Short answer. Under Article 1404, an unauthorized contract is unenforceable against the person named as principal unless later ratified — but the person who signed it without authority is not excused. Agency principles make that signer personally answerable to the other contracting party for the obligations created, since he acted without the authority the law requires.
What the law says
Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book.
Civil Code, Article 1404 — Unauthorized Contracts. Read the full provision →
What an unauthorized contract is
An unauthorized contract happens when someone signs, or otherwise binds, another person's name to an agreement without having been given the power to do so — no power of attorney, no board resolution, no prior consent from the person supposedly obligated. Article 1404 does not spell out a separate rule for this situation; instead it points to Article 1317 and to the general rules on agency to supply the answer, treating the unauthorized signer functionally the same way the law treats an agent who has exceeded his authority.
Why the named principal is not bound
Because the person in whose name the contract was signed never authorized it, that contract cannot be enforced against him. It sits in an unenforceable state, not a void one, which means it is capable of becoming binding later if the named party chooses to ratify it — expressly, by later approving the deal in writing, or tacitly, by accepting its benefits with knowledge of how it came about. Until that ratification happens, the other contracting party has no claim against the supposed principal at all.
Why the person who signed can still be liable
Agency law does not let the unauthorized signer walk away free simply because the principal is not bound. Someone who deals as though he has authority he does not actually have is understood to have represented that the authority exists. When that turns out to be false and the principal refuses to ratify, the other party who relied on the representation is left with a claim against the person who made it, not against the innocent party whose name was used without permission.
What this means in practice
A person on the other side of an unauthorized contract should not assume the deal is worthless — asking the named principal to ratify it can still produce a binding agreement. But relying on the signer's word about his authority carries risk: if ratification never comes, the recourse shifts to that individual personally, and collecting from him may be far less certain than collecting from the principal the contract was meant to bind.
Related provisions
- Civil Code, Article 1404 — Unauthorized Contracts
- Civil Code, Article 1317 — Contracts in the Name of Another (Unauthorized)