Opinion ID: 1959683
Heading Depth: 1
Heading Rank: 3

Heading: Validity of Setoff Right

Text: The United States Bankruptcy Code (code) does not create a right of setoff; rather, it is a creature of either state or federal non-bankruptcy law. See Citizens Bank of Maryland v. Strumpf, 516 U.S. 16, 18, 116 S.Ct. 286, 289, 133 L.Ed.2d 258, 262 (1995). Therefore, before we consider whether PCU's right to set off its deficiency claim against the funds in the Coutures' accounts survived the debtor's bankruptcy, we first must determine whether PCU possessed such a right as a matter of non-bankruptcy law. In Rhode Island, the rights and obligations of a bank and its depositors in regard to funds on deposit are governed by the terms of the contract entered into at the time the relationship is established. Paradis v. Greater Providence Deposit Corp., 651 A.2d 738, 740 (R.I.1994). Moreover, the general non-bankruptcy rule in this jurisdiction is that a bank is entitled to a setoff for repayment of a matured debt owed by a depositor. Brill v. Citizens Trust Co., 492 A.2d 1215, 1216 (R.I.1985). Thus, in Paradis, we held that when the joint depositors accepted and retained a passbook containing rules and regulations, such rules and regulations constituted the depositors' contract with the bank. 651 A.2d at 740. Here, when the Coutures signed the signature cards for each of the accounts, they accepted the rules and regulations of the accounts printed on the last page of each passbook they retained and were thereby contractually bound to these terms. Pursuant to this contract, PCU had the right to apply any or all of the funds represented by the certificate against any indebtedness in default which may be owingto it by the [account] holder as an offset against such debt. Therefore in March 1996, when debtor defaulted on his mortgage, PCU had a contractual right to set off the indebtedness in default against the funds deposited in the accounts. We recognize that some depositors open joint bank accounts for estate planning or convenience purposes and that in doing so they may expose themselves unwittingly to the type of setoff liability that the Coutures assumed in this case. As the dissent notes, in certain circumstances the enforceability of such a provision may be subject to various equitable defenses, including the doctrine of unconscionability â especially if the depositors' agreement can be characterized as an adhesion contract. But in this case the Coutures have failed to challenge the setoff clause on these equitable grounds at any point in these proceedings. Most tellingly, they failed to raise any adhesion-contract issues in any of their pleadings, in their response to the summary-judgment motion, or in any of their arguments before us. On the contrary, they argued that, pursuant to the clear and unambiguous language of the account agreement, the bank's setoff right could not be exercised because the bankruptcy court had discharged the underlying debt. Therefore, the Coutures have not preserved this issue for our review. See Joseph R. Weisberger, Rhode Island Appellate Practice Rule 16.5 at 89 (1993) (no issues may be raised on appeal unless such issues were presented to the trial court in such a posture as to alert the trial justice to the question being raised). Accordingly, we have no occasion to consider whether this type of setoff provision in an account agreement may be so unclear, inconspicuous, or unconscionable that it should not be enforced against depositors like the Coutures. See generally Paul Laurino, Whose Money is it Anyway? A Bank's Right to Setoff Against Joint Accounts, 1996 Colum. Bus. L. Rev. 61, 62 (1996) (concluding that courts should be less generous inenforcing maximum setoff agreements, thereby encouraging banks to make information about the various types of joint accounts more accessible and comprehensible to customers). Indeed, because the Coutures have failed to raise this issue at any time, we are of the opinion that it would be inappropriate to remand this case to the Superior Court so that it can undertake an initial examination of this unraised and unargued issue and its ramifications. See, e.g., Higgins v. New Balance Athletic Shoe, Inc., 194 F.3d 252, 258, 259-61 (1st Cir.1999) (explaining that, although an appellate court reviews summary judgments on a de novo basis, it should not reverse such an order by relying upon arguments that the nonmoving party failed to raise before the trial court, let alone on appeal). Unlike the dissent, we prefer to wait until a party appropriately raises this potential defense, instead of unilaterally surfacing this issue on our own â on behalf of just one side to a controversy â when no party has briefed this question, argued this issue, or asked us to consider this point. As the dissent itself acknowledges, the issue of the contract of adhesion was not raised in Paradis. There is no question that the holding in Paradis, save for the existence of an adhesion contract, would be controlling in the case at bar. But here too, as in Paradis, the issue of contract adhesion was not raised. Thus, Paradis controls and the setoff clause is valid and enforceable.