In Sarrouf Law LLP v. First Republic Bank, 97 Mass. App. Ct. 467, 471-79 (2020), the Massachusetts Court of Appeals held that a law firm’s negligence action against its bank arising out of the dishonor of funds the firm deposited in the bank due to the fraud of a client was properly dismissed because the bank had no duty to detect the fraud based on the common law of California or the parties’ contracts; the bank owed no special duty to its depositor, and the specific provisions of the Uniform Commercial Code displaced the common law of negligence.

Under California law, “[a] plaintiff in a negligence suit must demonstrate ‘a legal duty to use due care, a breach of such legal duty, and the breach as the proximate or legal cause of the resulting injury.’” Vasilenko v. Grace Family Church, 3 Cal. 5th 1077, 1083, 224 Cal. Rptr. 3d 846, 404 P.3d 1196 (2017), quoting Beacon Residential Community Ass’n v. Skidmore, Owings & Merrill LLP, 59 Cal. 4th 568, 573 (2014). Here, Sarrouf’s negligence claim was properly dismissed for three reasons. First, Sarrouf identified no source of any relevant duty of First Republic based on the common law of California or based on the parties’ contractual arrangements. . . Moreover, First Republic had no special duty to Sarrouf based on the parties’ relationship. See Copesky v. Superior Court, 229 Cal. App. 3d 678, 694 (1991)  (“[B]anks, in general and in this case, are not fiduciaries for their depositors; and … the bank-depositor relationship is not a  ‘special relationship’”). See also Symonds v. Mercury Sav. & Loan Ass’n, 225 Cal. App. 3d 1458, 1468 (1990) (“we note the relationship between [the depositor] and [the bank] was that of principal and agent with the Commercial Code imposing upon [the bank] a duty of ordinary care”); Dixon, Laukitis, & Downing, P.C. v. Busey Bank, 2013 IL App. (3d) 120832, ¶¶ 13, 15 (Dixon) (“The relationship between a bank and its account holders is contractual in nature and one of creditor and debtor. … Under the common law, a collecting bank does not owe a duty to its customer to inspect a check later determined to be counterfeit. … [T]he duty owed to [an account holder] by [a bank is] defined under the parties’ account agreement and the U.C.C.”). 

The Court of Appeals held that no negligence claim would lie, either, under the economic loss rule.

Second, even if First Republic had violated a contractual obligation, Sarrouf’s claim would be for breach of contract, not negligence, in accordance with the economic loss rule. See Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 988, 22 Cal. Rptr. 3d 352, 102 P.3d 268 (2004), quoting Rich Prods. Corp. v. Kemutec, Inc., 66 F. Supp. 2d 937, 969 (E.D. Wis. 1999) (“The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise[, and] … ‘prevent[s] the law of contract and the law of tort from dissolving one into the other’”). “[C]onduct amounting to a breach of contract becomes tortious only when it also violates a duty independent [**10]  of the contract arising from principles of tort law.” Robinson Helicopter Co., supra at 989, quoting Erlich v. Menezes, 21 Cal. 4th 543, 551, 87 Cal. Rptr. 2d 886, 981 P.2d 978 (1999). Here, Sarrouf does not claim that First Republic’s actions amounted to tortious conduct under any common-law tort principles independent of the U.C.C. or the parties’ contracts. See Dixon, 2013 IL App. (3d) 120832, ¶¶ 20-21.

Finally, the Court held that the U.C.C. displaced the negligence claim.

Third, the specific provisions of the U.C.C., including those invoked in Sarrouf’s second count, displace the common law of negligence in this context. Section 1103 of the C.U.C.C. provides: “Unless displaced by the particular provisions of this code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions” (emphasis added). See U.C.C. § 1-103. Thus, “the UCC expressly displaces common law, to the extent that its ‘particular provisions’ apply.” Chino Commercial Bank, N.A. v. Peters, 190 Cal. App. 4th 1163, 1170, 118 Cal. Rptr. 3d 866 (2010).