CARSON, Chief Justice.
This class action involves the obligation of good faith in the performance of contracts. The primary issue is the nature of the good faith obligation owed by defendant First National Bank of Oregon (Bank)
The trial court granted Bank's motion for summary judgment on the issue of whether it had failed to act in good faith regarding the NSF fees.
This case began as a companion case to Best v. U.S. National Bank, 303 Or. 557, 739 P.2d 554 (1987),
In Best, the plaintiff depositors brought a class action alleging, among other things, that the bank "had an obligation to set its NSF fees in good faith and that it breached this obligation by setting its fees at amounts greatly in excess of the costs incurred by it in processing NSF checks." 303 Or. at 561, 739 P.2d 554. In addressing this issue, the Best court began by stating the general rule that there is an obligation of good faith in the performance and enforcement of every contract. Id. The bank in that case argued that it had no obligation of good faith, because the depositors agreed to the NSF fees, as manifested by their choice not to close their accounts.
The Best court rejected this argument, pointing out that it was not the bank's practice to inform depositors of the initial NSF fees or of changes in the amount of such fees: "It would be improper under this evidence to conclude on a motion for summary judgment that the depositors agreed to the charges through failing to close their accounts." Id. at 562, 739 P.2d 554. Having concluded that there was no agreement regarding the NSF fees, the court went on to determine whether there was a genuine issue of material fact whether the bank set (and revised) its NSF fees in good faith.
After reviewing cases from this court and examining the Restatement (Second) of Contracts, the court explained the role of the parties' expectations in the framework of the good faith obligation:
The court continued the "reasonable expectations" analysis, applying the general rules of law set forth above to the Best facts:
Because there were genuine issues of material fact regarding the depositors' expectations
The holdings of the Best case relevant to the case before us may be summarized as follows:
The parties to this case agree that there are two important factual differences between this case and Best; the dispute is over the legal significance of those differences. The first difference is that, unlike the bank in Best, Bank followed the practice of informing depositors of its current NSF fees at the time they opened their accounts. Depositors signed an account agreement, which included an agreement that all deposits to the account would be governed by, among other things, "the rules, regulations, and customs of this Bank including, but not limited to, those which relate to interest and service charges on active and dormant accounts." (Emphasis added.)
At the time depositors opened their accounts, they received a Service Charge Guide or similar document listing the charges assessed by Bank for various services. The guide listed a fee for "Non-sufficient Funds Checks Paid or Returned." The guide also included the following statement:
Further, the evidence before the trial court was that Bank employees routinely explained Bank's service charges to new depositors at the time an account was opened. If a depositor did not agree to the terms of the account agreement, Bank would refuse to open an account.
The second difference between this case and Best is that, here, depositors were informed of changes in the service charges by mail at or near the time the changes were made. Bank produced evidence that it periodically sent notices to each depositor, with depositor bank statements, stating current prices for all bank service charges related to checking accounts (including NSF fees).
Plaintiffs take the position that our holding in Best v. United States National Bank, supra, dictates the result in this case and that the factual distinctions between the two cases have no legal significance. They assert:
In contrast, Bank argues that the reasonable expectations of the parties are irrelevant when depositors first are apprised of the amount of the fees and then agree to open accounts: "Plaintiffs cannot agree to pay certain fees and then attack those fees
Although portions of the Best opinion may be read to support plaintiffs' position, we agree with Bank: The expectations of depositors are irrelevant if they have agreed to the NSF fees charged by the bank. As discussed above, the Best court analyzed the reasonable expectations of the parties only after determining that it could not assume the existence of an agreement. Although "[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement," Restatement (Second) of Contracts § 205 (1981), that duty does not extend to the formation of the contract.
In Best, this court held that depositors were entitled to assume that the bank would price unknown NSF fees in the same manner as they priced other known service charges, and that, because the bank established the known charges by cost-plus pricing, it would use cost-plus pricing to set the unknown charges. Best v. U.S. National Bank, supra, 303 Or. at 565, 739 P.2d 554. As the portion of the Best opinion quoted above suggests, Best goes through a series of inferences to arrive at that conclusion. Yet, the "reasonable expectations" analysis in Best was necessary only because the NSF fees were not agreed to by the depositors.
In this case, there is uncontroverted evidence that the depositors did agree to the specific NSF fees charged by Bank. As noted above, if a potential depositor did not agree to the terms offered by Bank, no account was opened. In the context of contract formation, when there is an agreement after full disclosure, the depositors' expectations are irrelevant. Agreement after full disclosure is the critical difference between this case and Best.
The Court of Appeals distinguished between the terms agreed to by the parties at the time accounts were opened and the later changes in Bank's NSF fees:
The Court of Appeals' statement of the law is correct — good faith is required in the performance of the contract and the exercise of discretion under it. See generally U.S. National Bank v. Boge, 311 Or. 550, 556-68, 814 P.2d 1082 (1991) (discussing obligation of good faith and citing cases). However, as discussed below, there is no genuine issue of material fact regarding whether Bank acted in good faith, in the circumstances of this case.
The contract in this case is not unusual in that it explicitly granted one party the right to exercise its discretion regarding one aspect of the performance and enforcement of the contract. In changing the amount of the NSF fees, Bank enforced a right specifically granted to it under the contract. Because the exercise of that right was pursuant to Bank's unilateral discretion, the good faith obligation discussed in Best applies. Whether any changes in the NSF fees were determined in good faith, therefore, "should be decided by the reasonable contractual expectations of the parties." Best v. U.S. National Bank, supra, 303 Or. at 565, 739 P.2d 554. (Emphasis added.)
We emphasize that it is only the objectively reasonable expectations of parties that will be examined in determining whether the obligation of good faith has been met.
On a motion for summary judgment, the moving party has the burden of establishing that there is no genuine issue of material fact and that the party is entitled to judgment as a matter of law. Seeborg v. General Motors Corp., 284 Or. 695, 699, 588 P.2d 1100 (1978). "In considering whether to grant a motion for summary judgment, the court, generally, must draw all inferences of fact from the depositions and affidavits against the moving party and in favor of the party opposing the motion." Welch v. Bancorp Management Advisors, Inc., 296 Or. 208, 218, 675 P.2d 172 (1983).
The trial court granted summary judgment, finding that there was no genuine issue as to any material fact and that Bank was entitled to a judgment as a matter of law. The evidence before the trial court at the time it granted summary judgment was that Bank "always advised the customers in advance of what [any modified NSF fees] would be." Further, an affidavit provided with Bank's motion for summary judgment stated that "from time to time, [plaintiffs] were reinformed by written `mailers' of the amount and method of calculating services [sic] charges for NSF checks."
Unlike the situation in Best, where the depositors were aware of the pricing mechanism for some service charges, and were entitled reasonably to expect that similar charges would be priced accordingly, in this case there is no evidence that depositors were aware of any particular pricing formula. Accordingly, it would be unreasonable for depositors to have any expectation that changes in NSF fees would be pursuant to any particular formula.
Applying the above principles, we are left with the following framework for our decision in this case: If there was no genuine
The uncontroverted evidence before the trial court on summary judgment in this case was that: (1) the depositors initially agreed that Bank could change the amount of the NSF fees in its unilateral discretion; (2) Bank's practice was to inform depositors of future changes to the NSF fees before such changes became effective; and (3) plaintiffs continued to maintain their accounts with Bank and, in some cases, even continued to write NSF checks after Bank informed them of the changes. No inference available to plaintiffs (other than flat disbelief, which is not an inference that plaintiffs may invoke on summary judgment) creates an issue of fact as to these pivotal circumstances. Based on this record, any reasonable expectations held by the depositors were met by Bank's procedures. As a matter of law, Bank acted in good faith in its treatment of the NSF fees; there was no issue regarding any material fact, and Bank was entitled to a judgment as a matter of law. The trial court correctly granted summary judgment in favor of Bank.
The decision of the Court of Appeals is affirmed in part and reversed in part. The judgment of the circuit court is affirmed.
Plaintiffs responded that the Court of Appeals had no jurisdiction to decide the decertification issue, as Bank had not cross-appealed. Citing the trial court's letter opinion in Best on remand (allowing that case to continue as a class action), and other sources, plaintiffs argued that the reasonable expectations of the plaintiff class as a whole were relevant, and that that determination could be made in a class action. Plaintiffs also argued that the decision to certify a class is a decision for the trial court that should be disturbed only upon a showing of an abuse of discretion.
The Court of Appeals reasoned:
We need not and do not address the decertification issue. Because we affirm the trial court's grant of summary judgment in favor of Bank, there is no need to remand this case. Accordingly, whether separate adjudications would be necessary at trial is a purely hypothetical question and one that we need not decide.