Harby v. Wachovia Bank (Court of Special Appeals)

Filed January 26, 2007. Opinion by Judge Sally D. Adkins.

Issue: Are "no acceptance" and “no consideration” viable defenses to enforcement of an arbitration clause contained in a bank's depositary agreement?

Held: No. A depositor who signs a signature card or other agreement adopting the terms of a separate agreement containing an arbitration clause is bound by that arbitration clause. Judgment of the circuit court affirmed.

Facts: The court-appointed guardian of the property of a minor opened a bank account and deposited funds for the benefit of the minor. To open the account, the guardian signed a document that referred to and incorporated the terms of a depositary agreement containing a mandatory arbitration clause. The guardian did not sign the depositary agreement separately. The guardian then allegedly defalcated portions of the fund. The guardian was replaced by a substitute guardian who sued the first guardian and the bank in circuit court.

The bank moved to enforce the mandatory arbitration clause and asked that the litigation be stayed or dismissed. The plaintiff opposed the motion, raising as grounds 1) no acceptance of the clause, and 2) no consideration given for the clause. The circuit court enforced the arbitration agreement and stayed the litigation. The plaintiff appealed.

On appeal, the Court of Special Appeals identified and discussed a line of precedent establishing the principle that a depositor who accepts the terms of a separate deposit agreement by executing a signature card or other agreement is bound by the terms of the deposit agreement, even if the deposit agreement is not separately executed. The Court held that the guardian was bound by the terms of the second agreement, and that the substitute guardian was bound by the acts of her predecessor. The Court rejected the argument that, to be enforceable, the arbitration clause must be specifically referenced in the agreement signed by the depositor.

The plaintiff argued, alternatively, that the arbitration agreement was unenforceable for lack of consideration, because it remained subject to unilateral modification by the bank under the terms of the depositary agreement. The plaintiff argued that the bank's unilateral right to change the terms meant it could "opt out" of arbitration at its discretion. This rendered the mutual promise of arbitration "illusory," and thus inadequate as consideration for a binding agreement. The Court held that the bank's agreement to provide 30-days notice of any change to the agreement meant that the bank was bound to the terms for at least 30 days. The Court held that this was sufficient consideration to support a binding agreement to arbitrate.

Accordingly, the Court affirmed the decision of the Circuit Court.

A copy of the opinion is available in PDF.