The personal liability of officers who sign corporate checks.

THE PERSONAL LIABILITY OF OFFICERS WHO SIGN CORPORATE CHECKS

A check is the most common type of commercial paper in circulation today. A large number of checks are issued by corporations. These invariably bear the signature of an office authorized to sign on behalf of the firm. Frequently,

the officer signs without realizing that he or she may be assuming a personal liability on the instrument--if, for example, the corporation should default. Small business owner/operators and their employees should be aware of the risk of personal liability when signing the firm's checks. The cases described below illustrate the dangers of signing a check without clearly indicating one's capacity as a corporate representative when doing so.

A CASE EXAMPLE

In 1979, Frederick J. Dowie, president and sole stockholder of Fred Dowie Enterprises, Inc., ordered 325,000 hot-dog buns from the Colonial Baking Company. Payment was made by corporate check. The check, for $28,000, showed the name, address, and bank account number of the company. It also bore, on the signature line in the lower right, the cursive signature "Frederick J. Dowie." Only three hundred of the buns were sold by the company. Following a dispute over the ownership and responsibility for the remaining buns, payment was stopped on the check. Colonial brought suit not only against Dowie's company but also against Dowie himself, based on the fact that he signed the check. Dowie argued that he had signed merely as authorized representative of the corporation. In support of this argument, Dowie pointed out that the instrument was clearly marked as a corporate check, bearing the name and address of the firm. Certainly, said Dowie, the signing officer of a corporation should not be held liable in such a situation. The Supreme Court of the state of Iowa disagreed. Dowie was held personally liable for the $28,000.

Why was Dowie held liable on this instrument? Because Dowie, like many executives, failed to sign this check in the proper manner.

THE STATUTORY AUTHORITY

The Uniform Commercial Code (the Code), applicable in all states, indicates that a person who signs his own name to an instrument "except as otherwise established between the immediate parties, is personally obligated if the instrument names the person represented but does not show that the representative signed in a representative capacity ...."