Zengen, Inc. v. Comerica Bank

Summary

The California Supreme Court considered whether California Uniform Commercial Code division 11 exclusively governs claims arising from allegedly unauthorized wire transfers and whether Zengen timely notified Comerica Bank of its objection. The court held that division 11 displaces common law claims when they concern conduct specifically covered by its funds-transfer provisions. It further held that the customer must communicate an objection to the bank's acceptance of the payment orders, although no specific formulaic language is required, and remanded for application of that standard.

Holdings

1. California Uniform Commercial Code division 11 displaces common-law causes of action when the claims are based on circumstances specifically covered by division 11 or would create rights, duties, or liabilities inconsistent with its provisions. Because Zengen's claims all arose from the Bank's alleged acceptance and execution of unauthorized payment orders, division 11 supplied the exclusive rights and remedies for those claims.
2. A customer must notify the bank within one year that it objects to the bank's acceptance of the payment order or otherwise considers the bank liable for the loss. Merely informing the bank that the payment order was unauthorized or fraudulent is not necessarily sufficient. No particular formulaic words are required; the issue is whether, under all the circumstances, a reasonable bank would understand that the customer objected to what the bank had done or asserted a claim against the bank.

Questions Presented

1. Whether California Uniform Commercial Code division 11 displaces common-law causes of action based on a bank's acceptance and execution of allegedly unauthorized funds transfers.
2. What a customer must communicate to a bank under California Uniform Commercial Code section 11505 to preserve a claim that the bank was not entitled to retain payment for an unauthorized payment order.

Disposition

reversed_and_remanded