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Isaac v. First Nat. Bank of Maryland


September 22, 1994


Appeal from the Superior Court of the District of Columbia; (Hon. Cheryl M. Long, Trial Judge)

Before Steadman, Schwelb and King, Associate Judges.

The opinion of the court was delivered by: Steadman

STEADMAN, Associate Judge: This case involves the enforceability of a provision in a bank certificate of deposit agreement in joint tenancy form under which the bank set off half the moneys in the account against an obligation owed to the bank by a joint tenant who had no actual beneficial interest in the account. The trial court granted summary judgment in favor of the bank. We affirm.


We apply the oft-repeated and familiar criteria for review of grants of summary judgment. The movant, here the bank, must demonstrate that there is no genuine issue of material fact, and that it is entitled to judgment as a matter of law. Colbert v. Georgetown University, 641 A.2d 469, 472 (D.C. 1994) (en banc). The record is viewed in the light most favor able to the party opposing the motion. Id. The facts, so viewed, may be summarized as follows.

Appellant established a joint tenancy certificate of deposit account with her son at appellee bank, but all parties, including the bank, knew that all the funds in the account belonged to and were the property of appellant, at least at the inception of the account. *fn1 The certificate of deposit agreement signed by both joint tenants contained a provision which, in relevant part as quoted by appellant in her brief, *fn2 dealt with the bank's right of set-off:

SET-OFF: Each of you *fn3 who has the right to withdraw from this account agrees that we may set-off any debt you owe us now or later against the amount of money you could withdraw from this account. For example, if any one of three of you can withdraw all the money from this account, the debt of any one of you can be set-off against the balance in this account (even though the others are not obligated on the debt). We may exercise this right of set-off, without notice to you, any time your debt is in default.

Some time thereafter, the bank made a loan to the son, and when the son defaulted on the loan, the bank set off half the funds in the joint account against the debt of the son to the bank. Appellant thereupon brought the instant suit against appellee bank in a complaint which set forth three separate counts: breach of contract, replevin, and intentional infliction of emotional distress. *fn4

Appellant does not in the main challenge the proposition that the language of the certificate of deposit agreement as written permitted the bank to exercise the right of set-off. *fn5 Rather, she principally argues that 1) the certificate of deposit did not correctly set forth the intent of the parties; and 2) in any event, the provision allowing set-off is, on the facts of this case, unconscionable and should not be enforced. *fn6


The relationship between a bank and a depositor is a contractual relationship that is governed by the written agreement between the parties. See Watts v. American Sec. & Trust Co., 47 A.2d 100, 101 (D.C. 1946); Gibson v. Industrial Bank of Washington, 36 A.2d 62, 63 (D.C. 1944). We recapitulated in Howard Univ. v. Best, 484 A.2d 958, 967 (D.C. 1984) the controlling principles relevant here in dealing with a written instrument challenged by a party thereto:

This court adheres to the 'objective law' of contracts, whereby the written language embodying the terms of an agreement will govern the rights and liabilities of the parties, irrespective of the intent of the parties at the time they entered the contract, unless the written language is not susceptible of a clear and definite undertaking, or unless there is fraud, duress or mutual mistake. Minmar Builders, Inc. v. Beltway Excavators, Inc., 246 A.2d 784, 786 (D.C. 1968) (quoting Slice v. Carozza Properties, 215 Md. 357, 368, 137 A.2d 687, 693 (1958)).

See also Reliable Constr. & Realty Co. v. Waterproofing Serv., Inc., 34 A.2d 124, 126 (D.C. 1943) ("It will not do for a man [or woman] to enter into a contract, and, when called upon to respond to its obligations, to say that he [or she] did not read it when he [or she] signed it, or did not know what it contained") (quoting Upton v. Tribilcock, 91 U.S. 45, 50, 23 L. Ed. 203 (1875)). This same principle underlies the well-established parol evidence rule, generally barring introduction of an alleged understanding in variance, addition, or contradiction to the written terms. See Stamenich v. Markovic, 462 A.2d 452, 455 (D.C. 1983).

Thus, it will not suffice simply to assert that the parties' "intent" is not reflected in the set-off provision or that there was no "meeting of the minds" on that issue. *fn7 Nor does her argument, obviously correct as a general principle, that transactions in multiple parts, as here, see supra note 1, must be reviewed as a whole and considered in all their parts, advance her case because the language here is free of ambiguity and in any event, nothing in the multi-part transaction sheds any particular light on the creation or interpretation of the joint tenancy aspect of the transaction other than perhaps to support her postulated assertion that sole beneficial ownership remained in her alone. Nothing in the nature of the overall arrangement required that the certificate of deposit be in joint tenancy form. See supra note 1.

As Howard Univ. v. Best, supra, makes clear, a party faced with a clear written agreement must allege and prove fraud, duress, or mutual mistake *fn8 to negate the disputed provision. 484 A.2d at 967. We perceive nothing in the complaint or related documents that asserts such theories or sets forth sufficient facts or allegations in support thereof. *fn9 See Hercules & Co. v. Shama Restaurant Corp., 613 A.2d 916, 923 (D.C. 1992) (fraud is never presumed but must be proven by clear and convincing evidence); 13 WILLISTON ON CONTRACTS § 1627 at 811 (3d ed. 1970) (burden of proof of duress is on party seeking to set aside transaction and the evidence must be clear and convincing); Randolph v. Ottenstein, 238 F. Supp. 1011, 1014 (D.D.C. 1965) (mutual mistake may not be lightly inferred and must be established by evidence). Nor is there any specific plea or indeed sufficient basis in the allegations for equitable reformation of the contract, whereby a contract may be amended to express the true mutual intent of the parties, but where the party seeking reformation generally must prove the mistake by "clear and convincing evidence." *fn10 FARNSWORTH, (supra) note 8, at § 7.5, at 719; see also MURRAY, (supra) note 7, at § 91(E), at 449; Wurtzel v. Richmond, 717 F. Supp. 1, 3 (D.D.C. 1989) (party seeking reformation must demonstrate that the deed was erroneous by clear and convincing evidence). Nothing in the allegations gives any foundation for a determination by clear and convincing evidence that the bank did not fully intend that the set-off language be exactly as provided in the written agreement. A finding of fraud, duress, or mutual mistake, whether to avoid or reform a written agreement, obviously must reflect strictness in interpretation and a high level of proof; otherwise, the parol evidence rule will be swallowed up in the exceptions.


Alternatively, appellant invokes, in substance, the doctrine of unconscionability, as set forth in the leading case of Williams v. Walker-Thomas Furniture Co., 121 U.S. App. D.C. 315, 319, 350 F.2d 445, 449 (1965) (footnote omitted), in which the court held:

Accordingly, we hold that where an element of unconscionability is present at the time a contract is made, the contract should not be enforced.

Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties, together with contract terms which are unreasonably favorable to the other party. Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction.

See also D.C. Code § 28:2-302 (1991).

A bank's right of set-off is a concept of ancient recognition in the common law, quite independent of contractual agreement. Baltimore & Assocs. v. Municipal Escrow and Title Co., 625 F. Supp. 1271, 1272 (D.D.C. 1985) (well-established that bank may set-off customer's debts owed to the bank because of other transactions); BARKLEY CLARK, THE LAW OF BANK DEPOSITS, COLLECTIONS AND CREDIT CARDS, § 14.01 (3d ed. 1993); 10 AM.JUR.2D Banks § 666 (1963); Gary D. Spivey, J.D., Annotation, Bank's Right of Set-off Based on Debt of One Depositor, Against Funds in Account Standing in Names of Debtor and Another, 68 A.L.R.3d 192 (1976). With respect to joint tenancy accounts, however, because of the conceptual nature of joint tenancy ownership, that right was limited at common law to debts owed by both joint tenants. Hence, the right of a bank to exercise a right of off-set to satisfy the obligation of only one joint tenant was contractually created by appropriate provision in the agreement establishing the account, and has been given widespread judicial recognition and enforcement. *fn11 See, e.g., Selby v. DuQuoin State Bank, 223 Ill. App. 3d 104, 584 N.E.2d 1055, 165 Ill. Dec. 621 (Ill. App. Ct. 1991); Uttecht v. Norwest Bank of Norfolk, NA., 221 Neb. 222, 376 N.W.2d 11 (Neb. 1985); Chickerneo v. Society Nat'l Bank of Cleveland, 58 Ohio St. 2d 315, 390 N.E.2d 1183 (Ohio 1979). See also CLARK, (supra) , at § 14.064.

Moreover, there is nothing strange in the concept of one person subjecting his or her property to liability for the debt of another. Such is the very nature of a guaranty or surety, a common enough transaction. Therefore, it is not enough to simply show that the bank knew that beneficial ownership of the account was in appellant. By putting her property in her and her son's name, even if only for convenience, see Estate of Presgrave v. Stephens, 529 A.2d 274, 280 (D.C. 1977) ("where a party opens a joint account for himself [or herself and another without consideration, the account is presumed open for the convenience of that party") (quoting Davis v. Altmann, 492 A.2d 884, 885 (D.C. 1985) (alteration in original)), and particularly by giving her son the power on his signature alone to withdraw some or all of the moneys in the account, appellant changed the ostensible form of ownership *fn12 and could hardly have been surprised by a contractual provision that gave some recognition thereto. *fn13

The only extant case law on the issue before us supports the position of the bank. In Chickerneo v. Society Nat'l Bank of Cleveland, supra, 390 N.E.2d at 1184, the bank set off the funds in a joint account *fn14 between appellant and another in satisfaction of a debt owed by the other to the bank. It was stipulated that all the funds in the account were owned by appellant. *fn15 Id. at 1185 n.2. A rule of the bank, incorporated by operation of law into the joint tenancy agreement, permitted such a set-off. Id. The Ohio Supreme Court rejected appellant's argument that the rule violated public policy, stating that it " not interfere with the contract freely entered into by the parties." Id. at 1186. In that case, the rule was not set forth in the joint tenancy signature card agreement but simply incorporated by operation of law. Id. at 1185-86. In contrast, the agreement in the case before us specifically set forth the provision upon which the bank relies, and is not buried in the agreement but rather constitutes one of only six provisions thereof, appearing on the back side of the signature card. The Chickerneo opinion was recently cited with approval and followed in the Illinois case of Selby v. DuQuoin State Bank, supra, 584 N.E.2d at 1058.

Likewise, in Uttecht v. Norwest Bank of Norfolk, supra, 376 N.W.2d at 13, the Nebraska Supreme Court was dealing with a statute that limited the right of set-off to moneys to which the debtor was "beneficially entitled," but which provided that this limitation was subject to any contractual provisions." Id. The court held that the broad language in the joint tenancy agreement with the bank, similar to that in the case before us, overrode the statutory limitation. Id. at 14. "We conclude that absent allegations and proof of fraud, contractual arrangements between a bank and its depositors with respect to the bank's right of set-off may supersede statutory provisions." Id. In the District, we do not appear to have any statute similar to that in Nebraska, and hence it is even more difficult to discern a "public policy" ground to override the contractual provision.

Appellant relies upon an intermediate appellate case in Ohio, Rives v. Krupzsield, 60 Ohio App. 3d 97, 573 N.E.2d 1199 (Ohio Ct. App. 1989). That case involved a woman who, in opening a bank account, asked whether an arrangement could be made whereby her son could withdraw funds from the account for her in the case of an emergency. Id. The bank officer responded that this could be done by establishing a joint tenancy account with her son, which was done. Id. The bank thereafter set off funds in the account against a debt owed the bank by the son. Id. at 1200. in setting aside the set-off, the court distinguished Chickerneo, supra, by noting that in that case the depositor had knowingly and voluntarily selected a joint tenancy account, while in the case before the court the depositor had relied upon the bank to achieve her wishes and what she had asked for was not what she received. Id. at 1200-01. Although the court in Rives talks of the absence of a "meeting of the minds," we think this a perhaps infelicitous phrase for a situation which in fact closely resembled the fraud or misrepresentation that can nullify a contractual provision. The bank simply did not do what the woman requested.

We have no comparable allegation here. No assertion is made that appellant did not voluntarily and knowingly enter into the joint tenancy agreement as written or that she was misled or deceived by the bank in any way. Her very complaint acknowledges that " exercised an option" to designate the account as a joint tenancy with her son. In the face of the facts as alleged and existing precedent, the circumstances here simply do not reach a level that a trial court could determine as a matter of law that "the manner of agreement and/or the terms of the contract are so one-sided as to be unenforceable." Bennett v. Fun & Fitness of Silver Hill Inc., 434 A.2d 476, 480 (D.C. 1981); See Urban Invs. Inc. v. Branham, 464 A.2d 93, 99-100 & n.8 (D.C. 1983) (the court determines unconscionability as a matter of law; the party seeking to avoid contract for unconscionability must prove two elements: absence of meaningful choice on part of one of the parties, and contract terms which are unreasonably favorable to other party); Patterson v. Walker-Thomas Furniture Co., 277 A.2d 111, 114 (D.C. 1971) (court "forms a judgment as to the existence of a valid claim of unconscionability"); D.C. Code § 28:2-302 (court as a matter of law finds the contract or any clause of the contract unconscionable).

In sum, we see no basis in the record presented to support a judgment for appellant on the facts and under the theories expounded before the trial court and before us. *fn16 Accordingly, the judgment appealed from is


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