Central Bank v. Kaiperm Santa Clara Federal Credit Union

Nineteen blank money orders were stolen from a branch office of Kaiperm Santa Clara Federal Credit Union (Kaiperm), filled out in varying amounts and subsequently paid by Central Bank (Bank). Bank brought suit against Kaiperm for damages and declaratory relief, claiming that Kaiperm had breached its duties under a written trust agreement by failing to safeguard the blank forms. Kaiperm based its defense primarily upon the theory that the rules of the commercial code apply to fix liability between the parties. Under the code, when a negotiable instrument such as a check is forged and passed through banking channels, the loss is normally borne by the payor bank. The trial court found that the money orders were not negotiable instruments, and that the code did not otherwise apply to determine the rights of the parties. It ruled that Kaiperm had breached the trust agreement and that the indemnification clause contained therein was valid and enforceable. We agree with the trial court and affirm the judgment in favor of Bank.

Summary

Kaiperm is a credit union serving the employees of five bay area Kaiser hospitals and the Permanente Medical Plan. Bank is a large commercial…