.
— A denial by the alleged maker of a promissory note, under oath, of the signature thereto, coupled with an allegation that the signature was a forgery, placed in issue the genuineness and due execution of the same.
Wight v. Citizens' Bank
, 1912-NMSC-008, 17 N.M. 71, 124 P. 478.
Not affirmative defense.
— Where alleged maker of a promissory note, under oath, denied the signature thereto, and alleged that the signature was a forgery, it did not constitute an affirmative defense, casting upon the defendant the burden to establish by a preponderance of the evidence that he did not make and execute the note in question.
Wight v. Citizens' Bank
, 1912-NMSC-008, 17 N.M. 71, 124 P. 478.
Where corporation unable to deny authority of president.
— Where the president of a corporation signed the corporation's name to a note, the treasurer being present and making no objection, the corporation was estopped to claim the signature as inadvertent, it having paid two other notes to the same payee, signed by the president.
Timberlake v. Cox Bros.
, 1935-NMSC-037, 39 N.M. 183, 43 P.2d 924.
Liability on forged instrument generally.
— Where a bank, in good faith and for value, purchases from an endorser or holder a check upon another bank, and endorses and forwards same to its collection agency for collection, and the collection agency on presenting same to drawee bank receives payment, the drawee bank on discovery of the check to be forged cannot recover the money back from bank to whom it was paid without proving negligence by the latter.
State Nat'l Bank v. Bank of Magdalena
, 1916-NMSC-032, 21 N.M. 653, 157 P. 498, 1916E L.R.A. 1296 (1916).
If endorsement of the payee be treated as a forgery, the bank as subsequent endorsee acquired no rights under it, and it is liable on its guarantee on an adjusted service certificate issued pursuant to World War Adjusted Compensation Act (former 38 U.S.C. § 591 et seq.) unless the United States is by its laches precluded from asserting the guaranty.
United States v. First Nat'l Bank
, 131 F.2d 985 (10th Cir. 1942), cert. denied, 318 U.S. 774, 63 S. Ct. 830, 87 L. Ed. 1144 (1943).
Law reviews.
— For article, "Essential Attributes of Commercial Paper - Part I," see 1 N.M. L. Rev. 479 (1971).
Am. Jur. 2d, A.L.R. and C.J.S. references. —
3 Am. Jur. 2d Agency §§ 81, 152; 10 Am. Jur. 2d Banks § 624; 11 Am. Jur. 2d Bills and Notes §§ 704, 709, 710, 712 to 714.
Payment of check upon forged or unauthorized endorsement as affecting the right of true owner against the bank, 14 A.L.R. 764, 69 A.L.R. 1076, 137 A.L.R. 874.
Right of drawee of forged check or draft to recover amount paid thereon, 121 A.L.R. 1056.
Right of owner of check against one who cashes it on a forged or unauthorized endorsement and procures its payment by drawee, 100 A.L.R.2d 670.
What constitutes ratification of unauthorized signature under U.C.C. § 3-404, 93 A.L.R.3d 967.
10 C.J.S. Bills and Notes § 27 et seq.