Some banks may not offer dual-signature checking accounts because their automated check processing systems are incapable of verifying multiple signatures. This may frustrate some customers (such as small businesses, nonprofit charities, partnerships, co-executors and co-trustees) that sometimes use dual-signature checking accounts as an internal accounting control procedure.
To understand the issues involved requires a basic understanding of modern-day check processing and applicable sections of the Uniform Commercial Code (UCC). Until about forty years ago, banks manually verified all check signatures against account signature cards where requirements for multiple signatures were noted. As the number of checks increased and customers demanded faster transactions, check processing became automated. Today, automated systems process hundreds of checks per minute, and it is not feasible to verify the signatures. Nor is signature verification an effective fraud prevention method because people’s signatures change over time and high resolution scanning technology makes forging signatures easy and undetectable. Today, most banks use risk management programs and fraud filters to identify fraudulent checks, and only those checks flagged as high-risk are manually inspected.
Acknowledging industrywide acceptance of automated check processing, the UCC was revised to provide that when processing checks by automated means, “ordinary care” and “reasonable commercial practices” do not require manual examination of checks if a bank follows prescribed procedures and does not vary unreasonably from general banking practices.1 Accordingly, a bank that pays a dual-signature check with only one signature because the bank’s automated check processing system did not verify there were two signatures likely will not be liable to the customer for negligence for failure to exercise ordinary care or reasonable commercial practices.
However, the UCC also provides that (i) a bank may only charge the account of a customer for checks that are “properly payable,” and (ii) a check is properly payable if it is “authorized by the customer” and is in accordance with an agreement between the customer and bank.2 The UCC further provides that, “[i]f 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 lacking.”3 While not necessarily negligent, a bank that pays a dual-signature check with only one signature will be liable for re-crediting the customer’s account because the check is treated as having an “unauthorized signature” and is not “properly payable” and cannot be charged against the customer’s account.
One solution is to offer dual-signature accounts where the account contract clearly indicates that payment is authorized by a single signature, but that the face of the customer’s checks will have two signature lines to accommodate the customer’s internal dual-authorization procedures. According to one UCC expert, “[t]his type of provision should be enforceable under the freedom-of-contract principle codified in UCC § 4-103(a),” 4 which provides that the effect of the UCC provisions discussed above “may be varied by agreement” as long as the agreement does not limit a bank’s responsibilities to act in good faith and exercise ordinary care. This type of agreement varies the effect of the UCC provisions discussed above such that a two-signature check signed by one person will be “authorized by the customer” and “properly payable” by the bank.