Our client services department spends a significant amount of time monitoring for restrictive legends on checks (such as “must be presented within 90 days”). Our deposit account disclosures state that we are not required to honor restrictive legends unless we have agreed to them in writing. Does that language protect us from liability with respect to monitoring for “two signatures required” endorsements? Would a commercial customer’s corporate resolution indicating that two signatures are required on all checks constitute “an agreement in writing”? Or would a separate contract be necessary?

The Uniform Commercial Code (UCC) states that when an organization requires multiple signatures on checks, and a check of the organization is signed by only one signatory, the signature is considered “unauthorized.” Consequently, such a check would not be properly payable. If a bank made payment on the check, the customer could sue to have its account re-credited.

However, the UCC also states that a bank may vary its UCC obligations by agreement with the customer. Many banks do include language in their deposit account agreements that relieve the bank from liability for failing to monitor for multiple signatures. To our knowledge, these “multiple signature” provisions in account agreements ordinarily are included separately from and in addition to provisions regarding restrictive legends (such as “must be presented within 90 days”). Additionally, the UCC states that “reasonable commercial standards do not require the bank to examine the instrument” when collecting or paying instruments by “automated means.”

In some cases, such as in the examples provided below, a bank’s account agreement clarifies that indications on checks or in corporate documents (such as corporate resolutions) that impose a two-signature requirement are not binding on the bank. We recommend reviewing your account agreement to determine if it has provisions specifically addressing multiple signature requirements. If not, we suggest consulting with bank counsel to determine if a “two signatures required” endorsement adequately fits within the scope of protection of your “restrictive legend” waiver, or if your bank should draft new a new provision that offers clearer, stronger “multiple signature” protections.

For resources related to our guidance, please see:

Illinois UCC, 810 ILCS 5/4-401(a) (“A bank may charge against the account of a customer an item that is properly payable from that 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.”)

Illinois UCC, 810 ILCS 5/3-403(b) (“If the signature of more than one person is required to constitute the authorized signature of an organization, the signature of the organization is unauthorized if one of the required signatures is missing.”)

Continental Cas. Co., Inc. v. Am. Nat. Bank and Trust Co., 329 Ill.App.3d 686, 698 (1st Dist. 2002), citing In re Ostrom-Martin, Inc. v. First National Bank of Chillicothe , 188 B.R. 245, 252 (1995 ) (“In In re Ostrom, the court stated that when a bank makes an improper payment the drawer of a check has no conversion remedy against the bank because the check merely represents the drawer's obligation and not its property, but the drawer can bring an action for improper payment under section 4-401(a) and have its account recredited.”)

Illinois UCC, 810 ILCS 5/1-302(a) (“Except as otherwise provided in subsection (b) or elsewhere in the Uniform Commercial Code, the effect of provisions of the Uniform Commercial Code may be varied by agreement.”)

Illinois UCC, 810 ILCS 5/1-302(b) (“The obligations of good faith, diligence, reasonableness, and care prescribed by the Uniform Commercial Code may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable. Whenever the Uniform Commercial Code requires an action to be taken within a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.”)

Illinois UCC, 810 ILCS 5/3-103(a)(7) (“‘Ordinary care’ in the case of a person engaged in business means observance of reasonable commercial standards, prevailing in the area in which the person is located with respect to the business in which the person is engaged. In the case of a bank that takes an instrument for processing for collection or payment by automated means, reasonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the bank’s prescribed procedures and the bank's procedures do not vary unreasonably from general banking usage not disapproved by this Article or Article 4.”)

Bank of America, Deposit Agreement and Disclosures (Contains separate provisions regarding “Checks with Legends or Restrictions” and “Multiple Signatures Not Required.”)

SunTrust, Rules and Regulations for Deposit Accounts (“Multiple Signatures. The Bank does not offer accounts on which two or more signatures are required for a withdrawal of funds from your Account. Any attempt to include such requirement on your checks, signature card or other governing account documents will be for your internal purposes or controls only and will not be binding on the Bank. The Bank may pay checks, items, electronic debits, wires, debit card transactions, online banking transactions, or other withdrawal instructions signed or approved by any one of the authorized signers on the Account who are named on the signature card.”)