Under former section 3-403, one ratifies and authorizes a signature by acknowledging the debt and making payments without objection as to the signature. Richards v. Arthaloney, 216 Neb. 11, 342 N.W.2d 642 (1983).
Under former section 3-404, unauthorized signature by general manager did not make company liable on note and it could not recover on fidelity bond when it paid the note to avoid losing a good customer. KAMI Kountry Broadcasting Co. v. United States F. & G. Co., 190 Neb. 330, 208 N.W.2d 254 (1973).
Under former section 3-405, fact that endorsement by imposter is effective does not relieve him of criminal liability. State v. Kirby, 187 Neb. 380, 191 N.W.2d 162 (1971).
Under former section 3-404, unauthorized signature inoperative as that of person whose name is signed. Farmers Union Coop Assn. v. Commercial State Bank of Cedar Bluffs, 187 Neb. 376, 191 N.W.2d 168 (1971).
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.