When a business customer informs our bank that it requires two signatures for check endorsement, we explain at the time the account is opened that we do not monitor for dual endorsements and advise the customer that it is their responsibility to review their checks for two signatures. However, the corporate authorization resolution form that we provide to our business customers when opening an account includes a field to list the number of signatures required to endorse a check. Even though we advise the customer that we do not monitor checks for multiple signatures, the customer can select a two-signature requirement in this field. Should we discontinue this practice of marking the customer’s request for dual endorsements when our policy is to not monitor for multiple endorsements?

Yes, we recommend discontinuing the practice of accepting a customer’s request for a two-signature authorization on their corporate authorization resolution when your bank’s policy is to not monitor for multiple endorsements.

The Uniform Commercial Code (UCC) provides that when an organization requires multiple signatures to endorse checks, and a check of the organization is endorsed by only one signatory, the endorsement would be considered “unauthorized.” Such a check would not be properly payable, and if a bank were to make payment on the check, the customer could sue the bank to have its account recredited.

However, the UCC also provides that a bank may vary its UCC obligations by agreement with the customer. Indeed, many banks include language in their deposit account agreements that relieve the bank from liability for failing to monitor for multiple signatures, such as in the examples provided below. 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.”

But here, your bank is accepting corporation authorization resolutions from some customers that required two signatures. Even if your account agreement disclaims liability for this practice, as in the examples below, a court conceivably could view your practice as modifying your account agreement. Accordingly, we believe your bank’s current practices entail some risk that some check payments could be challenged as not properly payable under limited circumstances.

For resources related to our guidance, please see:

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.”)

Illinois UCC, 810 ILCS 5/4-401(a) (“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, § 4-401 cmt. 1 (“An item is properly payable from a customer’s account if the customer has authorized the payment and the payment does not violate any agreement that may exist between the bank and its customer.”)

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.”)

Bank of America, Deposit Agreement and Disclosures (“Multiple Signatures Not Required . . . We do not assume a duty to enforce multiple signature requirements that you may agree upon among yourselves. If you indicate on your checks or signature card or other account documents that more than one signature is required for withdrawal, this indication is for your own internal procedures and is not binding on us. We may disregard any instructions to permit withdrawals only upon more than one signature with respect to checks, electronic fund transfers or other debit/withdrawal requests.”)

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.”)

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.”)