Court Refuses to Enforce Bank’s Instructions Requiring Two Signatures for Withdrawals -- UCC Section 11-202(b)

Dark Hall Productions, LLC v. Bank of America, N.A., (Dec. 13, 2012) 2012 WL 6202186

(Unpublished, California Court of Appeal, Second District, Division 2)

Oh, the agony of dealing with banks. One business owner thought he was protecting himself from unauthorized withdrawals by his co-owner, when they opened a company savings account, requested that the signatures of both individuals be obtained before any withdrawals, and secured the bank’s own instructions to this effect in the bank’s notes for the account.

However, the bank allowed the other signer to withdraw all funds from the account.  The aggrieved party sued the bank, but framed the suit only in terms of negligence.  The bank argued, among other things, that the deposit agreement and signature card were controlling, and that they expressly excluded any obligation of the bank to require two signatures.

The court refused to allow theories founded on negligence, based on Zengen, Inc. v. Comerica Bank (2007) 41 Cal.4^th 239. In Zengen the California Supreme Court found that Division 11 of the UCC displaced common law causes of action in the context of authorization of payment orders.

The appellate court did not furnish any extensive analysis of the UCC issues involved but noted that California Commercial Code section 11202(b) was relevant. That section provides, among other things, that “The bank is not required to follow an instruction that violates a written agreement with the customer . . . .”

At the trial court level, the defrauded investor had sought to amend the complaint to go beyond negligence-related theories. These included breach of contract, intentional and negligent misrepresentation and promissory estoppel. However, the trial court held that a 2 ½ year delay justified a refusal to allow amendment, and the appellate court would not find an abuse of discretion.