Representative and Forged Signatures

The following is an excerpt from The Uniform Commercial Code Made Easy.  I will complete the Continuing Legal Education presentations this week and will resume writing posts next week.  I do want to say that the work put into the blog has been very helpful in the CLE presentations, a wonderful byproduct of this process. 

Section 10

Doug came to work early the next morning to be sure to get the bank letter as soon as it came in. When it did, Doug was overjoyed. He took it with him to the coffee room hoping someone would ask him what he was reading. As he sipped his morning coffee, he read the following letter:

Dear Doug:

Enclosed please find a copy of a memorandum sent to Mr. Ron Nichols, our vice-president in charge of the legal department. This sets forth the facts of the lawsuit which we discussed yesterday. Should you have any questions, please contact Mr. Nichols or myself.

Very truly yours,

Fred Houstrant

MEMORANDUM

TO:            Ron Nichols, Esq.

FROM:      Sandra Oronski

RE:           Burger Czar check matter

On February 20, 2006, we were informed of the following facts by Alfredo Thomas, vice-president and secretary of Burger Czar:

On Friday January 5, 2006, Burger Czar received a shipment of beef patties from Butcherama, Inc. for which a postdated check in the amount of $12,000 was given (it was postdated to allow time for a deposit to clear).

The check was signed by Thomas in his corporate capacity as treasurer. Sometime shortly thereafter, Butcherama was robbed, the check being taken along with some $27,000 in cash.

On Monday morning, January 8, 2006, a man posing as Brad Garcia, treasurer of Butcherama, presented what appeared to be a proper identification (probably taken in the robbery) and cashed the check at Central Dade Bank where Burger Czar maintained its account.

When Butcherama found out that the check had been taken, it notified Burger Czar immediately who thereupon notified us. It was, of course, too late as the check had already been cashed.

Burger Czar is demanding that its account be recredited...

This case raises several sections already discussed in the book as well as some new material. Several general points can be noted at the outset. First, a postdated check is considered to be an instrument ‘payable at a definite time’ within Section 3-108(b). As the facts indicate, the check was signed in a corporate capacity by Alvin Thomas as treasurer of Burger Czar, and as such, would be a signature by representative governed by Section 3-402.

Subsection (a) to Section 3-402 states the basic rule under which a represented person is bound [here, Burger Czar]:

If a person acting, or purporting to act, as a representative signs an instrument by signing either the name of the represented person or the name of the signer, the represented person would be bound to the same extent the represented person would be bound if the signature were on a simple contract.

Comment 1 to Section 3-402 explains this by saying ‘If under the law of agency the represented person would be bound’ by the representative’s signature, ‘the signature is the authorized signature of the represented person.’  In the present case, Thomas was acting in his corporate capacity as treasurer. He clearly was acting within the scope of his authority, and therefore, the corporation would be bound by his representative signature. As the second sentence to Section 3-402(a) states:

If the represented person is bound, the signature of the representative is the “authorized signature of the represented person” and the represented person is liable on the instrument...

It is important to note that the form in which the representative’s signature is made is extremely important for a few reasons. First, if the representative signature is in the proper form, and is in fact authorized, the representative is not liable on the instrument:

If the form of the signature shows unambiguously that the signature is made on behalf of the represented person who is identified in the instrument, the representative is not liable. Section 3-402(b)(1).

The corollary to that rule is stated in Section 3-402(b)(2):

Subject to subsection (c), if (i) the form of the signature does not show unambiguously that the signature is made in a representative capacity or (ii) the represented person is not identified in the instrument, the representative is liable to a holder in due course that took the instrument without notice that the representative was not intended to be liable....

Finally, Section 3-402(c) referred to in 3-402(b)(1) states:

If a representative signs the name of the representative as drawer of the check without indication of the representative status and the check is payable from an account of the represented person who is identified on the check, the signer is not liable on the check if the signature is an authorized signature of the represented person.

When the beef patties in the present case were received by Burger Czar, it made payment by check. The check which was delivered was stolen, and the endorsement was forged. The thieves endorsed the check as Brad Garcia and were given cash. Brad’s forged endorsement was:

...an unauthorized signature [and] is ineffective except as the signature of the unauthorized signer [the thief who cashed the check] in favor of a person who in good faith pays the instrument or takes it for value. Section 3-304(a).

Therefore, the thief was not a ‘holder’ nor a ‘person entitled to enforce the instrument’ [Section 3-301], and, as a result the check was not properly payable. Absent some culpable conduct by Burger Czar, it would be entitled to have its account recredited.