Tremont Trust Company vs. Louis Burack

Massachusetts Supreme Judicial Court1920-04-01

235 Mass. 398

Summary · law.co

Holding. The court sustained the bank's exceptions to the jury instructions, holding that a bank may validly contract to limit its liability for employee negligence in failing to honor a stop-payment order, and that the agreement's language regarding 'inadvertence' and 'accident' encompasses such negligence.

A bank paid a check despite receiving a stop-payment order from the drawer, and the check was an overdraft. The drawer had signed a printed agreement when issuing the stop-payment request, which stated that the bank would not be liable if payment occurred through 'inadvertence or accident,' and that the bank would use its best methods to prevent such errors but bore no liability if they occurred anyway. The jury found the bank negligent in failing to stop payment after receiving the order. The court examined whether the agreement's language covered negligence and whether it was legally permissible for a bank to contract away liability for employee negligence in these circumstances.

The court held that the terms 'inadvertence' and 'accident' in the agreement were broad enough to encompass the negligence demonstrated in this case. The court further determined that there was nothing illegal or contrary to public policy in allowing a bank to limit its liability for ordinary negligence by its employees in executing stop-payment orders. Accordingly, the court found the trial judge's instruction to the jury—which stated that banks cannot contract against their own negligence—to be incorrect and inconsistent with the proper interpretation of the agreement.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether an agreement's terms for 'inadvertence or accident' include ordinary negligence by bank employees
Whether a bank may legally contract to limit its liability for negligence in executing stop-payment orders
The scope of a drawer's right to countermand check payment before it is paid

Procedural posture

The plaintiff bank brought an action for contract to recover an overdraft amount paid despite a stop-payment order, and the jury found the bank negligent; the bank's exceptions to the jury charge were presented for appellate review.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

Pierce, J.

This is an action of contract to recover from the defendant the amount of money which the plaintiff (hereinafter called the bank) on presentment paid to a holder of a check drawn on the bank by the defendant, in excess of the deposit standing to the credit of the defendant when the check was paid. The defendant admits that he drew the check, that it was an overdraft, and that it was paid by the bank to the holder through the clearing house. The plaintiff and the defendant are in substantial agreement that, on the day the check was issued and before presentment to or payment by the bank, the defendant notified the bank to stop payment of the check. It is also agreed that, without reading, the defendant at the time when he ordered the payment stopped, at the request of the plaintiff signed a card upon which the following agreement was printed:

“The Tremont Trust Company, Boston, Mass., will please stop payment of the above described check. The undersigned agrees to hold the Tremont Trust Company harmless for said amount and for all expenses and costs incurred by it on account of refusing payment of said check and further agrees not to hold the Tremont Trust Company liable on account of payment contrary to this request if same occur through inadvertence or accident.

“Drawer

L. H. Burack”

On the reverse side of the card appeared the following:

“The Tremont Trust Company receives this request with the understanding and upon the express condition that it will use the best methods known to it to prevent oversight and accident, but that it shall not be in any way liable for its act should said check be paid by it in the course of its business.”

In passing it is to be observed that the fact that the defendant did not read what was printed on. the front and back of the card cannot affect the rights and obligations of the parties, because in the absence of fraud the defendant is assumed to have assented to all the provisions of that contract, and agreed to be bound by its terms. Fonseca v. Cunard Steamship Co. 153 Mass. 553.

By the great weight of authority, the drawer of a check retains the right to countermand its payment at any time before it is paid or is certified and delivered to a hona fide holder for value. Florence Mining Co. v. Brown, 124 U. S. 385. See cases collected in Morse on Banks & Banking, §§ 397-399, and in 7 C. J., Banks & Banking, § 429. Pease & Dwyer v. State National Bank, 114 Term. 693. In the absence of an express contract limiting its implied obligation to the drawer, the drawee pays at his peril when payment of the check has been stopped. Usher v. A. S. Tucker Co. 217 Mass. 441, 443. The consideration for an express agreement or for the implied obligation not to pay a holder of a check after payment of it has been stopped, is found in and springs from the mercantile relation of the parties and the reciprocal rights and obligations which the law attaches to that relation. The payee is not an assignee of the fund and the bank incurs no obligation to him before its acceptance of the check; his rights are against the drawer of the check. R. L. c. 73, § 206. Carr v. National Security Bank, 107 Mass. 45. Bullard v. Randall, 1 Gray, 605.

In the case at bar the jury found upon issues submitted to it that the plaintiff was “negligent in failing to stop payment after receiving the order to stop.” Upon the record two decisive questions are presented: (1) Do the terms of the agreement include negligence? and (2) Is it illegal for a bank to contract against the negligence of its employees in failing to stop the payment of a check after receiving an order to stop its payment?

The word “inadvertence” in the printed agreement embraces the effect of inattention, the result of carelessness, oversight, mistake, or fault of negligence and the condition or character of being inadvertent, inattentive, or heedless. The word “accident” is used in the sense of a happening of an event without the concurrence of the will of the person by whose agency it was caused. It is manifest the quoted words were intended to exonerate the bank from the kind of negligence shown by the record and we are unable to see anything illegal, or anything opposed to public policy, in a stipulation or agreement which relieves a bank so circumstanced from the results of the mere inattention, carelessness, oversightedness, or mistakes of its employees. It follows that the plaintiff’s exceptions to the charge, wherein it was said “The law, as I understand it, does not recognize the right of the bank to contract against its own negligence,” was properly saved, as inconsistent with requests numbered 4 and 5, and its exceptions must be sustained.

Exceptions sustained.