Zengen, Inc. v. Comerica Bank, 41 Cal. 4th 239 (2007)

Zengen’s CFO embezzled $4.6 million by directing four fraudulent funds transfers from the company’s account to an account he controlled. Although the trial court granted summary judgment to the bank (which was affirmed by the Court of Appeal), the California Supreme Court reversed. The Supreme Court construed the California Uniform Commercial Code (Section 11505), which requires a customer to notify the bank within one year after receiving notice of a payment of its objection to the payment in order to receive a refund. The Supreme Court held that the lower court should have applied the following test: “Whether, under all of the relevant circumstances, a reasonable bank would understand from the customer’s communication that the customer was objecting to what the bank had done in accepting the payment order or otherwise considered the bank liable for the loss.” Contrary to the bank’s position, there was evidence in this case that Zengen had done more than just inform the bank that the payment orders were unauthorized.