Court Opinion

ID: 7919635
Source: CourtListenerOpinion
Date Created: 2022-09-08 22:18:43.798042+00
Date Added: 2024-06-11T16:32:58.392755
License: Public Domain

Dissenting Opinion by
HARRELL, J.,
in which BELL, C.J. and ELDRIDGE, J., Join.
The majority opinion in this case puts new oil on the old saw that hard cases make bad law.1 This case addresses the interpretation of the Deposit Agreement between Lema and Bank of America (the Bank), and Maryland Code (1974, 2002 RepiVol.), Commercial Law Article, §§ 1-101 to 10-1122 (hereinafter “UCC” or “Code”), specifically Title 3 (Negotiable Instruments) and Title 4 (Banking). Interpretations of these UCC provisions impact the very foundations of the economy of Maryland. Because the Majority, in my opinion, distorts the Code and Maryland contract law to achieve perhaps what may appear to the Majority to be a just result based on the aroma of possible inferences emanating from the facts of this case, rather than deciding the case in accordance with the clear dictates of the principles of the UCC, I respectfully dissent.
I.
The facts of this case raise obvious questions in addition to those properly before the Court. Though the case should not turn on these questions, it is important for a complete understanding of the posture of the case that we at least acknowledge their presence as “elephants in the living room.” The first and most obvious question is whether Lema’s conduct in *649drawing down on the proceeds of the pertinent check was merely naive or rather reflected a sinister plot; a question, as noted, not properly before us. In addition to the unanswered question of Lema’s state of mind, there exists the unaddressed question of who, under the UCC, if not Lema,3 might ultimately and properly be liable on the altered check as a negotiable instrument. As I see it, the issue of whether Lema is liable on the instrument under the UCC is an issue separate and distinct from the question of Lema’s potential liability arising under the Deposit Agreement with the Bank. The trial court was correct in concluding that Lema is not liable on the check. Checks are negotiable instruments and are governed by Title 3 of the UCC. See Messing v. Bank of America, 373 Md. 672, 821 A.2d 22 (2003). Section 3-401(a) states:
(a) A person is not liable on an instrument unless (i) the person signed the instrument, or (ii) the person is represented by an agent or representative who signed the instrument and the signature is binding on the represented person under § 3-402.
This is the UCC default provision for all circumstances not otherwise provided for by other sections of the UCC. Its existence is necessary to insure the degree of certainty of liability and extent of risk required for those engaged in commercial / financial transactions. The record shows that neither Lema, nor anyone else, endorsed the pertinent check in this case.
While it does not appear essential to the Majority decision in this case, the Majority, at the invitation of Bank of America, asserts the proposition that the UCC, as a matter of policy, allows for the transfer of rights, duties, liabilities, and warranties without signature. The Majority opinion suggests (slip op. at 638-40; 646) that because it can identify two sections of Title 4, § 4-205 and § 4 — 401, where liability is imposed or rights transferred in the absence of a signature, that the UCC contemplates, as a matter of implied policy, such transfers in *650circumstances apparently not provided for by the UCC. Nothing could be further from the truth. The UCC is quite explicit as to how seemingly unprovided-for-situations are to be handled.
As was pointed out, supra, under § 3-401 (a) an individual is not liable on an instrument unless signed by that individual or an agent of that individual. Also as noted, supra, this is the default provision of the Code pertaining to negotiable instruments. We know this because of § 3 — 102(b), which provides that “[i]f there is a conflict between this title and Title 4 or 9, Titles 4 and 9 govern,” and § 4-102(a), which states that “[t]o the extent that items within this title are also within Titles 3 and 8, they are subject to those titles. If there is a conflict, this title governs Title 3, but Title 8 governs this title.” (Emphases added). Both §§ 3-201(b) and 4-102(a) require a direct conflict between applicable sections of Title 3 and Title 4 in order to override the requirement of a signature on the instrument as provided in § 3-401(a). As will be shown, infra, neither of the statutory provisions pointed to by the Majority, § 4-205(1) and § 4-401, are applicable to the facts of this case, and thus no conflict between the provisions of Title 3 and Title 4 exists. Because no conflict between the Titles exists, § 3^101(a), requiring a signature, controls.
Contrary to the apparent suggestion of the Majority opinion (slip. op. at 638-40, 646), Lema is not liable on the check under § 4-205. Section 4-205 states:
If a customer delivers an item to a depositary bank for collection:
(1) The depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of § 3-302, it is a holder in due course; and
(2) The depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount *651of the item was paid to the customer or deposited to the customer’s account.
(Emphases added). The Majority is correct that this provision was intended to make clear that the depositary bank obtains the rights of a holder. The problem here is that this section of the Code is inapplicable to the facts of this case. Lema did not deliver the check to the Bank, nor apparently did an agent. In addition, Lema was never a “holder” of the instrument, and therefore the Bank could not acquire holder rights through him. A “holder” is defined by § 1-201(20), in relevant part, as follows:
“Holder” with respect to a negotiable instrument, means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession.
The undisputed facts are that Lema never possessed the check. Because Lema was never in possession, Lema was never a “holder;” thus Lema had no rights as a “holder” to be transferred to the Bank. Whether Lema may be held liable for activities occurring in his accounts under a contract theory is a different question, addressed infra, from that of liability on the check under the UCC. As powerful as the Majority wishes to make the Bank’s Deposit Agreement with Lema, the Agreement nevertheless lacks the power to confer rights of a “holder” upon Lema in an instrument never possessed or endorsed by Lema as required by the Code. Section 4-205 is not applicable to the facts of this case, and therefore does not create a conflict with § 3-401. Thus, § 3-401 controls the facts of this case.
Nor is § 4-401 (b) applicable to the facts of this case. Section § 4-401 (b) states: “A customer is not liable for the amount of an overdraft if the customer neither signed the item nor benefitted from the proceeds of the item.” Official Comment 2 to that section informs us that: “Subsection (b) adopts the view of case authority holding that if there is more than one customer who can draw on an account, the nonsigning customer is not liable for an overdraft unless that person *652benefits from the proceeds of the item.” The issue before this Court is the alteration of a check, not an overdraft. Furthermore, this is not a situation where there are multiple parties drawing checks on the account; nor is this a factual situation where Lema can be cast in the role of a drawer responsible for the drawing of the instrument in question.4 Thus, § 4-401 (b) is not applicable to the facts of this case, and no conflict exists between it and § 3-401. Section 3-401 applies to the instrument.
The unanswered question remains, however, that if I am correct and Lema is not liable under Title 3 of the Code for the altered check, who, if anyone, is? I address this question only because, contrary to the apparent belief of the Majority, this case does not present a circumstance unprovided-for by the Code. Though the issue is not before us, and I in no way argue that the Court properly could reach it, the answer to this question is contained in the Code and in the. instrument itself. The check was drawn by an Italian bank, Cassa di Risparmio di Padova e Rovigo, on its account at the Bank of New York. A copy of the check was contained in the record, and an examination of it is revealing of more than the alteration. Though the copy is less than perfectly legible, there appears to be no expression of the amount of the check written in script. There is merely a long rectangular box near the upper right-hand comer for the placement of numbers indicating the amount. There is sufficient space for at least twenty (20) digits. Inside this rectangle, starting from the left margin, is typed the letters “USD”, indicating that the check *653is to be paid in U.S. Dollars. Inside the rectangle, from the right margin, are the numbers “63,000.00.” Because these numbers start at the right margin, reading to the left, there is a large space of at least one inch between the letters “USD” and the amount of “63,000.00.” Obviously, there was even more additional space available when the check was drawn originally for “3,000.00.” The point is that the lay-out of the check is such that it facilitated alteration. The perpetrator of an alteration merely has to place the instrument into a printer or typewriter and type in a number to the left of the original amount, thus increasing its value.
Section 3^106 states:
(a) A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.
(b) Under subsection (a), if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss.
(c) Under subsection (a), the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subsection (b), the burden of proving failure to exercise ordinary care is on the person precluded.
Section 3 of the Official Comment to § 3-406 offers several illustrative examples of “the kind of conduct that can be the basis of a preclusion under [the] section”, of which “Case # 3” is applicable to the present matter. “Case # 3” explains:
A company writes a check for $10. The figure “10” and the word “ten” are type-written in the appropriate spaces on the check form. A large blank space is left after the figure and the word. The payee of the check, using a typewriter with a typeface similar to that used on the check, *654writes the word “thousand” after the word “ten” and a comma and three zeros after the figure “10.” The drawee bank in good faith pays $10,000 when the check is presented for payment and debits the account of the drawer in that amount. The trier of fact could find that the drawer failed to exercise ordinary care in writing the check and that the failure substantially contributed to the alteration. In that case the drawer is precluded from asserting the alteration against the drawee if the check was paid in good faith.
In short, assuming arguendo that Bank of America was obliged to return the funds to the Bank of New York (an assumption that is not a certainty on this record), a proper party from which Bank of America may seek recompense on the check was the Italian bank. Perhaps viewing such an action as an expensive proposition to litigate, given the amount involved, Bank of America instead sought to enforce its asserted contract rights against its account holder, and to do so on a basis which would expand greatly the powers of such contracts if Bank of America’s arguments were accepted by this Court. The Majority opinion grants the Bank this undeserved double victory.
II.
The Majority is correct when it states that the UCC expressly allows many of its terms to be modified by private agreement. Given that having a bank account is a virtual necessity in our society and the unequal bargaining power between banks and the majority of their customers, if the Code did not allow expressly for these agreements the argument fairly could be made that such contracts as the one before us are textbook examples of contracts of adhesion. It is for this reason that the Code does not recognize agreements purporting to alter certain of the provisions of the UCC, and makes certain duties and obligations non-waivable.5 For example, § 4-103(a) states:
*655The effect of the provisions of this title may be varied by agreement, but the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank’s responsibility is to be measured if those standards are not manifestly unreasonable.
(Emphases added). Similarly, § 1-102(3) states:
The effect of provisions of Titles 1 through 10 of this article may be varied by agreement, except as otherwise provided in Titles 1 through 10 of this article and except that the obligations of good faith, diligence, reasonableness and care prescribed by Titles 1 through 10 of this article may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable.
(Emphases added).
The Majority concludes that the Deposit Agreement in question acts to change “the legal consequences which would otherwise flow from the provisions of the [UCC],” and thus allows the Bank to charge back against Lema’s account where under § 4-214 that possibility might not exist.(Maj. slip op. at 642). As a result, the Majority affirms the Court of Special Appeals decision reversing the trial court’s entry of judgment in favor of Lema. Even if I were to accept the Majority’s reasoning regarding the impact of the parties’ contract, which I do not, the result would not be as suggested by the Majority.
The Majority opinion asserts that the outcome of this case is determined by clause 4(e) of the Deposit Agreement. (Maj. slip op. at 640-43). This clause reads as follows:
e. Items returned. If a deposited item is returned to us by the bank on which it is drawn, we may accept that return and charge the item back against your account without regard to whether the other bank returned the item before its midnight deadline. At our option and without notice to *656you that the item has been returned, we may resubmit any returned item for payment. You waive notice of dishonor and protest, and agree that we will have no obligation to notify you of any deposited item that is returned to us. Unless prohibited by applicable law or regulation, we also reserve the right to charge back to your account the amount of any item deposited to your account or cashed for you which was initially paid by the payor bank and which is later returned to us due to an allegedly forged, unauthorized or missing endorsement, claim of alteration, encoding error or other problem which in our judgment justifies reversal of credit. We may process a copy or other evidence of a returned item in lieu of the original.
(Emphasis added). The Majority overlooks that this provision contains elements implicating the Bank’s duty to exercise ordinary care, the waiver of which duty is prohibited by the Code. It overlooks that the Code places the burden of proof for those elements squarely on Bank of America. (Maj. slip op. at 640 n. 10).
Under § 4-105(2) and (5), Bank of America is, under the facts Of this case, both a “depositary bank” and a “collecting bank.” Under § 4-202(a)(2), a collecting bank must exercise ordinary care in “sending notice of dishonor or nonpayment or returning an item other than documentary draft to the bank’s transferor after learning that the item has not been paid or accepted, as the case may be.” Under § 4-202(b), “[a] collecting bank exercises ordinary care under subsection (a) by taking proper action before its midnight deadline following receipt of an item, notice, or settlement. Taking proper action within a reasonably longer time may constitute the exercise of ordinary care, but the bank has the burden of establishing timeliness.” Notice, under § 4-105, is a part of the exercise of ordinary care and, under § 4-103(a) supra, the duty to exercise ordinary care may not be disclaimed by agreement between the parties. Thus, the provisions of clause 4(e) of the Deposit Agreement purporting to waive the notice requirement are void as against public policy. As such, the Bank has *657the burden to show that it gave notice to Lema within a reasonable time; otherwise, it is liable for resulting damages as defined by § 4-103(e).6 The Court of Special Appeals failed to recognize this, and thus it would be incorrect, even under the Majority’s contract theory, for this Court to simply affirm the decision of the intermediate appellate court in this case.
The undisputed facts in this case are that the Bank of New York forwarded to Bank of America a “Notice of Forgery Claim” on 12 January 2000. Bank of America did not inform Lema that it was charging his account $60,000 until 22 February 2000, forty (40) days after the midnight deadline7 for ordinary care as required by § 4-202. Because Bank of America missed its midnight deadline for giving Lema notice, it bears the burden of proving that a 40 day delay was reasonable; a burden, as pointed out, which it may not avoid by private contract. Contrary to the opinion of the Majority (slip, op at 640 n. 10), it is not necessary that Lema raise the issue of lack of ordinary care. The burden of proof that its actions were reasonable and that it therefore is entitled to the full amount is placed on the Bank by § 4-202. Bank of America presented no evidence to show that the 40 day delay in giving notice was reasonable under § 4-202. As a result, even if the Majority’s interpretation of the effect of the Deposit Agreement were correct, a simple affirmance of the decision of the intermediate appellate court is error.
III.
The problems addressed in sections I and II of this Dissent illustrate the errors in the Majority opinion in its relation of *658the UCC to the facts of this case. Those errors are ultimately of little consequence to the determination of this case, however, as the Majority opinion does not decide the case on UCC principles, but rather upon general contract principles. Here also I depart from the analysis and conclusions of the Majority opinion in a number of substantive ways, although there are some points it makes with which I agree. I agree with the conclusion of the Majority that “Title 3 is not the only applicable law; Title 4 deals with ‘Bank Deposits and Collections’ and also is applicable in this case” (Maj. slip op. at 639). I also agree with the Majority’s conclusion that the Deposit Agreement is not ambiguous. (Maj. slip op. at 644). I disagree, however, with the conclusion of the Majority that the Deposit Agreement functions to change the legal consequences which otherwise would flow from the provisions of the Code (id.). On the contrary, the plain meaning of the unambiguous language of the contract clause in question, clause 4(e), indicates that, far from altering the Code by agreement, the terms used incorporate the Code in its entirety into the Agreement.
Construction of a contract is, in the first instance, a question of law for the court to resolve. Suburban Hosp. v. Dwiggins, 324 Md. 294, 306, 596 A.2d 1069, 1075(1991). There is no room for construction where the language of a contract is clear and unambiguous, and we “must presume that the parties meant what they expressed.” Gen’l Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261-62, 492 A.2d 1306, 1310 (1985). The question presented by this case is whether the terms of the Deposit Agreement were meant to substitute for the provisions of the Code, or merely act as gap fillers. Bank of America seems to argue at one point, contrary to the conclusion of the Majority, that the contract was not intended to vary the terms of the UCC (Brief at 17). The Bank there states:
The charge-back provision in the Deposit Agreement does not “eliminate the protections of Title 3” as suggested by Appellant. If the language varies the effect of Title 3, such variation is permitted under Title 4. However, Bank of America submits that the text does not vary the terms of *659the UCC Both lower courts determined that Appellant had not ratified the deposit and, therefore, was not liable under Title 3. Therefore, the Bank’s invocation of Title 3 did not change anyone’s liabilities. Rather, in this instance, the text addresses this unique situation that falls outside the limits of the UCC.
(Emphases added; internal citations omitted). While Bank of America is correct that the text of the Deposit Agreement does not vary the terms of the UCC, it is incorrect in asserting that the text addresses a unique situation outside the provisions of the UCC. In fact, the plain language of the Deposit Agreement specifically states that the UCC, as the applicable law, shall apply.
As I noted supra, I agree with the Majority that Title 3 and Title 4 are the applicable law. I also agree that the relevant contract provision is 4(e), which states in relevant part:
Unless prohibited by applicable law or regulation, we also reserve the right to charge back to your account the amount of any item deposited to your account or cashed for you which was initially paid by the payor bank and which is later returned to us do to an allegedly forged, unauthorized or missing endorsement, claim of alteration, encoding error or other problem which in our judgment justifies reversal of credit.
(Emphases added). My difference with the Majority opinion is that after recognizing Title 4 as the applicable law, the Majority failed to apply it as required by clause 4(e) of the contract.
Because Titles 3 and 4 are the applicable law, we must interpret the first clause of 4(e) as reading “Unless prohibited by applicable law [which, by definition, includes the provisions of Titles 3 and 4] or regulation.... ” Because Title 4 is the applicable law, and the right of charge-back granted to the Bank contained in clause 4(e) is conditioned upon such charge-back not being prohibited by the applicable law, then if a section of Title 4 prohibits such a charge-back, that section of Title 4 controls the right of the Bank to charge-back the *660customers account. Section 4-214 is such a section, and states in relevant part that “rights to revoke, charge-back, and obtain a refund terminate if and when a settlement for the item received by the bank is or becomes final.” Section 4-214 being the applicable law under the terms of the contract, Bank of America is precluded by the terms of the contract from charging-back the account if the payment of the check to the account was final, as opposed to provisional. Boggs v. Citizens Bank and Trust Co. of Maryland, 32 Md.App. 500, 505, 363 A.2d 247, 250 (1976)(holding that where settlement of an item becomes final, a bank is not permitted under § 4-214 to charge back a customer’s account).
The question comes down to whether the credit to Lema’s account was provisional or final. My review of the record extract indicates that Bank of America produced no evidence as to whether its release of funds was provisional or final. All that was shown was that the deposit was made on 24 November 1999, and that no withdrawals were made until the check had “cleared.” Lema testified that, after discovering that the deposit had been made, he spoke to a customer service employee of the Bank, one Weise Price, and that that person informed him that the item would be paid after the item was collected, and that that would take about 17 days. This testimony is uncontradicted by the Bank.
For purposes of appellate review, the state of the record is unfortunate. Nevertheless, Bank of America is the party asserting its rights under the Deposit Agreement and, thus, Bank of America has the burden of establishing its right to do so', which includes producing evidence establishing that the release of funds to Lema’s account was provisional, and that final settlement had not occurred prior to the date of the charge-back. “In Maryland, as in the majority of States, it is the rule, in either breach of contract or tort cases, that the burden of proof is on the plaintiff, or on the party who asserts the affirmative of an issue, and that burden never shifts.” Kruvant v. Dickerman, 18 Md.App. 1, 3, 305 A.2d 227, 229 (1973). Bank of America failed to meet its burden here.
*661For the forgoing reasons, the judgment of the Court of Special Appeals, in my opinion, should be reversed, and the judgment of the trial court affirmed.
Chief Judge BELL and Judge ELDRIDGE have authorized me to state that they join in this dissent.

. I most recently had recourse to this maxim in In Re Adoption / Guardianship Nos. J9610436 and J9711031, 368 Md. 666, 704 n. 1, 796 A.2d 778, 800 n. 1 (2002) (Harrell, J., dissenting).

. Unless otherwise provided, all statutory references are to Maryland Code (1974, 2002 Repl.Vol.), Commercial Law Article, §§ 1-101 to 10-112.

. As the Majority notes, Mr. Amuli is no where to be found.

. Additionally, Lema neither signed nor benefitted from the alteration. It is true that Lema transferred $2,000 to another of his accounts as payment of a debt owed to him. As Bank of America correctly pointed out in its brief, however, § 3-407 recognizes that an altered check still may be enforced as to its original terms. In this case, the correct amount was $3,000, later altered to $63,000 by a third party. Arguably, if one accepts the position of the Majority that Lema has an interest in the instrument itself, Lema would be entitled to enforce the instrument up to the amount of $3,000, even after the alteration. As noted, Lema only took $2,000 for himself. It could be argued fairly that only if Lema took more than $3,000 could Lema be said to benefit from the alteration.

. Additionally, § 1-203 states: "Every contract or duty within Titled 1 through 10 of this article imposes an obligation of good faith in its performance or enforcement.”

. Additionally, sec § 4-214 and corresponding Official Comments 5 and 6.

. Section 4-104(10) supplies the following relevant definition: " 'Midnight deadline’ with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later.”