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

Heading: Liability by Virtue of Being a Cosignatory

Text: In claiming that the funds attached are liable for the overdraft in the joint checking account, the bank contends that as an incident to a joint account, funds received from it by a cosignatory are liable for payment of an overdraft in that account. The crux of Cambridge Trust's position is that since the funds deposited by Mrs. Carney in the Nashua Federal Savings and Loan Association originated from the joint account albeit three months prior to the transaction creating the overdraft, those funds should be liable for payment of the overdraft. There is little decisional law concerning the liabilities of cosignatories on joint checking accounts. See Halb & Hauenstein, The Uniform Commercial Code in Minnesota: Article 4  Bank Deposits and Collections, 50 Minn. L. Rev. 1027, 1041 (1966); 2 Uniform Laws Annotated (Uniform Commercial Code) § 4-401, at 376 (1968) (Supp. 1974, at 165). In general article 4 of the Uniform Commercial Code governs the relationship between a bank and its customers with respect to overdrafts. RSA 382-A:4-401 (1961); Mass. Gen. Laws ch. 106, 4-401 (1958). Section 4-401 (1) permits a bank to charge against the account of any customer any item which is otherwise properly payable from that account even though the charge creates an overdraft. Section 4-104 (1) (a) defines account as any account with a bank and includes a checking, time interest or savings account. Section 4-104 (1) (e) defines customer as any person having an account with a bank or for whom a bank has agreed to collect items and includes a bank carrying an account with another bank. What commentators there are appear to be divided as to the effect of sections 4-104 (1) (a), (e) and 4-401 (1) on the liability of cosignatories for overdrafts on a joint account. One view is that an overdraft should be chargeable to all signers on the account because of the broad language of §§ 4-104 (1) (a), (e) and 4-401 (1). 1 W. Hawkland, A Transactional Guide to the UCC § 1.740301, at 385-86 (1964). A contrary view is that a cosignatory cannot be held liable for overdrafts beyond the balance of the joint account. 3 R. Anderson, Uniform Commercial Code § 4-401:4, at 300 (1971). To sustain its position that Mrs. Carney should be liable for her husband's overdraft as a cosignatory on the joint account, the bank relies primarily on two cases, one decided before the Code and another based specifically on it. National Bank of Slatington v. Derhammer, 16 Pa. D. & C. 2d 286 (No. 1) (1958); Faulkner v. Bank of Italy, 69 Cal. App. 370, 231 P. 380 (1924). In granting defendant's motion for a more specific complaint, the court in National Bank of Slatington ruled that where an overdraft has occurred the liability of a cosignatory under article 4 of the Uniform Commercial Code is limited to the balance of the account. 16 Pa. D. & C. 2d 286, at 289. In order to prevail the bank must show that the defendant cosignatory participated in the negotiation of the check creating the overdraft or was enriched through it. Id.; see Annot., 18 A.L.R.3d 1376, 1387 (1968); Del Duca, Commercial Code Litigation:2, 66 Dick. L. Rev. 39, 50-51 (1961). In Faulkner the California Supreme Court denied the bank recovery against a cosignatory where the cosignatory had received no funds as a result of the overdraft and in no way participated in the fraud creating the overdraft. 69 Cal. App. at 377, 231 P. 380, at 383. Rather than supporting the bank's position both of these cases militate toward denying it recovery. Since Mrs. Carney neither participated in the transaction creating the overdraft nor received funds as a result of it, she cannot be held liable for payment of it. City Bank v. Tenn., 52 Hawaii 51, 53, 469 P.2d 816, 818 (1970); Annot., 18 A.L.R.3d 1376, 1380 (1968). We find no error either in the trial court's failure to instruct the jury that Mrs. Carney's status as a cosignatory made her liable as a matter of law to the extent of the funds which she received from the account, or in the court's denial of a motion for directed verdict requested on the same ground.