Citizens Nat. Bank of Orlando v. Bornstein

• Decision Date: 18 July 1979
• Docket Number: No. 53125,53125
• Citation: 374 So.2d 6,27 UCC Rep.Serv. 242
• Parties: 27 UCC Rep.Serv. 242 CITIZENS NATIONAL BANK OF ORLANDO, now known as Pan American Bank of Orlando, N. A., Defendant-Appellant, v. Barbara BORNSTEIN, as Trustee for National Indemnity Company of Omaha, Plaintiff-Appellee.
• Court: Florida Supreme Court

Page 6

374 So.2d 6

27 UCC Rep.Serv. 242

CITIZENS NATIONAL BANK OF ORLANDO, now known as Pan American Bank of Orlando, N. A., Defendant-Appellant, v. Barbara BORNSTEIN, as Trustee for National Indemnity Company of Omaha, Plaintiff-Appellee.

No. 53125.

Supreme Court of Florida.

July 18, 1979.

Winifred J. Sharp of Johnson, Motsinger, Trismen & Sharp, Orlando, for defendant-appellant.

Hugh M. Palmer of Welbaum, Zook, Jones & Williams, Orlando, for plaintiff-appellee.

HATCHETT, Justice.

We have before us certified questions from the United States Court of Appeals for the Fifth Circuit, concerning the set-off rights and defenses available to an obligor against the assignee of a non-negotiable certificate of deposit. Bornstein v. Citizens National Bank of Orlando, 564 F.2d 721 (5th Cir. 1977). This proceeding is authorized by section 25.031, Florida Statutes (1977) and Fla.R.App.P. 9.510. We conclude: (1) that the transfer of the certificate of deposit as security for the purchase of a bond was the assignment of a non-negotiable instrument entitled to secured transaction treatment under article 9 of the Florida Uniform Commercial Code, sections 679.101 et seq., Florida Statutes (1973); (2) that neither the provisions of section 679.104(9) nor section 679.104(11) exclude the transfer from coverage under article 9; (3) that section 679.318(4) does not invalidate the prohibitions against assignment; and (4) that the obligor, "Bank," is not an "account debtor" entitled to any article 9 defenses under section 679.318(1). We do not reach certified question III.

The facts, as presented by the Court of Appeals for the Fifth Circuit, are as follows:

On November 30, 1973, Milford Mechanical Corporation (Milford), through its president, Frank Iadarola, purchased a $13,000 certificate of deposit from Citizens National Bank of Orlando (Bank). At the time of the purchase, Milford was indebted to the Bank. The front of the form of the certificate of deposit states, in relevant part:

Payable to the registered owner upon presentation and surrender of the certificate . . . .

This certificate is assignable only with the consent of and on the books of the Citizens National Bank of Orlando.

On the reverse side, the following printed language appears:

ASSIGNMENT

(Effective only when recorded on the books of the bank)

The certificate of deposit was not negotiable.

At the same time, a signature card relating to the deposit represented by the certificate of deposit was executed by Iadarola on behalf of Milford. Immediately above the signature line on the form is printed:

This bank is authorized to apply this account, whether savings or certificate of deposit, toward the payment of any indebtedness due this bank from the depositor or depositors, or either of them, whether the debt is several and this account is joint, or the debt is joint and the account is several.

On December 18, 1973, Iadarola signed the assignment on the reverse side of the certificate of deposit on behalf of Milford and filled in National Indemnity Company of Omaha (National Indemnity) as the assignee. This was done to provide collateral for a bond Milford was purchasing from National Indemnity. National Indemnity later typed and executed a similar assignment form on the reverse side of the certificate of deposit and, for National Indemnity's benefit, assigned the certificate of deposit to Barbara Bornstein, as trustee of National Indemnity.

The Bank's records were never changed to show any assignment or transfer of the certificate of deposit and there is no evidence that the Bank was either notified of either assignment or consented to them. In March 1974, the Bank drew a check payable to Milford for the interest earned on the certificate of deposit. This check was endorsed and deposited by Milford.

Milford had borrowed $250,000 from the bank, evidenced by a series of promissory notes, at the time it purchased the certificate of deposit. The last note in the series was an unsecured, consolidated renewal note for $250,000 dated February 21, 1974, and due thirty-two days from that date.

The Bank received the certificate of deposit with a letter requesting payment to Bornstein on April 22, 1974. This was the Bank's first notice of the assignments. On April 29, 1974, the Bank set-off the funds represented by the certificate of deposit against the $250,000 debt owed it by Milford and refused to pay the funds to Bornstein. The next day, the Bank sent a letter to Milford and the co-endorsers informing them of the set-off and demanding that the balance of the debt be paid by May 7, 1974.

From the date of the purchase, November 30, 1973, through April 30, 1974, the Bank did not change its position in reliance upon the certificate of deposit. The Bank, however, did not exercise its right of set-off until April 29, 1974.

564 F.2d 721, 722-3.

It appearing that there were determinative issues involved with no clear controlling precedent in the decisions of this court, the Court of Appeals for the Fifth Circuit certified to us a number of questions which we address in the order outlined by that court. ¹

I. Article Nine Coverage

A. Is the assignment entitled to article nine treatment?

We answer in the affirmative. Under section 679.102(1)(a), article 9 is said to apply:

To any transaction (regardless of its form) which is Intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper, accounts or contract rights; . . . (Emphasis added.)

Both parties recognize that the assignment by Milford of the certificate of deposit was intended as security for the purchase of a bond from National Indemnity, the assignee. National Indemnity, then, was the clear beneficiary of a security interest in the certificate for its sale of the bond to Milford. Therefore, provided the certificate of deposit properly falls within one of the "personal property" classifications named in section 679.102(1)(a), the assignment is a transfer entitled to secured transaction treatment under article 9. The parties agree that the certificate falls under the "personal property" designation of section 679.102(1)(a), but disagree as to its precise classification the appellant calling it either a "general intangible" or "contract right" as defined in section 679.106, the appellee insisting that it is best described as an "instrument" under section 679.105(1)(g). In either event, the transaction would fall under article 9's coverage.

We agree with the appellee that the certificate of deposit here is best characterized as an "instrument" under section 679.105(1)(g). As defined in that section, an "instrument" is:

a negotiable instrument (defined in s. 673.104), or a security (defined in s. 678.102) Or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary endorsement or assignment. (Emphasis added.)

We believe the emphasized portion of the above definition to be an accurate description of the certificate of deposit here. Although it was later assigned by Milford as security for a bond, the certificate as purchased from the Bank simply evidenced the right to payment and was clearly not an agreement creating or providing for a "security interest" as that term is defined in section 671.201(37). While admitting that most authorities define certificates of deposit as "instruments," the Bank argues that the restrictions on transfer here remove the certificate from coverage under section 679.105(1)(g). (The Bank cites cases dealing with the negotiability of instruments under section 673.104(1) in support of its position.) We disagree. If the code drafters had intended to exclude non-negotiable instruments from coverage under section 679.105(1)(g), they would not have added the underlined language in the definition, but would have limited it to include only "negotiable instruments" as was done in article 3.

We find persuasive the reasoning of the Texas Civil Appellate Court in First National Bank in Grand Prairie v. Lone Star Life Insurance Co., 524 S.W.2d 525 (Tex.Civ.App.1975). There, the court held a certificate of deposit payable to the depositor only, with the restrictive legend, "Non-Negotiable," to be an "instrument" under the article 9 definition. The court stated:

Simplicity and clarity in such transactions is better achieved by holding as a matter of law that a non-negotiable certificate of deposit is an "instrument" as defined by § 9.105(a)(9). (§ 679.105(1)(g), Fla.Stat. (1973).) Unquestionably, it satisfies the requirement in this definition of a "writing which evidences the right to the payment of money." We conclude that it also is "of a type which is in ordinary course of business transferred by delivery with any necessary indorsement or assignment." The word "type" may be interpreted either narrowly or broadly. In the light of the general purpose of the Code, we do not construe it narrowly to refer only to writings of exactly the same character, such as, in this case, other non-negotiable certificates of deposit. Instead, we construe it broadly to include any writing which, like a stock certificate or negotiable instrument, is treated as a token of the rights it represents and, therefore, is normally delivered to any person to whom the rights are transferred. The certificate in question resembles such instruments more than it resembles ordinary deposit accounts . . . . It is a writing which the holder must keep and present as evidence of its right, as its language expressly provides. It may easily be delivered by one party to another in the course of a commercial transaction.

First National Bank in Grand Prairie v. Lone Star Life Insurance Co., 524 S.W.2d 525, 533-4.

We agree that the emphasized language in section 679.105(1)(g) should be...