Opinion ID: 2083862
Heading Depth: 1
Heading Rank: 2

Heading: Liability Based on the Indemnification Agreement.

Text: Alternatively, the bank maintains that even if Mrs. Carney is not liable for the overdraft as a cosignatory on the joint account, she is liable according to the terms of the indemnification agreement. The bank points out that 4-103 (1) (Variations by Agreement) of the Uniform Commerical Code specifies that the provisions of article 4 may be varied by agreement except that no agreement can disclaim a bank's responsibility for its own lack of good faith or failure to exercise ordinary care .... RSA 382-A:4-103 (1) (1961); Mass. Gen. Laws ch. 106, § 4-103 (1) (1958). Although ordinary care is not defined by the Code, action specifically approved by its provisions constitutes ordinary care. 3 R. Anderson, Uniform Commercial Code § 4-103:6 (1971); RSA 382-A:4-103 (3) (1961); Mass. Gen. Laws ch. 106, § 4-103 (3) (1958). While allowing an overdraft does not generally constitute failure to exercise ordinary care (RSA 382-A:4-401 (1) (1961)), in this case the assistant treasurer of Cambridge Trust testified that in October 1971 he had become so concerned about the six overdrafts made by Mr. Carney within a two-month period that he instructed the person handling the records for the account to notify him immediately in the event of any large overdrafts. The record indicates that he was not notified. Under such circumstances the jury could have found that the bank did not exercise ordinary care in permitting Mr. Carney to create yet another overdraft. Cooper v. Union Bank, 103 Cal. Rptr. 610, 615 (Ct. App. 1972); Nielson v. Suburban Trust & Sav. Bank, 37 Ill. App. 2d 224, 234-35, 185 N.E.2d 404, 408-09 (1962). Accordingly, pursuant to the provisions of 4-103 (1) limiting the effectiveness of an agreement to situations where a bank exercises ordinary care, Mrs. Carney could not be held liable on the basis of the indemnification agreement and card which she signed. A. Stickells and C. Everberg, 25 Massachusetts Practice (Manual on Uniform Commercial Code) § 4.3, at 349 (1963).