## Facts

- A national bank charged checking-account customers a per-check fee when the bank processed nonsufficient funds (NSF) checks.
- From 1973 to 1979, the bank increased the NSF fee from $3 to $5 per check.
- Account holders who paid NSF charges brought a putative class action seeking recovery, alleging the fees substantially exceeded the bank’s actual processing costs.
- The trial court certified class claims alleging: (1) breach of the duty of good faith in setting NSF fees, (2) unconscionability, and (3) an unlawful contractual penalty.
- The trial court granted summary judgment to the bank on the class claims.
- The intermediate appellate court reversed on the good-faith claim but affirmed summary judgment on unconscionability and penalty.
- The state supreme court granted review on petitions by both sides.

## Issues

1. Whether unconscionability can be based on the bank’s later exercise of discretionary pricing under a deposit agreement, rather than on contract formation.
2. Whether an NSF processing fee that exceeds the bank’s costs is an unenforceable penalty rather than a permissible service charge.
3. Whether the bank breached the contractual duty of good faith by setting or increasing NSF fees allegedly unrelated to processing cost.

## Decision

- The court held the unconscionability theory failed as a matter of law because unconscionability is assessed at contract formation, and the challenged fee level was not a fixed term of the account agreement but part of performance under a discretionary fee provision.
- The court rejected treating the NSF fee as an unlawful penalty merely because it exceeded the bank’s costs.
- The court recognized that contractual discretion must be exercised in good faith, but held that the fee amount, standing alone (including an asserted disparity from cost), was insufficient to infer bad faith.
- The court therefore affirmed summary judgment for the bank on the unconscionability and penalty claims and limited the good-faith theory to proof of an improper purpose beyond what the parties contemplated.

## Legal Principles

- Unconscionability focuses on circumstances at contract formation; it does not ordinarily police the fairness of later performance choices under a discretionary term.
- A per-transaction bank fee for handling NSF items is not converted into an unenforceable contractual penalty solely because it exceeds the bank’s processing costs.
- When a contract grants one party discretion in performance, the duty of good faith is breached when that discretion is exercised for purposes not contemplated by the parties.
- Price level or profit, without evidence of an improper end inconsistent with the parties’ justified expectations, does not by itself establish bad faith.

## Conclusion

The court refused to use unconscionability or penalty doctrine to invalidate discretionary NSF fees based only on their size relative to cost, and it confined good-faith review of discretionary pricing to situations where the discretion is used for an end outside the parties’ contemplated purposes.


Best v. U.S. Nat'l Bank of Or., 739 P.2d 554 (Or. 1987)