Foreseeable Forgery

Question: We have become aware of a problem with one of our accounts (husband/wife) where two signatures are required. We have had calls from both the husband and the wife saying each wants the money and not to let the other one have it. The checking account, which only has $24 in it only needs one signature. But the savings account has $5,000. We're afraid one of them will hit one of our branches or in some other way get the funds out with only one signature, or with one of the signatures being a forgery. How do we protect ourselves?

Answer: You have been put on notice-and now you need to take any steps necessary to protect your institution in the best possible way. You're not dealing with a checking account, so it makes your job easier. The first thing you'll want to do is take the money out of the account so that one of the account holders can't come in and take the funds by some means-either alone or with a forged document. Buy a cashier's check for the balance, including all interest, and make the check payable to both of them. You may want to put the "and" between their names in bold face and under line it.

Write two letters to each of the account holders telling them you have been put on notice that there is a problem with the account, and advising them of the action you have taken. Inform them that you will deliver the check as directed by both of them, but that any written, mailed directions must have notarized signatures. The letters to each should be sent regular mail and also registered mail-return receipt requested.

The responsibility of genuine signatures after the cashier's check is delivered is on the financial institution that accepts the check for negotiation or deposit.

In the same letter, I would also advise them they have ten business days to close the checking account, or you'll do it for them, drawing a check for the balance payable to both (but in this case with an "or") and mailing it to the address of record unless otherwise instructed.

Your problem would have been more complicated if it had been a checking account. If checks came in to be paid against the account that were properly signed, and you bounced them, you'd be in hot water for wrongful dishonor. On the other hand, if the checks came in and one of the signatures was forged, and you paid the check, you'd be liable to your customer for paying checks with a forged signature. Sort of a lose/lose situation. Obviously, time is of the essence.

It is usually suggested that in any case where you have been put on notice that there may be an adverse claim on your financial institution, take the measures that will guarantee coming out "whole", whatever the action may be. You can always put the money back in the account if you're holding it-but it can be tough to try to retrieve it if it has been paid out. Negotiation is much easier if you're holding the money.

Copyright © 1995 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 5, No. 5, 1/95