I. INTRODUCTION
Banks frequently encounter situations in which business customers have a requirement, on the face of their checks, of two signatures (or more) in certain situations. Typically, the number of required signatures is related to the face amount of the check. The dual-signature requirement generally is imposed by the customer for its own internal security purposes, yet the requirement imposes risks on the bank.
By way of example, if a check contains provisions on its face requiring two signatures for checks in an amount above $2,500, a check issued in the amount of $5,000 containing only a single signature is unauthorized. Payment of the check by the bank violates the order that the customer has given to the drawee bank. The check is not authorized by the customer, and is thus not “properly payable,” and may not be charged against the customer’s account.
With automated presentment and processing of checks the norm, with no visual review by a back-office person, the bank is most likely not negligent under the “standard of care” established by UCC § 3-103(a)(9). However, the bank remains strictly liable to recredit the account. Bank liability results from the provisions of UCC § 4-401 (a), which provide that “[a] bank may charge against the account of a customer an item that is properly payable from the account even though the charge creates an overdraft. An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.” An item that is signed by less than the required number of signers is not “authorized by the customer.”
II. MINIMIZING BANK EXPOSURE TO LIABILITY
To minimize the bank’s exposure to liability for violating the customer’s dual-signature check requirement, the bank would be well-served to include provisions in the deposit agreement disclaiming liability for checks presented in this fashion.
Support for the effectiveness of this type of provisions in a deposit agreement is found in UCC § 4-103(a), which provides:
The effect of the provisions of this article may be varied by agreement but the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure.
The bank is not attempting to disclaim negligence because UCC § 3-103(a)(9) expressly provides that a bank acts with “ordinary care” in its use of automated presentment, whether a forged signature, no signature at all, or only a single signature when the check requires two signatures is involved.
A bank’s deposit agreement should include “dual-signature” provisions containing statements that (a) any dual-signature requirement is for internal control or other personal purposes of the customer; and (b) the customer may not assert a claim and will hold the bank harmless from any claim for permitting a transaction that violates the customer’s dual-signature requirement. Sample deposit card agreement language is set forth below:
Dual Signatures
(Name of bank) does not accept an account for individuals or businesses that require the signature of two or more persons for a withdrawal. If more than one person is authorized to write checks or draw items on your account, you agree that we can honor checks signed by any individual authorized signer, even if there are two or more signature lines on the items and two signatures are required according to your own internal standards. You expressly represent that any signature requirement that you may have now or in the future does not and will not apply to (name of bank).
Furthermore, notwithstanding any provisions to the contrary on any signature card or other agreement you may have with us, you agree that if any account purports to require two or more signers on items drawn on an account or withdrawals from the account, such provision is solely for your own internal control or other personal purposes and is not binding on (name of bank) which is authorized to honor checks signed by a single authorized signer. Further, you agree to hold (name of bank) harmless from any claims against us alleging that two signatures were required.