Question & Answer

Question: We have an account that requires two signatures. However, when the checks were printed, there was only one signature line put on the check. One of the signers took the checks and negotiated them with only one signature. What is our liability on this and how could we have prevented it? We were hoping that by only providing one line, but requiring two signatures, it might protect us from paying out on a check with only one signature.

Answer: First of all, unless you have very large, profitable account, you don't want to make a contract for an account with a customer for checks that require two signatures. What you've done is set up an account that will have to have special handling. Unless your fee schedule in your Reg DD disclosure takes this into consideration, and you're charging extra for service, you're losing money on this customer.

Providing one line but requiring two signatures would work a little better if the checks had been negotiated through your own financial institution. When the teller went to cash the checks, the fact that two signatures were required could have been noted. However, with the checks coming in from another institution, the high speed computer processing can't tell if there is one signature or two on the check. Providing just one line wouldn't make any difference. (It might to your customer, though, who would complain that the second person didn't know where to sign!)

Even if you had two signature lines on the check, there would not be any way of telling if there was a name on each line except by eye-balling the check itself-special handling again.

Your best protection, then, is not to accept accounts that require special handling...unless they are very profitable accounts. The customer's audit procedures should be their responsibility-not yours. You might want to suggest to them that one person should write the checks, another should sign them, and a third should settle the account each month. That way they can set up their own special handling and audit procedures without extra risk or cost to the financial institution.

Your liability in this case, of course, is all the checks that were negotiated. Unfortunately, you made a deal.

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