Put on your law school exam hats, ladies and gentlemen. It's time for a hypothetical.
On August 17, 1981, at a time when CDs were paying 15.55%, Woody Clark deposited $10,000 in a three-year Certificate of Deposit at the Bank of Bug Tussle. A few years later, the Bank of Bug Tussle merged into another bank which eventually was acquired by Your Bank. Mr. Clark showed up at Your Bank's branch in 2014 with his original Certificate and said he was ready to withdraw his money. By his calculations, even without compounding Mr. Clark believes Your Bank owes him $51,315 in interest, in addition to his original $10,000 deposit.
Your Bank has no record that Mr. Clark has ever been its customer. The records of the Bank of Bug Tussle, all of which were paper, were discarded several mergers ago, and Your Bank's branch in Bug Tussle has been closed for many years.
What happened to Mr. Clark's deposit? Did his late wife (a co-owner on the CD) manage to withdraw the money without Woody's knowledge? Did the funds escheat to the State? Did the Bank of Bug Tussle or its merger partner continue to show the CD as a liability on their long-closed books?
If you are in Alabama, the answer might be easier than you think. In obtaining an order dismissing Mr. Clark's lawsuit against Your Bank for failure to state a claim, we never had to answer those mysteries of history. Alabama has a 20-year common law rule of repose that bars all claims of every kind or character after 20 years of dormancy.
The Common Law Rule of Repose
The rule of repose "bars actions that have not been commenced within 20 years from the time they could have been commenced." Tierce v. Ellis, 624 So. 2d 553, 554 (Ala. 1993). "[T]he only element of the rule of repose is time. It is not affected by the circumstances of the situation, by personal disabilities, or by whether prejudice has resulted or evidence obscured." Boshell v. Keith, 418 So. 2d 89, 91 (Ala. 1982). "Lack of notice is not sufficient to avert the application of the [rule of repose]." Am. Gen. Life and Accident Ins. Co v. Underwood, 886 So. 2d 807, 812 (Ala. 2004) (quoting Ballenger v. Liberty Nat'l Life Ins. Co., 123 So. 2d 166, 169 (Ala. 1960)).
"The rule of repose begins running on a claim as soon as all of the essential elements of that claim coexist so that the plaintiff could validly file suit." Id. "In some instances, . . . [the point in time when the rule beings to run] may be the same as the date of 'accrual' of a claim." Id. (quoting Ex parte Liberty Nat'l Life Ins. Co., 825 So. 2d 758, 764 n.2 (Ala. 2002)). But "repose does not depend on 'accrual' because the concept of accrual sometimes incorporates other factors, such as notice, knowledge, or discovery." Id.
Limitations of Limitations Defenses
In the absence of a rule of repose, ancient claims have to be analyzed under applicable statutes of limitations, which sometimes require evidence of notice or demand. For example, Section 4-111 of the Uniform Commercial Code provides a clumsy, multi-faceted standard for accrual of a cause of action for payment on a time deposit:
A cause of action accrues for payment of a time deposit upon the earlier of: (1) the date demand for payment is made to the bank, but if the time deposit has a due date and the bank is not required to pay before that date, the cause of action accrues when a demand for payment is in effect and the due date has passed; (2) the latter of: (a) the due date of the time deposit established in the bank's last written notice of renewal sent pursuant to section 5-5A-36; or b. four years after the last written communication from the bank recognizing the bank's obligation under the time deposit; or (3) the last day of the taxable year for which the owner of the time deposit last reported interest income earned on the time deposit on either a federal or state tax return.
ALA. CODE-1975 § 7-4-111. In most cases, a limitations defense under section 4-111 can be decided from the face of the complaint; so, in the absence of a rule of repose, an ancient claim probably will not be subject to a viable motion to dismiss. In Mr. Clark's case, he alleged that he had not made a demand for payment prior to 2014 and had never reported interest income on his time deposit.
Solving the Problem
Many states, including Tennessee, do not have a general rule of repose that applies to suits against financial institutions. Drafters of Article 4 of the UCC would be well advised to add a rule of repose for time deposits in the next revision to eliminate the problems that ancient accounts create for banks. Ten years after the expiration of the initial term of a time deposit would be a reasonable outer limit, after which all claims on the account would expire. Banks cannot be expected to retain records in perpetuity, and ten years provides more than a reasonable outer limit for all deposit claims to expire.
For further information visit Waller's Banking Law Blog.
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