Okla. Stat. tit. 12A § 3-307

Current through Laws 2024, c. 378.

Section 3-307 - Notice of Breach of Fiduciary

(a) In this section:

(1) "Fiduciary" means an agent, trustee, partner, corporate officer or director, or other representative owing a fiduciary duty with respect to an instrument; and

(2) "Represented person" means the principal, beneficiary, partnership, corporation, or other person to whom the duty stated in paragraph (1) of this subsection is owed.

(b) If (i) an instrument is taken from a fiduciary for payment or collection or for value, (ii) the taker has knowledge of the fiduciary status of the fiduciary, and (iii) the represented person makes a claim to the instrument or its proceeds on the basis that the transaction of the fiduciary is a breach of fiduciary duty, the following rules apply:

(1) Notice of breach of fiduciary duty by the fiduciary is notice of the claim of the represented person;

(2) In the case of an instrument payable to the represented person or the fiduciary as such, the taker has notice of the breach of fiduciary duty if the instrument is (i) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary, (ii) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (iii) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person;

(3) If an instrument is issued by the represented person or the fiduciary as such, and made payable to the fiduciary personally, the taker does not have notice of the breach of fiduciary duty unless the taker knows of the breach of fiduciary duty; and

(4) If an instrument is issued by the represented person or the fiduciary as such, to the taker as payee, the taker has notice of the breach of fiduciary duty if the instrument is (i) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary, (ii) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (iii) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person.

Okla. Stat. tit. 12A, § 3-307

Laws 1961, p. 110, § 3-307. Amended by Laws 1991, SB 25, c. 117, § 58, eff. 1/1/1992.

Oklahoma Code Comment

1. Section 3-307 avoids the confusion of pre-revision sub sections 3-304(2) and 3-304(4)(e) . This Section defines the rights of the parties when an instrument is taken from a fiduciary for payment, collection or value with knowledge of the fiduciary status and with notice there has been a breach of the fiduciary's duty. The notice required to deny a person holder-in-due-course status is notice of breach of the fiduciary duty; as before, knowledge of the fiduciary status alone is not sufficient. This Section is based on the Uniform Fiduciaries Act, which has not been adopted in Oklahoma.

2. Subsections (b)(2) and (b)(4) describe some, but not all, instances when the taker has notice of the breach of fiduciary duty. A person will have such notice when the person has notice as defined in sub section 1-201(25) . For two cases relating to instruments made payable to corporations and used for the personal benefit of corporate officers, see Walker v. Bartlesville State Bank, 91 Okla. 231, 216 P. 928 (1923), and Jenkins v. Planters' & Mechanics' Bank, 34 Okla. 607, 126 P. 757 (1912).

3. Subsection (b)(3) describes an instance when the taker does not have notice of the breach of fiduciary duty. It is not sufficient for notice that an instrument be made payable to the fiduciary personally. The fiduciary must use the instrument for its personal benefit or the benefit of someone other than the fiduciary, contrary to the fiduciary's rights or instructions, and the taker must know of that breach.

4. Subsection (b)(4) resolves a number of cases that have arisen, including those where a bank takes a check drawn by a corporation pay" able to the bank and applies the proceeds as directed by a culprit other than for the benefit of the corporation. See, e.g., Master Chemical Corp. v. Inkrott, 55 Ohio St. 3d 23, 563 N.E.2d 26 (1990), where the corporate controller made out checks to the bank as a tax depository for federal taxes so the bank could pay the taxes as they became due, but the bank allowed the controller to deposit some of these checks to another account opened and controlled by the culprit. The Inkrott court also refused to give effect to an exculpatory clause in the corporate resolutions delivered to the bank. A review of bank policies with respect to checks payable to the bank to prevent their use for the benefit of other than the drawer is in order.

5. As a caveat, although it is common practice to use corporate checks to pay employee expenses, such a practice could cause mischief of the type involved in Hanford Accident & Indemnity Co. v. American Express Co., 74 N.Y.2d 153, 542 N.E.2d 1090, 544 N.Y.S.2d 573 (1989). Subsection (b)(4), however, clearly states that the mere fact a corporate check is made payable to the person owed the money is not sufficient to constitute notice. There must be additional facts and circumstances that would give a person reason to question whether a breach exists. In this case, there must be knowledge of the employee's fiduciary status under subsection (b). See Eldon's Super Fresh Stores v. Merrill Lynch, Pierce, Fenner & Smith, 296 Minn. 130, 207 N.W.2d 282 (1973).