Opinion ID: 1973529
Heading Depth: 1
Heading Rank: 1

Heading: application of ucc 3-406

Text: The threshold question in evaluating First Federal's first theory of recovery is whether the drawer's signatures were authorized or unauthorized. If unauthorized then the case will be governed by SDCL 57-13-13 (UCC 3-406), as urged by the Bank, rather than the common-law rule urged by First Federal. Unauthorized signature is defined by the Code as one made without actual, implied or apparent authority and includes a forgery. SDCL 57-1-2(39) (UCC 1-201(43)). Obviously, Mary Apland had actual authority to affix the facsimile signature of First Federal's then vice-president, Frank Everett, to its check blanks pursuant to her prescribed duties as one of its tellers. Equally obvious, however, is the fact that she did not have actual authority to do so pursuant to a scheme to defraud First Federalat this juncture her use of the facsimile signature of Frank Everett became a forgery. [] Characterizing the drawer's signature on these checks as forgeries does not automatically brand them as unauthorized under the Code. They can still be authorized if blessed by the protective aura of apparent authority. SDCL 57-1-2(39) (UCC 1-201(43)) (defining unauthorized signature). Apparent authority does not depend upon actual authority for its existence and may exist without it. On the other hand, apparent authority often exists in concert with actual authority and may or may not be identical to it. Apparent authority can also survive the demise of its frequent companion, actual authority. All of this is true because apparent authority rests upon manifestations flowing from the principal to the third person as opposed to actual authority which derives from representations by the principal to his agent. 3 Am.Jur.2d Agency §§ 73-76; Restatement of Agency 2d, § 8 Comment a, § 27 Comment a, and § 49 Comment g; SDCL 59-1-5; SDCL 59-3-3; SDCL 59-6-3. By virtue of its everyday business practice of issuing its checks bearing a facsimile signature, First Federal manifested to the Bank and the other members of the business community of Sioux Falls that its employees who affixed these facsimile signatures to its checks were authorized to do so. The Bank and others relied on this tacit representation and routinely honored such checks. Their making and issuance therefore rested upon both actual and apparent authority. The evidence fails to show that the Bank had actual knowledge of Mary's peculations or was aware of facts sufficient to charge it with constructive knowledge. Therefore the apparent authority for the making and issuance of the checks in question continued to exist in spite of the fact that Mary violated her actual authority in making these checks. Despite their being forgeries, the signatures were not unauthorized because they were vouched for by the continuation of apparent authority. Since the signatures of the drawer of the checks in question were thus authorized under the Code, SDCL 57-1-2(39) (UCC 1-201(43)), the decision of this case is not governed by SDCL 57-13-13 (UCC 3-406).