In Jozefowicz v. Allstate Ins. Co., 35 Cal. App. 5th 829 (2019), insured plaintiff Stanley S. Jozefowicz sought to enforce a check for policy benefits against his homeowners insurer, Allstate Insurance Company ("Allstate"), that his contractor had deposited with the bank pursuant to Uniform Commercial Code ("UCC") section 3-309, which provides a cause of action on a negotiable instrument where the payee has lost possession of it. The appellate court affirmed the trial court's finding in favor Allstate, finding that section 3-309 did not apply because Allstate was authorized by Jozefowicz to issue checks to the contractor.

Jozefowicz entered a written contract with Sunny Hills Restoration ("Sunny Hills") to perform repairs on his mobile home following a fire loss. The contract provided that Sunny Hills was authorized to endorse and deposit in its account any checks from the insurance company, and that Allstate was to include the name of Sunny Hills on any checks or drafts.

Allstate then issued a check for benefits in the amount of $20,943.97 made payable to both Jozefowicz and Sunny Hills. Allstate sent the check to Jozefowicz, but he never cashed it. A dispute arose between Jozefowicz and Sunny Hills regarding the scope and quality of the repair work. When Sunny Hills requested that Allstate reissue the check and send it directly to them, Allstate did so. Sunny Hills then endorsed the check and deposited it in its bank account.

Jozefowicz sued Sunny Hills, Allstate, and the bank, alleging a cause of action for recovery for a lost, stolen or destroyed check pursuant to UCC sections 3-309 and 3-310(b)(4) against Allstate. Jocefowicz appealed following the trial court's order granting Allstate's motion for summary judgment.

In order to state a cause of action to enforce a check pursuant to UCC section 3-309, the plaintiff must meet the following statutory requirements: (1) the person was in possession of the check and entitled to enforce it when loss of possession occurred; (2) the loss of possession was not the result of a transfer by the person or a lawful seizure; and (3) the person cannot reasonably obtain possession of the check because it was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.

There was no challenge that Jozefowicz met the first element of his claim, as physical delivery of the check to one of the payees put the other payee in constructive possession of it as well. As Jozefowicz was in constructive possession of the check as long as Sunny Hills had actual possession of it, the appellate court then determined that the loss of possession occurred when Sunny Hills negotiated the check to the bank.

The appellate court then turned to the second element, finding that Jozefowicz could not meet the requirement as the negotiation of the check to the bank constituted a transfer.

Section 3203, subdivision (a), defines a transfer as follows: "An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument." Here, the check was delivered by a person (Sunny Hills) other than the issuer (Allstate [see § 3105, subds. (a), (c)]), for the purpose of giving the person receiving the delivery (Farmers & Merchants Bank) the right to enforce the check (i.e., by demanding payment from Bank of America, the bank from which Allstate drew the funds). Accordingly, the loss of possession did occur as a result of a transfer, and thus Jozefowicz cannot satisfy the second element of section 3309.

The court found that it was immaterial that the transfer was not by the person who lost possession, Jozefowicz. The court noted that while section 3-309 does not provide that the transfer must be by the person who lost possession, even if it did, section 3-309 would still not apply because "when Sunny Hills transferred the check to the bank, it was acting as Jozefowicz's representative."

The appellate court rejected Jozefowicz's argument to the contrary that no agency relationship was created by the contract with Sunny Hills because it was not notarized and witnessed by two people as required by Probate Code section 4121(c) regarding powers of attorney. The appellate court found that the power of attorney at issue was coupled with an interest in the subject of the power of attorney and, therefore, was not governed by the Probate Code.

Here, Jozefowicz's contract with Sunny Hills specifically appointed Sunny Hills as Jozefowicz's representative, allowing Sunny Hills to "endorse and deposit in its account any Insurance Company checks or drafts relating to this Proposal and Work Authorization." Further, in the contract Jozefowicz specifically "direct[ed] that Allstate Insurance include the name of Sunny Hill [sic] Restoration on any checks or drafts relating to this Proposal and Work Authorization." The purpose of this arrangement was plainly to provide security for Sunny Hills to be paid for its work. Accordingly, it was an agency coupled with an interest. For that reason, the parties were not required to observe the formalities of the Probate Code in creating a valid agency relationship. Moreover, because this type of agency relationship did not create fiduciary duties, Jozefowicz's argument that the agency was terminated by a breach of fiduciary duty is unavailing.

Consequently, as Sunny Hills was acting as Jozefowicz's representative when it transferred the check to the bank, Jozefowicz could not satisfy the second requirement under section 3-309 and his cause of action failed.

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