What Happened When Parties to a Commercial Contract Included a Term That Modified a Non-Modifiable Statutory Notice Period??

Poole Huffman, LLC

When two sides negotiate and enter into a commercial contract, the law gives them very wide latitude in how they structure that deal and what terms they put into the final contract. The law does not, however, gives parties carte blanche in what they do; there are certain things that are out of bounds as a result of statutes or case law. Getting the most from your commercial contract, then, includes ensuring that the terms you’ve negotiated for and agreed upon are not rendered unenforceable by the law. To make certain your agreement meets these standards, make sure you have representation from a knowledgeable Atlanta commercial contracts lawyer.

A recent breach of contract case before the federal 11th Circuit Court of Appeals highlights an example of this concept. The parties were a North Carolina-based bank and several Venezuelan holders of commercial bank accounts, including a law firm and an investment firm. The contract that governed these accounts was something the bank called its “Commercial Bank Services Agreement.”

The agreement imposed certain obligations on the account holders. It said that the account holders had only 30 days to inform the bank about any unauthorized transactions on their accounts and that they had only 10 days to notify the bank if they failed to receive a monthly statement from the bank.

Across four months in 2016, approximately $850,000 moved from the investment firm’s account to an outside account, allegedly as a result of fraudulent transfers. Eventually, the account holders sued the bank, alleging that the bank owed them a statutory obligation to return the $850,000 they lost as a result of the fraudulent wire transfers.

The bank asked the federal court to dismiss the case, using the terms of the agreement to support its position. The bank’s argument essentially was, “all parties had valid agreements that required notification within 30 days and the account holders did not meet that deadline, so we owe no obligation to refund the money.”

The 11th Circuit Court of Appeals rejected the bank’s argument. The law in Florida, which was where the plaintiffs had opened their accounts with the bank, says that account holders have one year to demand a refund of a fraudulent wire transfer. That statutory period was not modifiable, the court said, meaning that the contractual provision that shortened the period down to 30 days was not enforceable.

A Contract Clause that Would ‘Eviscerate’ Statutory Protections 

Ruling otherwise, and concluding that the deadline was modifiable by contract, “would allow banks to eviscerate the protection” the law creates. The policy behind the law was that banks, not account holders, should “bear the risk of a fraudulent transfer for the first year following the transfer.” Allowing parties to rewrite that burden allocation using contracts would undermine that policy. As the appeals court noted, “if the one-year statutory notice period could be varied, then banks could insist that customers sign contracts that make the time to demand a refund of a fraudulent payment a day (or even less). That would impair the account holder’s right to a refund and defeat” the intent of the statute.

The key thing to keep in mind is that there are a lot of rights and privileges you can amass unto yourself through effective contract negotiation, but the freedom to contract does not give you a blank slate. Before you decide whether a proposed contract is a good deal or not for your business, you need to be sure all of the terms in the proposed agreement are enforceable. Whether you’re negotiating, executing, or reviewing a commercial contract, count the knowledgeable Atlanta commercial contracts attorneys at Poole Huffman, LLC to ensure you walk away with an agreement that meets your needs… and is fully enforceable. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation today

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