Sheppard Mullin Financial Institutions Law Blog

Question: Does section 1106(1) of the California Commercial Code, which generally precludes an award of consequential and special damages, supersede common law claims for negligence in a "missing indorsements" case?

Answer: Yes, according to the Second District Court of Appeal in Gil v. Bank of America, N.A. (06 C.D.O.S. 1213, Feb. 9, 2006)

In this case, an insurance proceeds check was made payable to the plaintiff homeowners, a lienholder bank, and a claims adjuster. The plaintiffs indorsed the check and gave it to the claims adjuster, who said it would present it to the lienholder bank. Instead, the partially-indorsed check was deposited into a third party's account at the defendant Bank. The Bank repaid the face value of the check, but the plaintiffs sued to recover consequential and special damages, asserting common law negligence and other claims. The trial court sustained the Bank's demurrer.

The Second District affirmed, holding that section 1106(1)'s prohibition of consequential and special damages is not limited to claims asserting forged or unauthorized indorsements but also supersedes common law claims based upon "missing indorsements." "We conclude that missing indorsements are unauthorized indorsements covered by the California Uniform Commercial Code."

Click here for an electronic copy of the opinion.