Case Summary: In 2003, Charlie Yi created a ponzi scheme by pretending to work as an agent for Carlin Equities Corporation. Mr. Yi opened up a DBA named “Carlin Co.” He then approached individuals in his community and would have the individual sign documents allegedly from Carlin Equities Corporation. The person would write a check out to either “Carlin Equities Corporation,” “Carlin Co.” or other similar names. Mr. Yi deposited the money in his Wells Fargo account. After collecting 6.3 million dollars, Mr. Yi fled the state.
After learning of the fraud, the individuals sued Wells Fargo to recover their losses. They asserted that Wells Fargo acted negligently in depositing the checks because Wells Fargo failed to confirm the signer of the checks intended the money to be deposited with Carlin Equities Corporation, not Mr. Yi. The jury found Wells Fargo did not act negligently.
Plaintiff’s appealed that the jury instructions confused jurors and inaccurately reflected the appropriate legal principles.
The case mainly focuses on the impact of the Uniform Commercial Code Section 3404. Section 3404, subdivision b(i) and (d). Section 3404 protects banks from situations where the signer of the check did not intend the named individual on the check to be the payee, and the check was endorsed by someone with a similar name as to that identified on the check. Section (d) states that the person who suffered a loss may recover from a depositary bank if the bank failed to use ordinary care in permitting the deposit the check. Section 3404 puts the burden of proving the loss onto the person suffering the loss.
The issue of intent extends even to forging of checks. Where a person forges a check, the intent relates back to the forger’s intent to extract money from the account of the individual defrauded. The bank suffers no liability under 3404 for forged checks because the forger had clear intent as to the named payee and the intended payee. The legislature drafted the language in this manner believing that the person defrauded should carry the duty to prevent such fraud, not the bank.
At the jury trial, the jurors found the instructions confusing and contradictory. Upon requesting clarification regarding the first set of instructions, the court issued a second set that led only to more confusion. Eventually the jurors returned a verdict for the defendant. Where a plaintiff is prejudiced by civil instructional error, the judgment need not be reversed unless the entire cause, including evidence, shows a miscarriage of justice. Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580.
Here, plaintiff signed the checks and intended them to be deposited to Carlin Equities Corporation. Plaintiff also testified that he intended each variation of the name of Carlin Equities Corporation to relate back to that company. Because the intended payee and the identified party were the same, this issue did not violate Section 3404.
Plaintiff’s argue that the Bank should have detected fraud because Yi’s check lacked the term “Equities” from the name of the checks. Section 3404(d), however, does not apply, and further the bank cannot be responsible for every possible mistake made in the naming of an individual or organization on a check.
Plaintiff brought this action under Section 3404 of the California Commercial Code. Under said section, in part, that injury arises where a party intends that the check should be paid to an entity or person other than that named on the check. In this matter, the plaintiff intended the checks to be endorsed by the named party. Therefore section 3404 does not apply. Though the jury instructions did prejudice the plaintiff, such harm was not instrumental in a wrongful verdict. Therefore the lower court decision stands.