Hey, But It’s My Money! Ownership and the Enforcement of Conversion Liability Under U.C.C. § 3-420

44 Pages Posted: 18 Jun 2014

See all articles by Wayne K. Lewis

Wayne K. Lewis

DePaul University - College of Law

Michael Gentithes

University of Akron School of Law; Chicago-Kent College of Law - Illinois Institute of Technology; New York University School of Law; Loyola University Chicago School of Law

Date Written: June 16, 2014

Abstract

One of the driving engines of the American economy is the creativity of the businesspeople that build the new and unique commercial arrangements which foster society-wide growth. The only limit on that growth engine should be the imagination of the business community. The Uniform Commercial Code (“Code”) regulates commerce in a way that ensures such visionary thinking will not be stymied and new, unique commercial arrangements will flourish. This Article concerns one section of the Code which courts and practitioners wrongly have interpreted to undermine the intent of the Code’s drafters and impede American business.

The Code’s provision for conversion, section 3-420, creates a broad understanding of liability for conversion of an instrument under the statute. When written, it meaningfully broadened the category of potential conversion defendants. That section should thus be read to ensure that the parties able to enforce conversion liability include all of its potential victims, such as the entity to whom an instrument’s proceeds were due and owing on account of services it had rendered. This may not always be the payee or indorsee on the instrument in commercial arrangements vital to the health of the broader economy, such as modern commercial insurance underwriting and a variety of trustee-beneficiary relationships.

In this Article, we take a unique case-by-case view to examine how courts have gone wrong in their understanding of section 3-420. By closely following the evolution of the misguided judicial limitation on the proper party plaintiffs to a statutory conversion action, the Article demonstrates how seemingly logical statements of law led later courts to reach illiberal understandings of conversion contrary to the design of the Code. The Article then argues that a proper understanding of section 3-420 should permit an instrument’s true owner to enforce a party’s liability for converting that instrument, even when the true owner is not the named payee or indorsee. Finally, in light of the prevalence of judicial misunderstanding of section 3-420, we recommend a simple amendment to that section’s language that would correct those errors and ensure the smooth flow of commerce in the future.

Suggested Citation

Lewis, Wayne K. and Gentithes, Michael, Hey, But It’s My Money! Ownership and the Enforcement of Conversion Liability Under U.C.C. § 3-420 (June 16, 2014). 33 Review of Banking and Financial Law 191 (2013), Available at SSRN: https://ssrn.com/abstract=2452135

Wayne K. Lewis

DePaul University - College of Law

25 E. Jackson Blvd.
Chicago, IL Cook County 60604-2287
United States

Michael Gentithes (Contact Author)

University of Akron School of Law ( email )

150 University Ave.
Akron, OH 44325-2901
United States

Chicago-Kent College of Law - Illinois Institute of Technology ( email )

565 W. Adams St.
Chicago, IL 60661-3691
United States

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Loyola University Chicago School of Law ( email )

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Room 1041
Chicago, IL 60611
United States

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