Best v. U.S. Nat. Bank of Oregon

• Decision Date: 09 September 1987
• Citation: 303 Or. 557,739 P.2d 554
• Parties: , 73 A.L.R.4th 1009, 4 UCC Rep.Serv.2d 8 Lonnie BEST and Teresa Best, et al., Petitioners/Cross-Respondents on Review, v. UNITED STATES NATIONAL BANK OF OREGON, a national banking association, Respondent/Cross-Petitioner on Review. TC A7905-02523; CA A32299; SC S32749, S32751.
• Court: Oregon Supreme Court

Page 554

739 P.2d 554

303 Or. 557, 73 A.L.R.4th 1009, 4 UCC

Rep.Serv.2d 8

Lonnie BEST and Teresa Best, et al Petitioners/Cross-Respondents on Review, v. UNITED STATES NATIONAL BANK OF OREGON, a national banking association, Respondent/Cross-Petitioner on Review.

TC A7905-02523; CA A32299; SC S32749, S32751.

Supreme Court of Oregon.

Argued and Submitted July 1, 1986.

Decided July 8, 1987.

Reconsideration Denied Sept. 9, 1987.

Phil Goldsmith, Portland, argued the cause for petitioners/cross-respondents on review. With him on the briefs were Henry A. Carey, P.C., and John D. Ryan, P.C., Portland.

[303 Or. 558-A] James N. Westwood, Portland, argued the cause for respondent/cross-petitioner on review. With him on the briefs were Clifford N. Carlsen, Jr., R. Alan Wight, and Miller, Nash, Wiener, Hager & Carlsen, Portland.

Susan P. Graber, Portland, filed a brief amicus curiae for First Interstate Bank of Oregon, N.A. With her on the brief were William M. McAllister, Christine Kitchel, Edward J. Reeves, and Stoel, Rives, Boley, Fraser & Wyse, Portland.

Before PETERSON, C.J., and LENT, LINDE, CARSON, JONES and GILLETTE, JJ.

LENT, Justice.

Defendant U.S. National Bank (the Bank) charges its checking account depositors a fee for processing nonsufficient fund (NSF) checks written on their accounts. Between 1973 and 1979, the Bank increased its NSF fee from $3 to $5 per check. Plaintiffs Lonnie and Teresa Best were among the Bank's depositors whose accounts were assessed NSF charges during this period. The Bests, individually and as representatives of a class of depositors, brought this action to recover the charges. They contend that the Bank's NSF fees were unlawful because the fees greatly exceeded the Bank's costs for processing NSF checks.

The Bests alleged six claims for relief, three of which were certified by the circuit court as class actions. Only the claims certified as class actions are at issue here. Those claims are (1) that the Bank breached its obligation to set NSF fees in good faith, (2) that its NSF fees were unconscionable and (3) that its NSF fees were an unlawful penalty for breach of contract. On the penalty and breach of good faith claims, the circuit court certified a plaintiff class comprising all natural persons who had nonbusiness checking accounts with the Bank and who paid NSF charges totaling $6 or more between May 31, 1973, and May 30, 1979. On the unconscionability claim, the court certified a plaintiff subclass comprising class members who opened checking accounts with the Bank on or after July 1, 1968. ¹ (Hereinafter, we will refer to all plaintiffs as "the depositors.")

The circuit court granted the Bank's motion for summary judgment on the class claims and entered final judgment dismissing those claims. ² On appeal by the depositors, the Court of Appeals reversed and remanded with respect to the breach of good faith claim but otherwise affirmed the circuit court. Best v. U.S. National Bank, 78 Or.App. 1, 714 P.2d 1049 (1986). We allowed both the depositors' and the Bank's petitions for review and affirm the decision of the Court of Appeals.

I.

Before discussing the depositors' breach of good faith claim, we will briefly address their penalty and unconscionability claims.

The depositors claim that the Bank's NSF fees were unlawful penalties for breaches of the depositors' express or implied contractual agreements not to write NSF checks. We agree with the Court of Appeals that the depositors did not present any evidence from which a trier of fact could infer the existence of such an agreement. See 78 Or.App. at 4-10, 714 P.2d 1049. There being no agreement, there could be no unlawful penalty for breach of the agreement.

The depositors claim that the Bank's NSF fees were unconscionable because the fees were greatly in excess of the Bank's costs for processing NSF checks. The doctrine of unconscionability, however, is largely inapplicable to this case, and, to the extent that it may apply, we conclude that the fee set by the Bank was not unconscionable.

Unconscionability is a legal issue that must be assessed as of the time of contract formation. W.L. May Co. v. Philco-Ford Corp., 273 Or. 701, 707, 543 P.2d 283 (1975). Thus the doctrine applies to contract terms rather than to contract performance. The only contract term relevant to NSF fees was a statement in the preprinted "account agreement" signed by the depositors when they opened their accounts: "This account is subject to Bank service charges existing at any time." The parties agree that "service charges" included NSF fees. The specific fee charged, then, was not part of the depositors' agreement with the Bank; rather, the fee was set by the Bank as part of its performance of the account agreement. The unconscionability doctrine is inapplicable to the amount of the fee.

If the depositors were or should have been aware of the fee amounts and tacitly agreed to the amounts through failing to close their accounts, see Part II, infra, they could challenge the agreements as unconscionable. Summary judgment on their unconscionability claim, however, would still be appropriate.

Although the depositors assert that the Bank's NSF fees were two or three times the Bank's NSF processing costs, the fees were relatively small and were similar to NSF fees charged by other banks. Moreover, apart from the adhesive nature of the account agreement, the record reflects few indicia of one-sided bargaining. The depositors could close their accounts at any time and for any reason. There is no evidence that the depositors were not of ordinary intelligence and experience. There is also no evidence that the Bank obtained any agreement from the depositors through deception or any other improper means. The circuit court's grant of summary judgment on the depositors' unconscionability claim was proper. ³

II.

The depositors claim 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.

Nothing in the depositors' account agreement with the Bank expressly limited the Bank's authority to set NSF fees. This court has long stated, however, that there is an obligation of good faith in the performance and enforcement of every contract. See, e.g., Comini v. Union Oil Co., 277 Or. 753, 756, 562 P.2d 175 (1977); Perkins v. Standard Oil Co., 235 Or. 7, 16, 383 P.2d 107 (1963); see also Restatement (Second) of Contracts § 205 (1979). This obligation limited the Bank's apparently unlimited authority to set NSF fees, and the depositors can recover for the breach of this obligation just as they could for the breach of any other contractual obligation.

The Bank and amicus curiae First Interstate Bank of Oregon argue that the doctrine of good faith is inapplicable because the depositors agreed to the NSF fees by maintaining their accounts, which they could close at any time. ⁴ Whether the depositors agreed to the specific fees charged, however, is a question of fact that cannot be decided on a motion for summary judgment. The argument of the Bank and amicus assumes that the depositors knew or should have known the amount of the fees when they wrote their NSF checks. This assumption does not necessarily follow from the evidence. The practice of Bank employees who opened accounts was not to inform depositors of the amount or even of the existence of NSF fees unless the depositor inquired. The Bank also did not notify depositors when it increased its NSF fees. In the absence of inquiry, a depositor would ordinarily know the amount of the fee only if the depositor had been charged a fee, in which case the amount would appear on the depositor's monthly statement of account. Moreover, even if the depositor discovered the current amount of the NSF fee, the depositor could never be certain of the fee that would be charged because the Bank could increase or decrease the fee at any time without notice. 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.

Assuming that there was no agreement, the question before us is whether there is a genuine issue of material fact whether the Bank set its NSF fees in good faith.

The purpose of the good faith doctrine is to prohibit improper behavior in the performance and enforcement of contracts. Because the doctrine must be applied to the entire range of contracts, definitions of good faith tend to be either too abstract or applicable only to specific contexts. For this reason, Professor Summers has argued that good faith should be conceptualized as an "excluder," by which he means that good faith should be defined only by identifying various forms of bad faith. Summers, The General Duty of Good Faith--Its Recognition and Conceptualization, 67 Cornell L Rev 810 (1982); see also Summers, "Good Faith" in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 Va L Rev 195, 199-207 (1968). This is also the approach adopted by the Restatement (Second) of Contracts § 205 (1979):

"The phrase 'good faith' is used in a variety of contexts, and its meaning varies somewhat with the context. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving 'bad faith' because they violate community standards of decency, fairness or reasonableness."

Restatement (Second) of Contracts § 205, comment a (1979).

"Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further; bad faith may be overt or may consist of inaction, and fair dealing may require more than...