Meaning
Signatures placed on a document or financial instrument without the actual, implied, statutory, or apparent authority of the person or entity whose name is used. An unauthorized signature renders a contract voidable and can lead to claims of fraud or breach of warranty. It often occurs when an employee exceeds their delegated powers or when a document is forged.
Liability Shift
The person who signs without authority usually becomes personally responsible for the obligations in the document. Because the entity did not consent, the unauthorized signature does not bind the corporation.
Ratification Process
A board can choose to accept a deal after the fact even if the initial signing was not permitted. By doing so, they treat the unauthorized signature as if it had been valid from the beginning. This process can save a beneficial deal but also commits the company to all the terms and risks involved.
Bank Duty
Financial institutions have a responsibility to check signatures against the authorized list on file. If a bank honors a check with an unauthorized signature, it may be required to return the funds to the account holder. This creates a strong incentive for lenders to maintain rigorous verification procedures.
