A recent decision of the Utah Court of Appeals obtained by RQN Banking and Finance attorneys Stephen C. Tingey and Brent D. Wride contains helpful clarifications concerning the duties owed by a bank to the public.
In Legal Tender Services v. Bank of American Fork (n/k/a Altabank, a division of Glacier Bank), 2022 WL 570666 (Utah Ct. App.), RQN obtained summary judgment, affirmed by the Court of Appeals, dismissing the claims against its client, Altabank. The Court of Appeals’ decision confirms several key principles about a bank’s duty to the public:
1. Bank’s Duty of Ordinary Care is Limited. Legal Tender decision limits the effect of Arrow Industries, Inc. v. Zions First National Bank, 767 P.2d 935 (Utah 1988), a decision often cited for its broad statement that a bank owes a duty to act in good faith and exercise ordinary care in all its dealings. In Legal Tender, the court clarified that the duty described in Arrow does not apply to “every transaction that a bank is ever involved in.” Rather, the duty described in Arrow “comes from UCC section 4-103” and thus would apply only if the “transactions at issue were actually governed by UCC section 4-103 or even Article 4 at all.” Thus, Arrow should be limited to matters arising under Article 4 of the UCC, which generally applies to the processing and payment of checks by banks.
2. Bank Owes No Duty to Noncustomer. The decision also clarifies and strengthens the rationale in Ramsey v. Hancock, 2003 UT App 319, 79 P.3d 423 (another decision obtained by RQN in representation of a bank client). In Ramsey, the Utah Court of Appeals held that a bank does not owe a duty to a noncustomer. In Ramsey, the noncustomer was the payee of a check drawn on the bank. In Legal Tender, the court rejected the argument that Ramsey is limited to the narrow facts in Ramsey and stated that “we read Ramsey as having more broadly held that banks owe no duty to noncustomers” and “a bank’s duty to act in good faith and exercise ordinary care is . . . governed by the non-bank party’s status as customer or noncustomer.”
3. Bank Processing Services Not Subject to Product Liability Claims. The Legal Tender court held that the payment processing services provided by the bank were not a “product” for purposes of liability under the Utah Product Liability Act. In this case, the payment processing services were provided through “an online payment portal that is accessed by following the ‘website link’ provided by [the banks]’s service provider and no separate ‘hardware [or] software needed to access the Service’ was part of the Agreement between the parties.” Based on these facts, the Court of Appeals concluded that the Utah Product Liability Act did not apply because the service did not involve a product, or if any product was involved, the agreement was predominantly for services.
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