Mutuality of Contract: Unilateral Contract

SouthTrust Bank v. Williams

775 So.2d 184 (Ala. 2000)

Cook, J.

SouthTrust Bank (“SouthTrust”) appeals from an order denying its motion to compel arbitration of an action against it by checking-account customers Mark Williams and Bessie Daniels. We reverse and remand.

Daniels and Williams began their relationship with SouthTrust in 1981 and 1995, respectively, by executing checking-account “signature cards.” The signature card each customer signed contained a “change-in-terms” clause. Specifically, when Daniels signed her signature card, she “agree[d] to be subject to the Rules and Regulations as may now or hereafter be adopted by the Bank.” (Emphasis added.)…[Later,] SouthTrust added paragraph 33 to the regulations:…

ARBITRATION OF DISPUTES. You and we agree that the transactions in your account involve ‘commerce’ under the Federal Arbitration Act (‘FAA’). ANY CONTROVERSY OR CLAIM BETWEEN YOU AND US…WILL BE SETTLED BY BINDING ARBITRATION UNDER THE FAA.…

This action…challenges SouthTrust’s procedures for paying overdrafts, and alleges that SouthTrust engages in a “uniform practice of paying the largest check(s) before paying multiple smaller checks…[in order] to generate increased service charges for [SouthTrust] at the expense of [its customers].”

SouthTrust filed a “motion to stay [the] lawsuit and to compel arbitration.” It based its motion on paragraph 33 of the regulations. [T]he trial court…entered an order denying SouthTrust’s motion to compel arbitration. SouthTrust appeals.…

Williams and Daniels contend that SouthTrust’s amendment to the regulations, adding paragraph 33, was ineffective because, they say, they did not expressly assent to the amendment. In other words, they object to submitting their claims to arbitration because, they say, when they opened their accounts, neither the regulations nor any other relevant document contained an arbitration provision. They argue that “mere failure to object to the addition of a material term cannot be construed as an acceptance of it.”…They contend that SouthTrust could not unilaterally insert an arbitration clause in the regulations and make it binding on depositors like them.

SouthTrust, however, referring to its change-of-terms clause insists that it “notified” Daniels and Williams of the amendment in January 1997 by enclosing in each customer’s “account statement” a complete copy of the regulations, as amended. Although it is undisputed that Daniels and Williams never affirmatively assented to these amended regulations, SouthTrust contends that their assent was evidenced by their failure to close their accounts after they received notice of the amendments.…Thus, the disposition of this case turns on the legal effect of Williams and Daniels’s continued use of the accounts after the regulations were amended.

Williams and Daniels argue that “[i]n the context of contracts between merchants [under the UCC], a written confirmation of an acceptance may modify the contract unless it adds a material term, and arbitration clauses are material terms.”…

Williams and Daniels concede—as they must—…that Article 2 governs “transactions in goods,” and, consequently, that it is not applicable to the transactions in this case. Nevertheless, they argue:

It would be astonishing if a Court were to consider the addition of an arbitration clause a material alteration to a contract between merchants, who by definition are sophisticated in the trade to which the contract applies, but not hold that the addition of an arbitration clause is a material alteration pursuant to a change-of-terms clause in a contract between one sophisticated party, a bank, and an entire class of less sophisticated parties, its depositors.…

In response, SouthTrust states that “because of the ‘at-will’ nature of the relationship, banks by necessity must contractually reserve the right to amend their deposit agreements from time to time.” In so stating, SouthTrust has precisely identified the fundamental difference between the transactions here and those transactions governed by [Article 2].

Contracts for the purchase and sale of goods are essentially bilateral and executory in nature. See [Citation] “An agreement whereby one party promises to sell and the other promises to buy a thing at a later time…is a bilateral promise of sale or contract to sell”.…“[A] unilateral contract results from an exchange of a promise for an act; a bilateral contract results from an exchange of promises.”…Thus, “in a unilateral contract, there is no bargaining process or exchange of promises by parties as in a bilateral contract.” [Citation] “[O]nly one party makes an offer (or promise) which invites performance by another, and performance constitutes both acceptance of that offer and consideration.” Because “a ‘unilateral contract’ is one in which no promisor receives promise as consideration for his promise,” only one party is bound.…The difference is not one of semantics but of substance; it determines the rights and responsibilities of the parties, including the time and the conditions under which a cause of action accrues for a breach of the contract.

This case involves at-will, commercial relationships, based upon a series of unilateral transactions. Thus, it is more analogous to cases involving insurance policies, such as [Citations]. The common thread running through those cases was the amendment by one of the parties to a business relationship of a document underlying that relationship—without the express assent of the other party—to require the arbitration of disputes arising after the amendment.…

The parties in [the cited cases], like Williams and Daniels in this case, took no action that could be considered inconsistent with an assent to the arbitration provision. In each case, they continued the business relationship after the interposition of the arbitration provision. In doing so, they implicitly assented to the addition of the arbitration provision.…

Reversed and remanded.