A CD Pitfall
January 26, 2016 § 5 Comments
A 2015 COA case reveals a feature of CD’s that could cause problems for some of your clients, and could impact estates you handle.
In 1990, Audie Bell English and several other relatives purchased a $75,000 CD at Sunburst Bank, which later was acquired by Regions Bank. The CD automatically renewed every 6 months at the then-prevailing rate. Under its terms, any of the purchasers could cash out the CD without participation of the others, but to do so the original CD was required to be presented. There was a policy in place, however, for issuance of a replacement original in the event that the initial original certificate became lost.
All of the other purchasers died, and Audie Bell, the sole survivor, presented the original certificate to Regions for payment. The bank refused to honor it, however, because it could not locate any records, which it took to mean that the CD had already been redeemed.
After Audie Bell died, the executrix of her estate filed suit against Regions for breach of contract, seeking damages in the face value of the $75,000 CD, plus a little more than $247,000 in accrued interest.
Both the estate and the bank filed motions for summary judgment.
The chancellor granted Regions summary judgment, relying on a New York case that held, in essence, that there is a legal presumption of payment arising out of the fact of a long delay between the right to enforce an obligation and the attempt to do so. He found no genuine issue of material fact, and that Regions was entitled to a judgment as a matter of law.
In the case of Estate of English v. Regions Bank, decided August 25, 2015, the COA reversed, noting that Mississippi did not recognize the same presumption as in the New York case. The court remanded for a hearing on the fact issue whether the CD had been redeemed, or whether it should be paid.
It should be emphasized here that what was reversed here was the finding that there was no genuine issue of material fact. The chancellor may well resolve the fact issue against the estate at trial, but that will depend on presentation of evidence by both sides.
What I think merits your attention is that, more and more, it seems to me, the rules of banking are tilting in favor of the banks and against “small” depositors [to a bank, $75,000 is a piddling deposit; to most of us, it is a fortune]. You might want to factor this in when advising your clients about record-keeping and protecting assets. Some of your may have some comments about how your clients can protect themselves from an adverse outcome in a scenario such as this, and how to avoid litigation. I just think most of us believe that when we have in hand an original negotiable instrument such as a CD, we expect it to be honored, and that the burden of its own record-keeping should be on the bank.
The Better Chancery Practice Blog 
Your blog is spot on. Sadly, more and more in banking and insurance, the foxes are in charge of the hen house. The government’s job should be to protect the hens–including the property and legitimate expectations of the hens.
With regard to evidence in the re-trial, wouldn’t the bank have to present evidence that the CD had been redeemed?
If the CD had been redeemed they can show it with a document. That is the problem with presumptions; they don’t require proof. The Court of Appeals was right on that point.
Bank records are often not available after 5 years and problem arise when the CD was issued by an institution the bank purchased. So, if they don’t have the records and “grandmom knew she had the CD,” where is client’s claim? The boilerplate documents of financial institutions which customers now sign also places these issues with an arbitrator. Notwithstanding how the courts might be leaning, they are being avoided.
I think many people who buy CD’s have traditionally wanted to hold them for long periods of time, particularly the automatically-renewing CD’s. I guess more clients, particularly the elderly who look at CD’s as a “safe” investment, need to understand that the band just might fight them when they try to cash in after ten-fifteen-twenty years. And, yes, nowadays that issue will wind up before an arbitrator because we all are required to sign away our rights to due process when we do business with the financial sector. I always wonder about doing business with someone who or a business that is afraid to be subjected to the great leveler of the judicial system.