What notice must banks receive before honoring assignment of certificate proceeds? America First Credit Union v. First Security Bank of Utah Explained

Background and Facts

America First Credit Union (AFCU) made a series of loans to Renaissance Exchange, a military food service contractor. To secure these loans, Renaissance assigned a $99,999 certificate of deposit at First Security Bank to AFCU as collateral. AFCU provided written notice to First Security, which the bank acknowledged by signing the assignment notice. The notice stated that AFCU was holding the certificate as collateral and would remain in effect until written release. When the certificate later converted to a special day-time certificate of deposit, First Security placed a computer “flag” on the account but inadvertently removed it during a subsequent rollover. Seven months before Renaissance defaulted on its loan, the company’s president falsely told First Security that the assignment had been released and withdrew the $99,999 proceeds.

Key Legal Issues

The central issue was whether First Security breached its statutory duty under Utah Code § 70A-9-318(3) by paying certificate proceeds to Renaissance despite having notice of AFCU’s assignment. The statute requires that account debtors receive notification that amounts have been assigned and that payment is to be made to the assignee. First Security argued the notice was inadequate because it did not explicitly direct payment to AFCU.

Court’s Analysis and Holding

The Utah Supreme Court affirmed the trial court’s finding that First Security received adequate notice. The Court emphasized that the plain language of the assignment notice informed First Security of the assignment, its continuing effect, and that AFCU held the certificate. The bank’s acknowledgment of the notice and creation of a computer flag demonstrated understanding that payment should be made to AFCU. First Security’s subsequent policy changes and removal of the computer flag were unilateral actions that did not affect the parties’ existing duties under the properly executed assignment.

Practice Implications

This decision clarifies the notice requirements for assignments under Utah’s version of UCC § 9-318(3). Secured creditors should ensure assignment notices clearly communicate both the fact of assignment and payment instructions. Financial institutions must maintain reliable systems to honor assignments and cannot unilaterally modify procedures without notice to assignees. The case also demonstrates that account debtors bear responsibility for internal procedural failures that result in improper payments to assignors.