Tolbert v. First Nat. Bank of Oregon

• Citation: 312 Or. 485,823 P.2d 965
• Decision Date: 19 December 1991
• Docket Number: No. A8004-02328,A8004-02328
• Parties: , 17 UCC Rep.Serv.2d 1204 William J. and Melanie TOLBERT, husband and wife, and Beverly Witt, for themselves individually and for all other persons similarly situated, Petitioners on Review/Respondents on Review, v. FIRST NATIONAL BANK OF OREGON, a national banking association, Respondent on Review/Petitioner on Review. CC; CA A37591; SC S36375, SC S36376.
• Court: Supreme Court of Oregon

Page 965

823 P.2d 965

312 Or. 485, 17 UCC Rep.Serv.2d 1204

William J. and Melanie TOLBERT, husband and wife, and

Beverly Witt, for themselves individually and for

all other persons similarly situated, Petitioners on Review/Respondents on Review, v. FIRST NATIONAL BANK OF OREGON, a national banking

association, Respondent on Review/Petitioner on Review.

CC No. A8004-02328; CA A37591; SC S36375, SC S36376.

Supreme Court of Oregon.

Argued and Submitted April 12, 1990.

Decided Dec. 19, 1991.

Phil Goldsmith, Portland, argued the cause for petitioners on review/respondents on review Tolbert, et al. With him on the petition for review, petition for reconsideration, and response were Jerome E. LaBarre, of LaBarre & Associates, P.C., Portland, and John D. Ryan, Beaverton.

William M. McAllister, of Stoel Rives Boley Jones & Grey, Portland, argued the cause for respondent on review/petitioner on review First Nat. Bank of Oregon. Also on the response and reply were Christine Kitchel, Edward J. Reeves, and Glenn J. Hovemann, Portland.

Henry Kantor, of Pozzi, Wilson, Atchison, O'Leary & Conboy, Portland, filed a brief on behalf of amici curiae Oregon Trial Lawyers Ass'n, Multnomah County Legal Aid Service, Ecumenical Ministries of Oregon, Forelaws on Board, Pineros Y Campesinos Unidos Del Noroeste, Portland Gray Panthers, Portland Chapter of Oregon Fair Share, Local 2949 of the Lumber and Sawmill Workers Union, Banks & Newcomb, Griffin & McCandlish, Pozzi, Wilson, Atchison, O'Leary & Conboy, Stoll, Stoll, Berne & Lokting, Williams, Troutwine & Bowersox, Willner & Associates, Roger Anunsen, Frank J. Dixon, Gregory Kafoury, Mark Anthony LaMantia, James T. Massey, Roger Tilbury, Linda K. Williams, and Jan Wyers.

Before PETERSON, C.J., ^* and CARSON, ^** JONES, ^*** GILLETTE, VAN HOOMISSEN, FADELEY and UNIS, JJ.

CARSON, Chief Justice.

This class action involves the obligation of good faith in the performance of contracts. The primary issue is the nature of the good faith obligation owed by defendant First National Bank of Oregon (Bank) ¹ to its non-business checking account customers (depositors) in setting and revising, from time to time, the fees it charged to depositors who wrote checks when there were not sufficient funds in their accounts (NSF fees).

The trial court granted Bank's motion for summary judgment on the issue of whether it had failed to act in good faith regarding the NSF fees. ² The Court of Appeals reversed the judgment of the trial court and remanded the case. Tolbert v. First National Bank, 96 Or.App. 398, 772 P.2d 1373 (1989). Bank and plaintiffs each sought review by this court. We allowed both plaintiffs' and Bank's petitions for review, and we now reverse in part and affirm in part the decision of the Court of Appeals.

This case began as a companion case to Best v. U.S. National Bank, 303 Or. 557, 739 P.2d 554 (1987), ³ and a review of our opinion in that case is essential to an understanding of this case. Accordingly, we begin with an examination of Best.

In Best, the plaintiff depositors brought a class action alleging, among other things, that the bank "had an obligation to set its NSF fees in good faith and that it breached this obligation by setting its fees at amounts greatly in excess of the costs incurred by it in processing NSF checks." 303 Or. at 561, 739 P.2d 554. In addressing this issue, the Best court began by stating the general rule that there is an obligation of good faith in the performance and enforcement of every contract. Id. The bank in that case argued that it had no obligation of good faith, because the depositors agreed to the NSF fees, as manifested by their choice not to close their accounts.

The Best court rejected this argument, pointing out that it was not the bank's practice to inform depositors of the initial NSF fees or of changes in the amount of such fees: "It would be improper under this evidence to conclude on a motion for summary judgment that the depositors agreed to the charges through failing to close their accounts." Id. at 562, 739 P.2d 554. Having concluded that there was no agreement regarding the NSF fees, the court went on to determine whether there was a genuine issue of material fact whether the bank set (and revised) its NSF fees in good faith.

After reviewing cases from this court and examining the Restatement (Second) of Contracts, the court explained the role of the parties' expectations in the framework of the good faith obligation:

"It is therefore not necessarily sufficient * * * that the Bank acted honestly in setting its NSF fees or that its fees were similar to those of other banks. Undoubtedly, parties to a contract always expect that the other party will perform the contract honestly and, where the performance of a commercial enterprise is at issue, ordinarily expect that it will do so in a commercially reasonable manner. But the reasonable expectations of the parties need not be so limited.

" * * * * *

" * * * In general, * * * whether a specified price violates the obligation of good faith should be decided by the reasonable contractual expectations of the parties." 303 Or. at 564-65, 739 P.2d 554.

The court continued the "reasonable expectations" analysis, applying the general rules of law set forth above to the Best facts:

"Because NSF fees were incidental to the Bank's principal checking account fees and were denominated 'service charges,' a trier of fact could infer that the depositors reasonably expected that NSF fees would be special fees to cover the costs of extraordinary services. This inference could reasonably lead to the further inference that the depositors reasonably expected that the Bank's NSF fees would be priced similarly to those checking account fees of which the depositors were aware--the Bank's monthly checking account service fees and per check fees, if any. By 'priced similarly,' we mean priced to cover the Bank's NSF check processing costs plus an allowance for overhead costs plus the Bank's ordinary profit margin on checking account services." Id. at 565-66, 739 P.2d 554.

Because there were genuine issues of material fact regarding the depositors' expectations and regarding whether the bank had, in fact, set the NSF fees in accordance with those expectations, the court concluded that summary judgment was inappropriate on the good faith claim. Id. at 566, 739 P.2d 554.

The holdings of the Best case relevant to the case before us may be summarized as follows:

It is improper to decide on summary judgment whether depositors have agreed to a bank's NSF fees when neither the initial fees nor changes in the fees are disclosed to the depositors before assessment of the charges.

In determining whether a bank has acted in good faith in setting its NSF fees, the reasonable expectations of its depositors are relevant. A depositor may reasonably expect that NSF fees are set using the same mechanism as other checking account service charges of which the depositor is aware--a "cost-plus" basis in that case.

The parties to this case agree that there are two important factual differences between this case and Best; the dispute is over the legal significance of those differences. The first difference is that, unlike the bank in Best, Bank followed the practice of informing depositors of its current NSF fees at the time they opened their accounts. Depositors signed an account agreement, which included an agreement that all deposits to the account would be governed by, among other things, "the rules, regulations, and customs of this Bank including, but not limited to, those which relate to interest and service charges on active and dormant accounts." (Emphasis added.)

At the time depositors opened their accounts, they received a Service Charge Guide or similar document listing the charges assessed by Bank for various services. The guide listed a fee for "Non-sufficient Funds Checks Paid or Returned." The guide also included the following statement:

"These charges are subject to change at the discretion of First National. If you have questions or need additional information regarding our services, procedures, or charges, please contact any First National branch for assistance."

Further, the evidence before the trial court was that Bank employees routinely explained Bank's service charges to new depositors at the time an account was opened. If a depositor did not agree to the terms of the account agreement, Bank would refuse to open an account.

The second difference between this case and Best is that, here, depositors were informed of changes in the service charges by mail at or near the time the changes were made. Bank produced evidence that it periodically sent notices to each depositor, with depositor bank statements, stating current prices for all bank service charges related to checking accounts (including NSF fees).

Plaintiffs take the position that our holding in Best v. United States National Bank, supra, dictates the result in this case and that the factual distinctions between the two cases have no legal significance. They assert:

"[T]he Bank's Service Charge Guides made two separate representations to its depositors at contract formation: (1) a representation concerning the amount of the NSF charge then in existence and (2) a representation that this charge was a service charge. * * * [T]he latter representation creates an expectation of the mechanism used in setting the amount of the disclosed charge and to be used in setting future charges. Consequently, when the Bank, in the performance of the contract, exercised its unilateral discretion to assess a charge priced dissimilarly from other service charges and not reasonably related to costs, it violated the expectations reasonably created by this contract, even if that charge equalled in dollar amount the charge initially disclosed."

In contrast, Bank argues that the reasonable expectations of the parties are irrelevant when depositors...