We believe that a court could conceive the “two signatures required for withdrawal” language on your signature cards as your bank assuming the responsibility to enforce a multiple signature requirement. However, the Uniform Commercial Code (UCC) also requires your customers to examine their banks statements and notify your bank of any unauthorized instruments within the time frame provided in your account agreements.

The 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. If your bank were to make payment on the check, your customer could sue to have its account recredited for improper payment, even if the transaction was not an “on-us” transaction deposited in an account held at your bank.

However, the UCC imposes a duty on bank customers to examine their account statements with reasonable promptness and notify their bank of any instruments with a missing signature within the UCC’s time limit of one year (or your account agreement’s time limit, which may be shorter).

Additionally, a depository bank’s presentment warranties include a warranty that there are no unauthorized signatures (which, as noted above, would include situations in which one of an organization’s required signatures is missing) — but proving that the depository bank had knowledge of the missing signature would be difficult in cases that are not “on-us,” since the depository bank would not have access to your signature cards and presumably would have no knowledge of your customer’s two-signature requirement.

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.”)

• 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 5/4-406(c) (“[T]he customer must exercise reasonable promptness in examining the statement . . . . If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.”)

• Illinois UCC, 810 ILCS 5/4-406(f) (“Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer (subsection (a)) discover and report the customer’s unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under Section 4-208 with respect to the unauthorized signature or alteration to which the preclusion applies.”)

• Euro Motors, Inc. v. Southwest Fin. Bank & Trust Co., 297 Ill. App. 3d 246, 248, 253 (1st Dist. 1998) (“In December 1993, Euro Motors opened a commercial checking account at defendant bank, Southwest. The account required two signatures for any check drawn for an amount over $ 30,000. . . . In January 1994, Southwest paid check number 5010 in the amount of $ 36,300 drawn on Euro Motors’ account. The check had only one signature . . . but Euro Motors did not notify Southwest of the missing signature or protest payment of the check. . . . Section 4-406(f) clearly places upon a bank’s customer the duty of bringing to the bank’s attention any item containing an unauthorized signature which has been debited to the customer’s account. It evidences a public policy in favor of imposing on customers the duty of prompt examination of their bank statements and the notification of banks of forgeries and alterations and in favor of reasonable time limitations on the responsibility of banks for payment of forged, altered or unauthorized items.”)

• 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.”)

• Napleton v. Great Lakes Bank, N.A., 408 Ill.App.3d 448, 452 (1st Dist. 2011) (“Here, the parties agree that pursuant to the terms of the Account Agreement, the plaintiff's duty to ‘promptly notify’ the bank of any unauthorized charges was modified to mean 30 days from the date the Monthly Statement was mailed to plaintiff. Although we did not find any Illinois cases directly addressing this issue, decisions from other jurisdictions indicate that such an alteration in the notification period is clearly permissible.”)

• Napleton v. Great Lakes Bank, N.A., 945 N.E.2d 111, 118–19 (1st Dist. 2011) (“Here, the parties agreed pursuant to the terms of the Account Agreement that plaintiff was required to timely discover any unauthorized transactions and notify the bank in order to preserve his claim. Our finding that plaintiff’s failure to abide by the terms of that agreement precludes his claim is consistent with our holding in Euro Motors and case law in the majority of other jurisdictions, as well as the public policy underlying the UCC . . . . Therefore, because plaintiff failed to notify the bank of the forgery within 30 days, the trial court did not err in finding that plaintiff had no claim against defendant.”)

• Illinois UCC, 810 ILCS 5/3-417(a) and 810 ILCS 5/4-208(a) (“If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that: . . . (3) the warrantor has no knowledge that the signature of the purported drawer of the draft is unauthorized.”)