Opinion
No. CV 10 6002699
September 22, 2011
MEMORANDUM OF DECISION
Before the court is the defendant's motion for summary judgment (#124) based on the ground that there is no genuine issue of material fact that alleged unauthorized transactions pertaining to the plaintiff's bank accounts are time-barred. For the reasons given, the motion for summary judgment must be granted.
I FACTS
On January 31, 2011, the plaintiff, FCT Electronics, LP, filed a two-count amended complaint against the defendant, Bank of America, N.A., alleging negligence and breach of contract. The complaint alleges the following facts. Beginning in 2003, the plaintiff maintained three primary bank accounts with the defendant, a business checking account, payroll account and money market account. The only authorized signatories on these accounts were Daniel Schreck, the plaintiff's general partner and president, Keith Tracy and Donna Wallburg. In August 2003, the plaintiff hired James P. Crowley as its controller. As controller, Crowley was responsible for making deposits with the defendant and transacting other business on the plaintiff's behalf with the defendant. Crowley, however, was not an authorized signatory to any of the accounts.
Fleet Bank was the predecessor of the defendant and the institution with which the plaintiff first opened its banking accounts. Fleet Bank was, thereafter, acquired by Bank of America.
Beginning in late 2005 or early 2006, Crowley engaged in a pattern of embezzlement from the plaintiff, primarily through manipulation of, and access to, the plaintiff's accounts with the defendant. From late 2005 to early 2010, Crowley engaged in a pattern of regular withdrawals from the plaintiff's accounts, immediately converting those funds into foreign currency. The defendant never asked Crowley to produce authorization or documentation permitting his actions. Moreover, Crowley received an unsolicited phone call from the defendant offering the plaintiff a bank debit card for its use and convenience, which would be tied to the plaintiff's deposit account. Furthermore, the defendant granted Crowley wire transfer access and authority, without authorization from the plaintiff. Crowley embezzled in excess of $1.8 million dollars.
Crowley was charged with larceny in the first degree under General Statutes § 53a-119 and General Statutes § 53a-122. The plaintiff has also brought a civil suit against Crowley.
In count one, sounding in negligence, the plaintiff alleges that Crowley was able to consummate his illegal and fraudulent scheme as a direct result of the negligent acts and omissions of the defendant, specifically its failure to follow its internal procedures, protocols and common banking practices. In count two, alleging breach of contract, the plaintiff alleges that, based on several contractual documents which defined the bank/depositor relationship, the defendant was contractually obligated to maintain and control the accounts in accordance with the terms of those agreements as well as exercise ordinary care and act in good faith in performing account services. The plaintiff alleges that, in allowing Crowley to make regular withdrawals of the plaintiff's funds and convert them into foreign currency, the defendant materially breached the terms and conditions of these agreements as well as its legal obligations to the plaintiff.
The plaintiff alleges that the defendant's contractual duties are set forth in a 2004 Master Agreement for Cash Management Services, a 2004 Fund Transfer Agreement as well as a Deposit Agreement and Disclosures dated 2004 and November 2008.
On February 14, 2011, the defendant filed an answer and special defenses, asserting, inter alia, (1) a contractual limitation on liability set forth in the 2004 Deposit Account Agreement and Disclosure Statement issued by Fleet Bank and a 2008 version issued by the defendant (Deposit Agreement); and (2) a statutory limitation on liability pursuant to General Statutes § 42a-4-406. The plaintiff issued a general denial in response to the defendant's special defenses on February 18, 2011.
On June 27, 2011, the defendant filed the present motion for summary judgment along with a supporting memorandum of law and evidentiary support. The defendant seeks judgment in its favor on the ground that there is no genuine issue of material fact that all allegedly unauthorized transactions pertaining to the plaintiff's accounts are time-barred. On August 2, 2011, the plaintiff filed an objection to the motion for summary judgment along with a supporting memorandum of law and evidentiary support. The defendant filed a reply memorandum and additional evidentiary support on August 12, 2011. The matter was heard on the August 22, 2011 short calendar. Additional facts will be presented as necessary.
II DISCUSSION A
CT Page 20345
Summary Judgment Standard
"Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party." (Internal quotation marks omitted.) Sherman v. Ronco, 294 Conn. 548, 553-54, 985 A.2d 1042 (2010). "[T]he `genuine issue' aspect of summary judgment requires the parties to bring forward before trial evidentiary facts, or substantial evidence outside the pleadings, from which the material facts alleged in the pleadings can warrantably be inferred . . . A material fact has been defined adequately and simply as a fact which will make a difference in the result of the case." (Citation omitted; internal quotation marks omitted.) Buell Industries, Inc. v. Greater New York Mutual Ins. Co., 259 Conn. 527, 556, 791 A.2d 489 (2002)."In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact. The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law. The courts hold the movant to a strict standard. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact . . . As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent . . . When documents submitted in support of a motion for summary judgment fail to establish that there is no genuine issue of material fact, the nonmoving party has no obligation to submit documents establishing the existence of such an issue . . . Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue . . . It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue. Mere assertions of fact . . . are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17-45]." (Internal quotation marks omitted.) Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1, 10-11, 938 A.2d 576 (2008).
B Analysis CT Page 20346
The defendant moves for summary judgment on the ground that there is no genuine issue of material fact that all allegedly unauthorized transactions pertaining to the plaintiff's accounts are time-barred based upon the contractual documents governing the plaintiff's accounts with the defendant. Alternatively, the defendant argues that any allegedly unauthorized transactions made prior to December 1, 2009, are time-barred pursuant to General Statutes §§ 42a-4-406(c) and (d), and/or that any allegedly unauthorized transactions made prior to December 1, 2008 are time-barred pursuant to General Statutes § 42a-4-406(f).
In support of its position that the plaintiff's claims are contractually time-barred, the defendant submits the affidavit of Donna Hoskins Poitevien, an officer of the defendant. Poitevien attests to the relevant terms of the Deposit Agreement governing the plaintiff's accounts with the defendant. The Deposit Agreement requires the plaintiff to notify the defendant within thirty days after sending the monthly statement if there are any unauthorized transactions reflected in that monthly statement. If the plaintiff fails to do so, the plaintiff is responsible for the unauthorized item and precluded from asserting it against the defendant. Additionally, the Deposit Agreement provides that the defendant is not liable to the plaintiff for subsequent unauthorized transactions on the plaintiff's accounts by the same person if the plaintiff fails to report an unauthorized transaction on the plaintiff's accounts within thirty days following the closing date of the statement containing information about the first unauthorized transaction. Furthermore, the Deposit Agreement provides that sixty days after the defendant sends a statement is the maximum reasonable amount of time for the plaintiff to review its statement and report any unauthorized transaction to the defendant. If the plaintiff fails to notify the defendant within sixty days, then the plaintiff cannot make a claim against the defendant for the unauthorized transaction, regardless of the care or lack of care the defendant may have exercised in handling the plaintiff's account.
The parties do not dispute the relevant language of the Deposit Agreement.
The parties do not dispute that the unauthorized transactions were reflected in the monthly bank statements sent by the defendant to the plaintiff and/or made available to the plaintiff by the defendant. Nor do the parties dispute that the first unauthorized transaction occurred in late 2005 or early 2006, but the plaintiff did not report any unauthorized transactions to the defendant until January 2010. The defendant argues, therefore, that the plaintiff did not report the unauthorized transactions within the specified time period set forth in the Deposit Agreement and, consequently, the plaintiff's claims are time-barred.
The defendant submits excerpts from the deposition transcript of Stephen Pedneault, the plaintiff's expert witness, testifying that the transactions were reflected in the monthly bank statements. The defendant also submits the plaintiff's responses and objections to the request to admit, in which the plaintiff admits that the unauthorized transactions were reflected in the monthly bank statements sent by the defendant to the plaintiff and/or made available to the plaintiff by the defendant. In opposition, the plaintiff merely submits the affidavit of Daniel Schreck, the president and managing partner of the plaintiff, attesting that the bank statements were never transmitted electronically to him, personally, nor did he receive or review them.
The plaintiff, however, objects on the ground that there is a genuine issue of material fact as to whether the Deposit Agreement created a binding agreement between the parties. The plaintiff argues that, while both Fleet Bank and the defendant gave the plaintiff the Deposit Agreement, the defendant provided no evidence that the plaintiff ever negotiated, signed or accepted all the terms of the Deposit Agreement. The plaintiff notes that, although the plaintiff's representative was required to sign numerous documents at the inception of the account, no signature was required on the Deposit Agreement. According to the plaintiff, much of the communication and delivery of the relevant documents at the inception of the relationship between the plaintiff and the defendant was through Crowley, but the plaintiff contends that it is unclear whether the plaintiff knew of the limitations contained in the Deposit Agreement or agreed to be bound. In support of its position, the plaintiff submits excerpts from the deposition transcript of Crowley, in which Crowley testified that he "probably" did not read the Deposit Agreement nor did he discuss its terms with anyone at the plaintiff or the defendant. The plaintiff also submits excerpts from the deposition transcript of Jeffrey Roman, Senior Vice President for Fleet Bank, who identified the Deposit Agreement and testified that customers do not sign the Deposit Agreement.
The plaintiff also submits copies of an "Automated Clearinghouse Service Agreement," a "Fleet WebConnect Service Agreement," a "Master Agreement for Cash Management Services," and a "Funds Transfer Agreement" between itself and Fleet. The aforementioned documents indicate that they were signed by Donna Wallburg, Partner, on behalf of the plaintiff, and Jeffrey Roman, Senior Vice President for Fleet, on September 24, 2004.
Additionally, the plaintiff submits the affidavit of Daniel Schreck, the president and managing partner of the plaintiff. Schreck attests that "when [the plaintiff] opened its accounts with [the defendant], [the plaintiff] received many documents including [the defendant's] Deposit Agreement and Disclosure, but I [Schreck] do not recall any opportunity to discuss, negotiate or even sign an acknowledgment of receipt of these documents. I have no recollection or knowledge of any duly authorized officer or agent of [the plaintiff] signing any document accepting the terms and conditions of the Deposit Agreement and Disclosure Statement used by [the defendant]."
In response, the defendant contends that the evidence submitted by the plaintiff does not raise any issue of fact with regard to whether the Deposit Agreement constitutes an enforceable binding contract.
In their respective memoranda of law, the parties note that there are no Connecticut cases on point. Independent research has also failed to reveal any cases where a Connecticut court has examined whether a deposit agreement given to a customer upon an account being opened at a bank constitutes a binding, enforceable contract. Nonetheless, countless courts in other jurisdictions have addressed this issue, providing a well-reasoned basis for this court's finding that the Deposit Agreement did create a binding, enforceable contract between the plaintiff and the defendant.
"The relationship between a bank and its depositor is contractual in nature . . . A binding contract between a bank and its depositor is created by signature cards and a deposit agreement." (Citation omitted.) Continental Casualty Co., Inc. v. American National Bank Trust Co. of Chicago, 329 Ill.App.3d 686, 692, 768 N.E.2d 352 (2002); see Lema v. Bank of America, N.A., 375 Md. 625, 638, 826 A.2d 504 (2003); First Federal Savings Loan Assn. of Hazleton v. Office of the State Treasurer, Unclaimed Property Review Committee, 543 Pa. 80, 83, 669 A.2d 914 (1995); see also American Airlines Employees Federal Credit Union v. Martin, 29 S.W.3d 86, 96 (Tex. 2000) ("[s]uch signature cards establish a contract between banking institution and customer, regardless of whether the customer reads all the provisions to which he is agreeing"); 2 Richard A. Lord, Williston on Contracts § 6.44 (4th ed. 2007) ("[d]epositors at common law are generally held bound by references on signature cards and in passbooks to the conditions and limitations contained in a bank's bylaws, regardless of whether the customer has read the signature card or passbook in which the reference is contained").
In the present case, there is no dispute between the parties that the plaintiff maintained commercial deposit and checking accounts with Fleet Bank and, thereafter, the defendant. Moreover, there is no dispute that authorized representatives of the plaintiff signed the signature card for the accounts. Furthermore, there is no dispute that the plaintiff was provided with a copy of the defendant's Deposit Agreement. Finally, there is no genuine issue of material fact that the signature card bound the plaintiff to the terms set forth in the Deposit Agreement. As such, there is no genuine issue of material fact that the Deposit Agreement is a binding contract between the plaintiff and the defendant.
In his affidavit, Schreck attests that the plaintiff maintained the aforementioned accounts, a signature card was executed and that the plaintiff received the Deposit Agreement from the defendant. Schreck attests, however, that he, personally, as the president of the plaintiff, did not have an opportunity to discuss or negotiate the terms of the Deposit Agreement and did not, personally, agree to them. Schreck also attests that he has no knowledge of any duly authorized officer or agent of the plaintiff signing any document accepting the terms and conditions of the Deposit Agreement. "[S]ignature cards establish a contract between banking institution and customer, regardless of whether the customer reads all the provisions to which he is agreeing." American Airlines Employees Federal Credit Union v. Martin, supra, 29 S.W.3d 96.
The plaintiff argues, however, that even if this court finds that there is no genuine issue of material fact that the Deposit Agreement constitutes a binding agreement, the defendant is still not entitled to summary judgment in its favor because the Deposit Agreement is a contract of adhesion and the defendant is attempting to limit its liability in violation of public policy. The plaintiff asserts that the rule set forth in Hyson v. White Water Mountain Resorts of Connecticut, Inc., 265 Conn. 636, 829 A.2d 827 (2003), and applied in Hanks v. Powder Ridge Restaurant Corp., 276 Conn. 314, 885 A.2d 734 (2005), should be equally applied in commercial situations where there is a disparity in bargaining power. These cases demonstrate the recognized public policy against limitation of liability clauses in contracts of adhesion between operators of recreational facilities and the general public.
According to the plaintiff, the controlling principle applied by Connecticut courts seems to be that where a contract is offensive to public policy, it should not be enforced. The plaintiff contends that it is offensive to public policy for the defendant to "foist" a sixty-page Deposit Agreement on the plaintiff without allowing negotiations, requiring a signature of acceptance or even an acknowledgment of receipt. The plaintiff asserts that Connecticut's public policy is reflected in the governing provisions of the Uniform Commercial Code (UCC) which prohibits any agreement that purports to limit liability and reduce applicable statute of limitations for claims less than what is allowed by the UCC, citing General Statutes § 42a-4-103.
"The effect of the provisions of this article may be varied by agreement, but the parties to the agreement cannot disclaim a bank's responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank's responsibility is to be measured if those standards are not manifestly unreasonable." General Statutes § 42a-4-103(a).
In reply, the defendant notes that there is no Connecticut case law addressing the issue of whether a deposit account agreement is a contract of adhesion but that courts in other jurisdictions have held that such agreements are not contracts of adhesion. Moreover, the defendant contends that the court should not apply the principles set forth in Hyson v. White Water Mountain Resorts of Connecticut, Inc., supra, 265 Conn. 636, and Hanks v. Powder Ridge Restaurant Corp., supra, 276 Conn. 314, because those cases are readily distinguishable from the present case. Furthermore, the defendant argues that the UCC permits parties to vary the terms of Article 4 of the UCC, citing General Statutes § 42a-4-103(a). Thus, according to the defendant, the plaintiff's contention that the Deposit Agreement runs afoul of the public policy as reflected in the UCC is without merit because the UCC does not prohibit any agreement that purports to limit liability and reduce statute of limitations on claims less than what is allowed by the UCC.
"[T]he most salient feature [of adhesion contracts] is that they are not subject to the normal bargaining processes of ordinary contracts and that they tend to involve a standard form contract prepared by one party' to be signed by the party in a weaker position, [usually] a consumer, who has little choice about the terms." (Internal quotation marks omitted.) Rearden v. Windswept Farm, LLC, 280 Conn. 153, 162-63, 905 A.2d 1156 (2006). There is some disagreement between courts in other jurisdictions concerning the nature of agreements between a depositor and a bank, i.e., whether such agreements are contracts of adhesion. Compare Perdue v. Crocker National Bank, 38 Cal.3d 913, 925, 702 P.2d 503 (1985), appeal dismissed, 475 U.S. 1001, 106 S.Ct. 1170, 89 L.Ed.2d 290 (1986) ("[t]he signature card, drafted by the bank and offered to the customer without negotiation, is a classic example of a contract of adhesion . . ."), with ADC Rig Services, Inc. v. JP Morgan Chase Bank, N.A., 641 F.Sup.2d 617, 623 (S.D. Tex. 2009) (plaintiff failed to cite any legal authority to support the argument that the account agreements were unenforceable adhesion contracts); Quality Bank v. Cavett, 2010 N.D. 183, 788 N.W.2d 629, 633 (2010) (checking account agreement was not an adhesion contract); Wallace v. National Bank of Commerce, 938 S.W.2d 684, 687 (Tenn. 1996) (concerning a deposit agreement, "[s]ome of the characteristics of an adhesion contract are present, the deposit agreements are standardized forms, and, undoubtedly the opportunity to open an account with a particular bank was presented on a take-it-or-leave-it basis. However, these facts standing alone are not sufficient.").
The court finds that the Deposit Agreement is a contract of adhesion because it is not subject to the normal bargaining procedures of ordinary contracts. See Rearden v. Windswept Farm, LLC, supra, 280 Conn. 162-63. Nonetheless, the Deposit Agreement is enforceable and not offensive to public policy. The majority of jurisdictions conclude that, regardless of whether such agreements are adhesion contracts, they are, nonetheless, generally enforceable and not unconscionable. In Perdue v. Crocker National Bank, supra, 38 Cal.3d 913, the California Supreme Court held that a deposit agreement was a classic contract of adhesion. Nonetheless, the court explained that "[t]o describe a contract as adhesive in character is not to indicate its legal effect . . . [A] contract of adhesion is fully enforceable according to its terms . . . unless certain other factors are present which, under established legal rules — legislative or judicial — operate to render it otherwise . . . Generally speaking . . . there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or `adhering' party will not be enforced against him . . . The second — a principle of equity applicable to all contracts generally — is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or unconscionable." (Citations omitted; internal quotation marks omitted.) Id., 925; see ADC Rig Services, Inc. v. JP Morgan Chase Bank, N.A., supra, 641 F.Sup.2d 623 (adhesion contracts are not automatically unenforceable); Wallace v. National Bank of Commerce, supra, 938 S.W.2d 688 ("not all adhesion contracts are unenforceable. Even if a contract is found to be adhesive, it is enforceable unless it is unduly oppressive or unconscionable.").
This approach is consistent with Connecticut law. "Although it is well established that parties are free to contract for whatever terms on which they may agree . . . it is equally well established that contracts that violate public policy are unenforceable . . . [T]he question [of] whether a contract is against public policy is [a] question of law dependent on the circumstances of the particular case . . ." (Citations omitted; internal quotation marks omitted.) Hanks v. Powder Ridge Restaurant Corp., supra, 276 Conn. 326-27.
"[T]he doctrine [of unconscionability] has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results . . . The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it . . . Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided . . . The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability." (Citation omitted; emphasis in original; internal quotation marks omitted.) Van Voorhies v. Land/home Financial Services, Superior Court, judicial district of New Haven, Docket No. CV 09 5031713 (September 3, 2010, Alexander, J.) ( 50 Conn. L. Rptr. 630). "Substantive unconscionability is indicated by contract terms so one-sided as to `shock the conscience' . . . [I]t is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience . . . Alternatively, [s]ubstantive unconscionability consists of an allocation of risks or costs which is overly harsh or one-sided and is not justified by the circumstances in which the contract was made." (Citation omitted; internal quotation marks omitted.) Id.
"A frequently cited standard for determining whether exculpatory agreements violate public policy was set forth by the Supreme Court of California in Tunkl v. Regents of the University of California, [ 60 Cal.2d 92, 98-101, 383 P.2d 441, 32 Cal.Rptr. 33 (1963)]. In Tunkl, the court concluded that exculpatory agreements violate public policy if they affect the public interest adversely . . . and identified six factors ( Tunkl factors) relevant to this determination: [1] [The agreement] concerns a business of a type generally thought suitable for public regulation. [2] The party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some members of the public. [3] The party holds himself out as willing to perform this service for any member of the public who seeks it, or at least for any member coming within certain established standards. [4] As a result of the essential nature of the service, in the economic setting of the transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks his services. [5] In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract of exculpation, and makes no provision whereby a purchaser may pay additional reasonable fees and obtain protection against the negligence. [6] Finally, as a result of the transaction, the person or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or his agents . . . The court clarified that an exculpatory agreement may affect the public interest adversely even if some of the Tunkl factors are not satisfied." (Citations omitted; internal quotation marks omitted.) Hanks v. Powder Ridge Restaurant Corp., supra, 276 Conn. 328.
"Having reviewed the various methods for determining whether exculpatory agreements violate public policy, we conclude, as the Tunkl court itself acknowledged, that [n]o definition of the concept of public interest can be contained within the four corners of a formula . . . Accordingly . . . [t]he ultimate determination of what constitutes the public interest must be made considering the totality of the circumstances of any given case against the backdrop of current societal expectations . . . Thus, our analysis is guided, but not limited, by the Tunkl factors, and is informed by any other factors that may be relevant given the factual circumstances of the case and current societal expectations." (Citations omitted; internal quotation marks omitted.) Hanks v. Powder Ridge Restaurant Corp., supra, 276 Conn. 330.
The public policy reflected in Hyson v. White Water Mountain Resorts of Connecticut, Inc., supra, 265 Conn. 636, and Hanks v. Powder Ridge Restaurant Corp., supra, 276 Conn. 314, and relied on by the plaintiff, does not apply to the present case because the plaintiff and the defendant represent sophisticated business entities; see SNET Information Services, Inc. v. O'Neal, Superior Court, judicial district of New Haven, Docket No. CV 07 6001656 (March 15, 2011, Fischer, J.); and the nature of the risk allocation between operators of recreational facilities and the general public implicates different public policy than risk allocation between a depositor and a bank.
No Connecticut court has addressed the validity of a shortened statute of limitations in deposit agreements, but courts in other jurisdictions have approved them. See Jamison v. First Georgia Bank, 193 Ga.App. 219, 387 S.E.2d 375 (1989); Parent Teacher Association, Public School 72 v. Manufacturers Hanover Trust Company, 524 N.Y.S.2d 336 (1988); Basse Truck Line, Inc. v. First State Bank, 949 S.W.2d 17 (Tex.App. 1997).
Particularly relevant and instructive to this court's analysis is Parent Teacher Association, Public School 72 v. Manufacturers Hanover Trust Company, supra, 524 N.Y.S.2d 336. In that case, the defendant bank moved for summary judgment on the ground that the plaintiff's claim was barred by "noncompliance with a condition precedent and a period of limitation in the depositor's agreement." Id., 337. The plaintiff, a parent-teacher association (PTA), brought a wrongful payment action against the bank alleging that the bank negligently paid checks on which the signatures were forged or that were missing one of two necessary signatures. Id. When the PTA opened its account with the bank, it executed and filed a signature card containing, among other documents, a depositor's contract. Id. Both documents required that the PTA's check bear two signatures, those of the president and the treasurer. Id. The depositor's contract required the PTA to be bound by the monthly statement of account. Id. The monthly statements, which contained forged checks, were mailed to the treasurer's home address but the PTA alleged that the treasurer did not see the statements because her husband intercepted them to conceal his forgery. Id. The depositor contract required written notice of any irregularity within fourteen days of the delivery or mailing of the statement, provided that no action could be brought against the bank unless notice was provided within fourteen days and required that legal action be brought within one year after the date when the statement was delivered or mailed. Id., 339. The bank argued that the PTA did not comply with these conditions precedent. Id.
See Basse Truck Line, Inc. v. First State Bank, supra, 949 S.W.2d 17, relying on Parent Teacher Association for its finding that a shortened statute of limitations contained in a depository agreement is not contrary to public policy where Texas courts had not passed on the validity of a shortened statutory period.
The court explained: "Given the [UCC's] effort to harmonize the law with its view of commercial reality, and in accord with traditional common-law notions of freedom of contract, the code permits parties to a contract of deposit to agree between themselves as to their duties, and the legal consequences to flow from breach, provided that the agreement does not disclaim the bank's responsibility for its own lack of good faith or failure to exercise ordinary care . . . Thus, the contract of deposit may include conditions precedent or the equivalent of a shortened Statute of Limitations . . . as long as they are not unconscionable or manifestly unreasonable, or the product of overreaching . . ."
This concept is codified in Connecticut General Statutes § 42a-4-103(a). See note 8, supra.
"Hornbook concepts of agency law require that, as between a bank and its depositor, the knowledge and actions of the depositor's employee or agent be imputed to the depositor . . . A depositor has been held to possess the knowledge of a dishonest employee entrusted with the responsibility of reconciling bank statements since the depositor's own examination could have revealed the irregularity . . . This rationale is tautological and merely restates the obvious." (Citations omitted.) Id., 338-39.
The court went on to explain why respondeat superior should be applied: "[A]n incorporeal entity — whether a corporation or an unincorporated association . . . — can only act through an agent or employee . . . [O]nly the depositor can take appropriate measures to assure that the persons it chooses to transact its business are honest and reliable. This rule may work a hardship on an innocent principal, particularly in an unincorporated association . . . Yet, it is the least unfair, and the only practicable means, of allocating responsibility for a situation unfortunately all too common. Nothing in law or logic justifies exempting a bank depositor from this basic principle of agency law. Moreover, the rule encourages depositors to be vigilant to the conduct of their agents and discourage collusion which could easily defraud the bank. Thus, a faithless or unreliable agent's actions may explain, but cannot excuse, a principal depositor from his duty to examine statements and promptly inform the bank of irregularities." Id., 339.
The court found that the provisions of the depositor's contract did not constitute "an unlawful disclaimer of the bank's liability. The [provisions] do not absolve the bank of its duty to use good faith and ordinary care. Moreover, unlike a classic covenant not to sue, the deposit agreement does not absolutely bar the depositor from suit and does not excuse liability in futuro . . . A condition precedent does limit an aggrieved party's claim because it requires that party to first perform a specified act prior to commencing an action. Long known to the common law, conditions precedent are consistent with the goals of the UCC and general public policy. They encourage investigation and preservation of evidence, and may even obviate the need for litigation, by promoting early settlement and preventing repetition of offending conduct . . .
"Similarly, a contractual shortening of a Statute of Limitations also limits a plaintiff's right of action because it requires him to act more quickly than the law would have otherwise permitted. Generally intended to prevent stale claims which are difficult to defend, a shortened period encourages vigilance by both parties to a deposit contract, thus making continued fraud or wrongdoing less likely. As long as it is reasonable, and otherwise conforms with the requisites of contract law, such a shortened period of limitation is legally valid . . .
"Conditions precedent and shortened periods of limitation . . . have been routinely accepted in the banking relationship, usually without extensive analysis . . . Such provisions are not only compatible with statute and case law; they are in accord with public policy by limiting disputes in a society where millions of bank transactions occur every day." (Citations omitted; emphasis in original.) Id., 340; see Concrete Materials Corp. v. Bank of Danville Trust Co., 938 S.W.2d 254, 257 (Ky. 1997) ("the UCC permits parties to a contract of deposit to agree between themselves as to their duties and the legal consequences which flow therefrom. A contract of deposit may include conditions precedent or the equivalent of a shortened statute of limitations . . . The purpose of these agreements is to encourage investigation and preservation of evidence and as such are in accord with public policy by limiting disputes in an area where so many bank transactions occur every day"); Canfield v. Bank One, Texas, N.A., 51 S.W.3d 828, 836 (Tex.App. 2001) ("[c]onditions precedent are consistent with the goals of the UCC and general public policy"); see also National Title Insurance Corp. Agency v. First Union National Bank, 263 Va. 335, 559 S.E.2d 668 (2002) (agreement between bank and depositor reducing the one-year statutory period to sixty days was valid and did not alter the scheme of liability between the bank and the customer set forth in the UCC).
In granting summary judgment in favor of the bank, the court explained that "[s]ome cases seem to indicate, in dicta, that summary judgment should be denied where there is evidence of the bank's negligence . . . Where summary judgment is sought on the ultimate issue of liability; where there is no condition precedent or Statute of Limitations problems barring the court from reaching the merits; and negligence or other breach is a triable factual issue, then summary judgment would clearly be inappropriate. Summary judgment is sought here not on the ultimate issue of responsibility for the apparently improper payment, but rather on the threshold issue of whether plaintiff is legally able to assert that claim. Thus, evidence of breach or negligence is not relevant here. It neither excuses PTA from its contractual obligations nor bars summary judgment where there is no factual dispute as to the fulfillment of the condition precedent and period of limitation . . ."
"Established public policy choices support the result mandated by the legal principles discussed. The law assumes that the depositor, not the bank, can best prevent fraud by bearing ultimate responsibility for the actions of those it chose to act on its behalf . . . To the extent that this allocation of responsibility encourages depositor vigilance, it protects the honest depositor as much as the bank. If an empirical examination of bank practices discloses that the legal scheme fails to adequately serve these goals, and unfairly penalizes depositors, the system ought to be changed . . . The separation of powers and basic democratic theory require that such change be effected by the Legislature, not by the judiciary." (Citations omitted.) Parent Teacher Association, Public School 72 v. Manufacturers Hanover Trust Company, supra, 524 N.Y.S.2d 342-43.
This court finds the reasoning of Parent Teacher Association, Public School 72 v. Manufacturers Hanover Trust Company persuasive. The court does not agree with the plaintiff that the Deposit Agreement is offensive to the public policy reflected in the UCC. Rather, as Parent Teacher Association, Public School 72 v. Manufacturers Hanover Trust Company demonstrates, limitations such as the one contained in the Deposit Agreement are not only in accord with, but accurately reflect, the public policy that underlies the UCC.
In the present case, the Deposit Agreement does not contain an unlawful disclaimer of the defendant's liability; it does not absolve the defendant of its duty to use good faith and ordinary care. Rather, the Deposit Agreement provides a condition precedent to the institution of a suit, requiring that the plaintiff notify the defendant within thirty days after sending the monthly statement if there are any unauthorized transactions reflected in that monthly statement. If the plaintiff fails to do this, the plaintiff becomes responsible for the transaction and is precluded from asserting it against the defendant. The Deposit Agreement also provides that sixty days after the defendant sends a statement is the maximum reasonable amount of time for the plaintiff to review its statement and report any unauthorized transactions to the defendant. If the plaintiff fails to notify the defendant of the unauthorized transaction, the plaintiff is precluded from making a claim against the defendant, regardless of the care or lack of care the defendant may have exercised in handing the plaintiff's account.
The shortened statute of limitations contained in the Deposit Agreement is not contrary to public policy and enforcing the shorter reporting requirements is consistent with decisions from other jurisdictions.
There is no genuine issue of material fact that the unauthorized transactions were reflected in the monthly bank statements sent by the defendant to the plaintiff and/or made available to the plaintiff by the defendant, or that the first unauthorized transaction occurred in late 2005 or early 2006. Furthermore, there is no genuine issue of material fact that the plaintiff did not report any unauthorized transactions to the defendant until January 2010. Accordingly, because the plaintiff did not report the unauthorized transactions within the specified time period set forth in the Deposit Agreement, the plaintiff's claims are time-barred.
The defendant also moved for summary judgment on the alternative basis that any action on unauthorized transactions is time barred pursuant to General Statutes §§ 42a-4-406(c), (d) and (f). The court declines to reach the merits of these arguments, finding an adequate basis to grant summary judgment in favor of the defendant based on the terms of the Deposit Agreement.
Accordingly, the defendant's motion for summary judgment is granted.