White Rabbit Trust: Signature by Agent – Accepting Liability  

Published on Jan 2, 2016

REFERENCE BOOK: The Law, Corporate Finance, and Management v. 1.0

Chapter: 22.1 Liability Imposed by Signature: Agents, Authorized and Unauthorized

Please Read the Full Notes: 

  • table of contents for the book The Law, Corporate Finance, and Management (v. 1.0)
  • You may also download a PDF copy of this book (13 MB, suitable for printing or most e-readers), or a .zip file containing these HTML files (for use in a web browser offline).

Learning Objectives

  1. Recognize what a signature is under Article 3 of the Uniform Commercial Code.
  2. Understand how a person’s signature on an instrument affects liability if the person is an agent, or a purported agent, for another.

Key Takeaway
Under the UCC, a signature is any writing or mark used by a person to indicate that a writing is authentic.

Agents often sign on behalf of principals, and when the authorized agent makes clear that she is so signing by naming the principal and signing her name as agent the principal is liable, not the agent.

But when the agent signs incorrectly, the UCC says, in general, that the agent is personally liable to an HDC who takes the paper without notice that the agent is not intended to be liable.

Unauthorized signatures (forgeries) are ineffective as to the principal: they are effective as the forger’s signature, unless the principal or the person paying on the instrument has been negligent in contributing to, or in failing to notice, the forgery, in which case comparative negligence principles are applied.

Liability of an Agent Who Has Authority to Sign

Agents often sign instruments on behalf of their principals, and of course because a corporation’s existence is a legal fiction (you can’t go up and shake hands with General Motors), corporations can only act through their agents.

The General Rule

Section 3-402(a) of the UCC provides that a person acting (or purporting to act) as an agent who signs an instrument binds the principal to the same extent that the principal would be bound if the signature were on a simple contract. The drafters of the UCC here punt to the common law of agency: if, under agency law, the principal would be bound by the act of the agent, the signature is the authorized signature of the principal. And the general rule in agency law is that the agent is not liable if he signs his own name and makes clear he is doing so as an agent. In our example, Igor should sign as follows: Frank N. Stein, Inc., by Igor, Agent. Now it is clear under agency law that the corporation is liable and Igor is not.Uniform Commercial Code, Section 4-402(b)(1). Good job, Igor.

Incorrect Signatures

The problems arise where the agent, although authorized, signs in an incorrect way.

There are three possibilities:

(1) the agent signs only his own name Igor;

(2) the agent signs both names but without indication of any agency Frank N. Stein, Inc., / Igor (the signature is ambiguous are both parties to be liable, or is Igor merely an agent?);

(3) the agent signs as agent but doesn’t identify the principal Igor, Agent.

The UCC provides that in each case, the agent is liable to a holder in due course (HDC) who took the instrument without notice that the agent wasn’t intended to be liable on the instrument. As to any other person (holder or transferee), the agent is liable unless she proves that the original parties to the instrument did not intend her to be liable on it. Section 3-402(c) says that, as to a check, if an agent signs his name without indicating agency status but the check has the principal’s identification on it (that would be in the upper left corner), the authorized agent is not liable.


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