Commercial and Banking Law - Robert A. Weber, Jr.

• Publication year: 1997

Commercial and Banking Lawby Robert A. Weber, Jr.^*

Last year's article¹ limited its coverage to cases interpreting provisions of Georgia's Commercial Code.² Although the courts have provided ample material to again dedicate the entire survey to that topic, to do so would ignore other substantive bodies of law that have had a significant impact on a commercial law practice. Therefore, in addition to a review of the standard Commercial Code topics (sales, negotiable instruments and bank collections, and secured transactions), this year's survey has endeavored to summarize case law and legislative enactments within the past year in the following categories: banking and finance, consumer protection, contracts of employment, contract drafting considerations, and promissory notes. Hopefully, the effort to include additional subjects has not unduly sacrificed the more comprehensive coverage that fewer topics would allow.

I. Banking and Finance

A. Case Law

First Union National Bank of Georgia v. Collins³ will have a significant impact on the day-to-day management of banks. The Unclaimed Property Act⁴ provides that funds represented by certain dormant instruments escheat to the State. Banks withheld service charges prior to the remittance of the funds represented by these instruments to the State, a practice with which the State disagreed.⁵ When the State challenged this practice, several banks brought a declaratory judgment action against the State. The State contended that: (1) the service charges, imposed by the banks under the authority of the Official Code of Georgia Annotated ("O.C.G.A.") section 7-1-358,⁶ can only be levied against "deposit" accounts, and (2) O.C.G.A. sections 7-1-372⁷ and 11-3104⁸ precluded service charges against the funds represented by the instruments.⁹ The court of appeals disagreed with both of these positions.

The Department of Banking and Finance Regulation implementing O.C.G.A. section 7-1-358 "define[d] unpresented certified and official checks more than two years old to be 'dormant accounts.'"¹⁰ Additionally the legislature had, in adopting the Uniform Unclaimed Property Act,¹¹ deleted those provisions that would have prevented banks from assessing charges on unclaimed official checks.¹² As such, the State's first contention failed.¹³

The court of appeals similarly disagreed with the State's second argument that sections 7-1-372 and 11-3-104 precluded the service charges in this context.¹⁴ In particular, the court noted the legislature's decision to overrule the attorney general's opinion that section 7-1372 did not permit such service charges.¹⁵ In light of that and other considerations, the court of appeals upheld banks' contractual and statutory authority to assess service charges against dormant instruments prior to remittance of the funds they represent to the State.¹⁶

The court of appeals also issued two decisions during the survey period that elaborated upon the rights, duties, and obligations incident to joint tenancy bank accounts. The rule of joint tenancy accounts is that only clear and convincing evidence can rebut the presumption that amounts held in a joint account at the death of one joint tenant pass to the surviving joint tenant(s).¹⁷ In Jordan v. Stephens,¹⁸ the court of appeals applied this rule in the context of a defendant who, at the time he was made a joint tenant with the decedent, held a general power of attorney over decedent's assets.¹⁹ In affirming the trial court's refusal to direct a verdict for plaintiffs, who challenged defendant's right to the funds as surviving joint tenant, the court of appeals found no evidence that the decedent did not intend for the assets transferred by her to belong to defendant at her death; "[i]n fact, the evidence indicated that [the decedent] specifically wanted [defendant] to have the assets . . . ."²⁰ For precedential purposes, the transfers were proper notwithstanding the fiduciary relationship that existed between defendant and the decedent by reason of the power of attorney: "An agent is not absolutely prohibited from making gifts of the principal's property . . . ."²¹

The surviving joint tenant-fiduciary was not as fortunate in Moore v. Self.²² The surviving joint tenant-defendant, one of three children of the decedent, held a joint tenancy with the decedent in certain real property and bank accounts. Prior to her death, the decedent was declared an incapacitated adult, and defendant petitioned to be appointed the decedent's guardian. In making her petition, defendant listed the above-referenced real estate and bank accounts as property of the ward (decedent) without any indication of defendant's joint tenancy rights.²³

The court of appeals first held that the joint tenancy did not terminate as a matter of law when the decedent was declared an incapacitated adult and a guardian was appointed for her.²⁴ Specifically, the appointment of a guardian does not divest a joint tenant of his or her legal interest in the joint tenancy.²⁵ However, defendant's failure to indicate her interest as a joint tenant with decedent in her petition to be appointed guardian violated the "loyalty rule" of guardianship:

A guardian owes a duty of undivided loyalty to his ward and must not place himself in a position where his individual interests conflict or may conflict with the interest of the ward .... "[I]t is generally, if not always, humanly impossible for the same person to act fairly in two capacities and on behalf of two interests in the same transaction. Consciously or unconsciously he will favor one side as against the other, where there is or may be a conflict of interest. If one of the interests involved is that of the [guardian] personally, selfishness is apt to lead him to give himself an advantage. If permitted to represent antagonistic interests the [guardian] is placed under temptation and is apt in many cases to yield to the natural prompting to give himself the benefit of all doubts .... The principal object of the administration of the rule is preventative, that is, to make the disobedience of the [guardian] to the rule so prejudicial to him that he and all other [guardians] will be induced to keep away from disloyal transactions in the future .... It is not necessary that the [guardian] shall have gained from the transaction, in order to find that [he] is disloyal. If the dealing presented conflict of interest and consequent temptation to the [guardian, equity will provide a remedy at the option of the ward or his estate] regardless of gain or loss to the [guardian]."²⁶

Although defendant's violation of the loyalty rule did not terminate the joint tenancy as a matter of law, defendant was "estopped under principles of fiduciary law from asserting any claim to the property at issue as a joint tenancy survivor adverse to [decedent's] estate, regardless of the legal viability of the joint tenancies and any claim she would otherwise have had to survivorship rights."²⁷

In addition to issues relating to joint tenancy accounts, the court of appeals addressed issues arising in loan commitments and the monitoring of distressed debtors. In Moore v. Bank of Fitzgerald,²⁸ the terms of an oral agreement to loan money between plaintiff-borrower and defendant-bank (as lender) were reduced to writing in a letter, which stated that its terms superseded "any other verbal agreements made between the parties."²⁹ The letter memorialized an agreement to loan money for the purchase of land and to loan "reasonable funds for [plaintiff's] cattle operation, provided that [plaintiff] can furnish assurances that cattle feed can be provided and that she can furnish data establishing the feasibility of payback of such operating loan or loans, and provided that such operating monies and loans will be consistent with sound banking practices."³⁰ The court apparently found this language too uncertain to be enforceable as a contract to make future operating loans, stating

[E]ven if the letter from [defendant] to [plaintiff] is construed as a written commitment by [defendant] to make future operating loans, "[u]nless an agreement is reached as to all terms and conditions and nothing is left to future negotiations, a contract to enter into a contract in the future [i.e., a loan] is of no effect."³¹

The court in Moore also rejected plaintiff's contention that a fiduciary relationship arose between her and defendant as a result of defendant's alleged undertaking of management, direction, and control over her cattle operation.³² In support of her contention, plaintiff relied on those provisions of the letter that required her "to meet monthly with a bank official to 'monitor her farming operations and progress.'"³³ Nevertheless, the court found no evidence in the record to indicate that the relationship "was so intertwined as to create a fiduciary relationship."³⁴ In particular,

[N]o confidential relationship [exists] between lender and borrower. . . [where] they are creditor and debtor with clearly opposite interests .... [E]ven if the bank had undertaken to advise [plaintiff] on her [cattle operation] and had [misled] [plaintiff], [plaintiff] would not be entitled to rely on any such representation but would be "under a duty to prosecute [her] own inquiries" . . ., as appropriate.³⁵

B. Legislation

The 1997 session of the Georgia General Assembly enacted numerous provisions pertaining to the operation and management of banks.

1. Bank Powers and Management. The 1997 General Assembly significantly expanded the powers granted to banks. Formerly, banks were limited to exercising, in addition to traditional bank functions identified by statute, those powers "necessary or convenient" to the business of banking.³⁶ The General Assembly replaced the "necessary and convenient" catchall phrase to provide that banks may now exercise all powers "incidental" to their business.³⁷ More significantly, incidental powers were defined as inclusive of the power to...