96-4
March 27, 1996
Re: _______ — Request for Interpretation of Payment Instruments Law
Dear Mr. _______:
This responds to your letter of December 13, 1995 and follows my telephone conversation with _______ of _______, counsel for _______
As we understand it, your letter asks whether under Financial Code Section 33524, a person licensed (a “licensee”) under the Payment Instruments Law (Division 16 (commencing with Section 33000) of the Financial Code) is liable on payment instruments issued by it which are sold in California in the same manner as the maker of a note is liable under the California Uniform Commercial Code (the “UCC”). Your letter implies that there is some conflict between Section 33524 and the UCC, apparently stemming from the fact that under the UCC the term “maker” applies exclusively to the issuer of a promissory note and may not apply to a licensee as the drawer of a draft.
As discussed below, in our view, Section 33524 does impose on a licensee liability as a maker under the UCC with respect to payment instruments it issues and sells in this state. Further, in the case you present, we do not believe that Section 33524 imposes any liability on a licensee which differs from the liability that would exist under the UCC in the absence of Section 33524..
Financial Code Section 33524 provides:
“Each licensee shall be liable as a maker in accordance with the California Uniform Commercial Code with respect to each payment instrument issued by it which is sold in this state by it, directly or indirectly through a California agent.”
Clearly Section 33524 was intended to impose maker liability.
As we understand your letter, you allege that the payment instrument in question is a draft drawn by our licensee on our licensee, i.e. it is draft drawn on the drawer. With respect to such an instrument, Section 3412 of the UCC provides:
“The issuer of a note or cashier’s check or other draft drawn on the drawer is obliged to pay the instrument (a) according to its terms at the time it was issued or, if not issued, at the time it first came into possession of a holder, or (b) if the issuer signed an incomplete instrument, according to its terms when completed, to the extent stated in Sections 3115 and 3407. The obligation is owned to a person entitled to enforce the instrument or to an endorser who paid the instrument under Section 3415.” (Emphasis added.)
Section 3105(c) of the UCC defines “issuer” as follows:
“(c) ‘Issuer’ applies to issued and unissued instruments and means a maker or drawer of an instrument.” (Emphasis added.)
Accordingly, under Section 3412 of the UCC, the liability of the maker of a note and the drawer of a draft drawn on the drawer, is identical. This conclusion is confirmed by comment one to the Official Comments to Section 3412. Therefore, Financial Code Section 33524 does not change the liability that would otherwise obtain on the subject instrument under the UCC.
In this letter we have assumed, solely for the sake of discussion, that the allegations of _______ as set forth in your letter and the enclosures to your letter are true. This letter should not be construed as a determination of any disputed fact relating to any matters discussed in your letter.
If you have any questions, please feel free to call me.
Very truly yours,
CONRAD W. HEWITT
Superintendent of Banks
By
THOMAS M. LOUGHRAN
Senior Counsel
TML:arc
cc: _______
——————————————————————————–
January 5, 1996
Re: _______ — Request for Interpretation of Payment Instruments Law
Dear Mr. _______:
This will acknowledge receipt of your letter of December 13, 1995. We will get back to you when our review and analysis of the materials sent with your letter is complete.
Very truly yours,
CONRAD W. HEWITT
Superintendent of Banks
By
THOMAS M. LOUGHRAN
Senior Counsel
TML:arc
——————————————————————————–
May 28, 1996
Re: _______ v. Travelers Express Co.
Dear Mr. _______ :
This is in response to your letter of April 4, 1996.
Your letter implies that you considered our response to _______’s letter of March 27, 1996, to be somewhat vague regarding interpretation of Financial Code Section 33524. In order to resolve any ambiguity, please be advised that in our view, Section 33524 provides that a person licensed under the Payment Instruments Law (Division 16 (commencing with Section 33000) of the Financial Code) is liable with respect to each payment instrument issued by it which is sold in California as the maker of a promissory note would be liable under the Uniform Commercial Code (“UCC”).
In addition, you raise the issue of whether, for purposes of Section 33524, the payment instruments at issue in the subject litigation are “sold in this state.” In our view, the issue of whether a sale has occurred is not governed by the Payment Instruments Law. Accordingly, we do not believe it would be appropriate for us to opine on this matter, especially considering that the issue is currently pending before the Superior Court.
You also raise the issue of whether a licensee may stop payment on a payment instrument issued by it through its California agent. As indicated above, pursuant to Section 33524, that is a question to be decided under the UCC rather than under the Payment Instruments Law. Accordingly, that question too is more appropriately addressed to the court than to us.
Finally, we appreciate your bringing to our attention the practices of _______.
If you have any questions, please feel free to contact me at (415) 263-8512.
Very truly yours,
CONRAD W. HEWITT
Superintendent of Banks
By
THOMAS M. LOUGHRAN
Senior Counsel
TML:lca