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Supreme Court of Tennessee Issues Opinion Related to Joint Bank Accounts

In a recent opinion in a breach of contract case brought against a Bank by a joint account owner, the Supreme Court of Tennessee overruled two lower courts which had decided in favor of the Bank. For owners of joint bank accounts, often referred to as “joint tenants,” the Court’s opinion lays out some important and basic rules of law related to the rights of joint bank account owners.

Here is a summary of the facts:

  • Mother had three children: Daniel, Paul and Shelby
  • Mother and her Husband owned two accounts at the Bank as joint tenants with rights of survivorship
  • After Husband passed, Mother and Daniel went to the Bank and signed new signature cards for each account
  • The signature cards made Mother and Daniel joint tenants with rights of survivorship as to both accounts
  • After Daniel ceded care of Mother to his two siblings, and without his knowledge or consent, his siblings managed to have a series of new signature cards executed which effectively removed him from ownership of the accounts and from any right to receive the funds in the accounts upon the death of his mother
  • It was undisputed that Daniel did not consent to the signature cards and the resulting removal of him as a co-owner of the accounts
  • As a result of the change of the ownership of the accounts, after Mother passed, the Bank paid the funds in the accounts to Shelby and Paul

Daniel brought suit against the Bank for breach of contract for allowing him to be removed as an owner of the accounts. Both the trial court and the Court of Appeals of Tennessee found in favor of the Bank. Those courts reasoned that, since a joint owner, Mother, during her lifetime, had the right to remove all of the funds from the accounts without the consent of Daniel, the Bank had no liability.

The Supreme Court of Tennessee reversed the appellate court. It did so by applying basic contract law principles. First, the Court pointed out that the Bank had stepped into a contractual relationship with both Mother and Daniel when it allowed them to create accounts as joint tenants with survivorship rights. As it noted, when banks permit parties to open depository accounts, a contractual relationship arises between the banks and account owners.

The Court then explained that, under Tennessee law, any joint tenant has the right to withdraw all of the funds in a joint account without the permission of the other. A bank has no liability to one owner if the other owner decides to withdraw all of the funds without the consent of the other. While that is true, that is not, however, what happened in the case before it.  In the case before it, the Bank had permitted one owner, Mother, without the consent of the other owner, Daniel, to change the ownership of the accounts.  Thereafter, the payable on death designations of the accounts were changed such that Paul and Shelby received the funds in the accounts. Daniel had never agreed to relinquish his joint ownership or to change the payable on death designations.

The Court held that the Bank had effectively allowed Mother to modify the contract between Bank, Daniel and Mother to remove Daniel as an owner without the consent of Daniel. In Tennessee, while a contract may be modified, all parties to the contract must agree to the modification. Because the Bank had allowed the contract to be modified without the consent of Daniel, the Bank had breached its contract with Daniel.

The Court’s decision is based on a sound and correct analysis and application of Tennessee law. Just because Bank would have had no liability to Daniel if Mother had withdrawn all of the funds in both accounts, as was her right as a joint tenant, that does not mean that the Bank should have no liability for allowing improper contract modifications as to both accounts.

The concerning part of this case for me is that two lower courts somehow overlooked or ignored basic contract law principles in arriving at incorrect decisions. This case proves the benefit of having two layers of appellate review. Tennessee lawyers who handle breach of contract cases should pay attention to the fact that it is possible that a Tennessee court might fail to apply fundamental contract law principles and should guard against the same as much as possible.