Wednesday, September 1, 2010

UCC § 3-104 Definition of “Negotiable Instrument” Helps Bank Defeats Widow’s Stale Claim

Gabriel v. Wells Fargo Bank, N. A., (August 30, 2010) 2010 WL 3388062 (Not Officially Published)

This case illustrates how the UCC often appears in a supporting role, cited by the courts to bolster a conclusion.

A widow sued a bank (Wells Fargo) as the beneficiary of a bank certificate of deposit originally worth nearly $1 million. The certificate of deposit was opened by her husband in 1988. The husband placed a receipt for the certificate of deposit in a safety deposit box. He died a few years later without telling her about the certificate of deposit. The widow did not learn of the certificate of deposit for another 16 years (after the contents had been sent to the state as unclaimed property). The safety deposit box contained a receipt for the certificate of deposit—which the state controller sent to the widow.

In defense of the widow’s claim, the bank pointed out that the funds on deposit were subject to withdrawal; that most of its records had been destroyed; and that such records as it could locate implied that that no funds were left in the account at the time it was closed. The widow countered with California Evidence Code Section 635, which states that an obligation possessed by a creditor (in this case, the widow) is presumed not to have been paid. This is where the UCC comes in. Rightly or wrongly, the court interpreted Section 635 as dealing primarily with negotiable instruments. The court looked to UCC § 3-104 (California Commercial Code 3104) for the definition of a negotiable instrument. Under 3-104(d) an instrument is not negotiable if it “contains a conspicuous statement” to that effect. Unfortunately for the widow, the receipt for the certificate of deposit stated that it was “not transferrable or negotiable.” Thus, the Court did not apply the Evidence Code Section 635 in favor of the widow.

The Court cited other reasons why the widow could not prevail, primarily because she could not prove that any money her husband had not withdrawn the money prior to his death. Since the funds could be withdrawn, the existence of a receipt originally depositing the funds did not imply that the funds remained on deposit. This appears to be the dispositive reason why the court of appeals denied the widow’s claim.

For the litigator, the case illustrates how the UCC is often a persuasive source of authority. For the transactional lawyer, the case is another sad tale of how better estate planning (and estate administration) could have eliminated the need for the lawsuit and resolved the issue while records were intact.

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Michael said...

That's a lot of money lost by the widow. Too bad he didn't know his husband had that in the safe box all this time. And it's sad that no will was left that mentioned the said account.