A Bearer Certificate of Deposit May Not Be Enforced Against the Issuer 27 Years After Its Issuance
 
December 22, 2004
 
Michael Weissman - Chicago

In January 2001 Kim Griffith was cleaning out a self-storage locker he rented in Largo, Florida, when he found a certificate of deposit (CD) issued by Mellon Bank, N.A. on July 3, 1975, in the amount of $530,000. The CD bore interest at 5.75 percent per annum and matured August 4, 1975. Griffith found the certificate in one of several books stored in the locker that he allegedly had purchased. The CD had not been marked “paid” on its face.

On August 15, 2002, Griffith presented the CD to the bank for payment and Mellon declined to honor it. On December 9, 2002 Griffith sued Mellon claiming principal and interest totaling $2,554,164. Griffith v. Mellon Bank, N.A., 328 F.Supp. 2d 536, (E.D. Pa. 2004).

Discovery produced the following evidence (or lack thereof):

(1) neither Mellon nor Citibank (Mellon’s agent in 1975) had records of the certificates of deposit issued by Mellon (or on its behalf) in 1975 because Mellon’s policy was to keep records of the certificates of deposit it issued for only seven years after payment

(2) Mellon’s earliest records of outstanding certificates of deposit (i.e., those outstanding as of 1987), did not show Griffith’s certificate of deposit as unpaid

(3) the former assistant vice-president in charge of Mellon’s loan department, testified from personal knowledge (through being responsible for Mellon’s bearer certificates of deposit during his tenure with Mellon) that every bearer certificate of deposit issued by Mellon during his tenure had been redeemed

(4) the Mellon assistant vice president who most recently oversaw certificate of deposit processing, testified that after doing some research she had concluded that “all outstanding notes have been paid”

(5) the proceeds of Griffith’s certificate of deposit did not appear in Mellon’s financial records

(6) there was no record that the proceeds of the certificate of deposit escheated to the Commonwealth of Pennsylvania as unclaimed or abandoned property seven years after maturity of the certificate

Having reviewed the foregoing evidence, the Court noted the law of Pennsylvania was as follows. After 20 years all debts not otherwise controlled by the statute of limitations are presumed to have been paid. Until the 20-year period has elapsed, the burden of proof is upon the debtor to prove payment; after 20 years the burden of proof is on the creditor to prove nonpayment and the burden must be borne by clear and convincing evidence other than the instrument itself.

Since Griffith’s instrument had passed the 20-year threshold, the burden was his to overcome the presumption the CD had been paid. Having no direct evidence, Griffith had to rely on circumstantial evidence. He relied on the fact that the CD was not marked “paid,” that Mellon had a policy of marking CDs as paid or destroying them when they were redeemed and that Mellon had no records showing the CD had been paid. The Court did not deem this to be sufficient evidence to overcome the presumption of payment.

One telling point was raised by the Court. It said that Griffith, to overcome by circumstantial evidence the presumption of payment, had to explain why this 27-year old debt had not been collected. He failed to do so.

Griffith also asserted a different argument, i.e., that he was the holder in due course of a negotiable instrument. Were he successful, the defense of payment would not be available to the bank. But the Court ruled that Griffith was not a holder in due course because his testimony was that he paid value for the book inside which the certificate was found but did not give any value for the CD itself because he did not know the CD was in the book.

What’s the point? When confronted with a stale instrument, a financial institution should exercise utmost caution before making payment. A lapse of 27 years after the maturity date of a CD is a red flag that a demand for payment needs to be vigorously challenged.

For more information e-mail Michael L. Weissman at michael.weissman@hklaw.com or call toll free, 1-888-688-8500.