Opinion ID: 2455879
Heading Depth: 2
Heading Rank: 1

Heading: La Sara's Checks

Text: The courts below interpreted the term unauthorized signature differently and therefore disagreed on the application of section 4.406. The trial court rejected the bank's defense under section 4.406. It found that, because Jones's signature was one of four authorized in La Sara's corporate resolution, the checks were not paid on an unauthorized signature. The court of appeals, on the other hand, concluded that the bank was entitled to rely on section 4.406, saying when a bank honors a check or withdrawal on less that the required number of signatures, the signature is an unauthorized signature within the meaning of 4.406(d). 646 S.W.2d at 252. The initial issue is whether the checks drawn on La Sara's account were paid on unauthorized signatures. La Sara contends that, because no signatures were forged and the signature of Jones was authorized, section 4.406(d) does not protect the bank. We do not agree. An unauthorized signature includes more than just a forgery. Pine Bluff National Bank v. Kesterson, 257 Ark. 813, 520 S.W.2d 253, 258 (1975). An unauthorized signature is defined as one made without actual, implied or apparent authority and includes a forgery, Tex.Bus. & Com.Code Ann. § 1.201(43) (Tex.UCC) (Vernon 1968), and includes a signature made by an agent in excess of his authority. Id. § 3.404, comment 1. La Sara's argument that section 4.406 does not apply focuses on Jones's signature rather than that of La Sara, the bank's customer. La Sara's signature required the joint signatures of two officers. Although Jones was one of four authorized to sign, his signature alone was not La Sara's. When the bank paid the checks bearing only one of two required signatures, it paid on an unauthorized signature within the meaning of section 4.406(d). La Sara also argues that the checks were not paid in good faith. If so, the bank cannot claim the protection of section 4.406. The time limits of that section apply only to items paid in good faith. Id., § 4.406(a). Moreover, an obligation of good faith is imposed on the performance of every contract or duty within the Code. Id. § 1.203. Good faith is defined as honesty in fact in the conduct or transaction concerned. Id. § 1.201(19). The test for good faith is the actual belief of the party in question, not the reasonableness of that belief. Riley v. First State Bank, 469 S.W.2d 812 (Tex.Civ.App.Amarillo 1971, writ ref'd n.r.e.). La Sara contends that the bank actually knew Jones's signature alone was insufficient, yet paid the checks anyway, and therefore did not exercise good faith. The trial court agreed, finding that the bank had actual knowledge of the unauthorized change of the signature card from a dual to a single-signature requirement. The court of appeals, however, held that there was no evidence to support this finding. At trial, the evidence showed that La Sara's corporate resolution, which the bank required, was in the bank's files; the corporate resolution specified that two signatures were necessary. The bank president testified that the bank would know of anything that was in the files. The bank, a corporation, is bound by the knowledge of one of its agents if that knowledge came to him in the course of the agent's employment. City of Fort Worth v. Pippen, 439 S.W.2d 660 (Tex.1969); Wellington Oil Co. of Delaware v. Maffi, 136 Tex. 201, 150 S.W.2d 60 (1941). The bank does not contend that the corporate resolution was filed outside the normal course of business. Moreover, the checks were paid pursuant to an obviously altered signature card, and many were deposited into Jones's personal account. The trial court found that, under these facts, the bank knew that Jones's signature alone was not the authorized signature of La Sara. There is evidence supporting that finding. La Sara is entitled to recover for the checks paid on Jones's signature alone, less a credit for the funds from which La Sara benefited. [3]