Article 3 — Negotiable Instruments · Section 3-405
UCC § 3-405 addresses the liability of unauthorized signers on negotiable instruments, providing clarity on the circumstances under which a party may be held responsible.
Source: U.C.C. § 3-405
A signature is made without authority if the signer makes it without having been authorized to do so. If a person signs as drawer of an instrument without having the authority to do so, that person is liable to a holder in due course who pays the instrument.
UCC § 3-405 outlines the consequences when someone signs a negotiable instrument without authorization. This section establishes that the unauthorized signer may still be held liable to a holder in due course.
A holder who has taken a negotiable instrument for value, in good faith, and without notice of any defects.
A signature made by a person who does not have authorization from the proper party to sign on their behalf.
Example 1
A bank pays a check signed by a person who falsified a signature without the account holder's consent. If the bank is deemed a holder in due course, the unauthorized signer may still be liable.
Example 2
An employee signs a company check without permission. If the check is negotiated to a third party who is a holder in due course, the unauthorized signer can be held liable for the amount of the check.