Bank of America v. Security Pacific Nat. Bank

• Decision Date: 22 February 1972
• Citation: 23 Cal.App.3d 638,100 Cal.Rptr. 438
• Court: California Court of Appeals Court of Appeals
• Parties: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Plaintiff and Appellant, v. SECURITY PACIFIC NATIONAL BANK, etc., Defendant and Respondent. Civ. 1442.

Page 438

100 Cal.Rptr. 438

23 Cal.App.3d 638

BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Plaintiff and Appellant, v. SECURITY PACIFIC NATIONAL BANK, etc., Defendant and Respondent.

Civ. 1442.

Court of Appeal, Fifth District, California.

Feb. 22, 1972.

Sachsman, Mason & Roberg, and Richard M. Roberg, San Francisco, for plaintiff-appellant.

Lerrigo, Thuesen & Thompson, and C. Richard Walters, Fresno, for defendant-respondent.

OPINION

GEO. A. BROWN, Associate Justice.

This is an appeal by plaintiff, Bank of America National Trust and Savings Association, referred to as America, from a judgment of dismissal after the trial court sustained the demurrer of the respondent, Security Pacific National Bank, a national banking association, referred to as Security, to America's first amended complaint without leave to amend.

The ultimate issue to be determined is the proper statute of limitations applicable to plaintiff's cause of action. The parties contend this determination involves the three-year statute of limitations contained in Code of Civil Procedure section 338, subdivision 1 (liability created by statute), Code of Civil Procedure section 338, subdivision 3 (conversion), and the four-year statute of limitations contained in Code of Civil Procedure section 337, subdivision 1 (action upon a contract obligation or liability founded upon an instrument in writing). The proper resolution of this question is dependent in turn on applicable legal principles in certain areas of negotiable instruments law under the Uniform Commercial Code. In substantial part they are questions of first impression in California.

Paul E. Ellis and E. B. Orman, Jr. doing business as Fresno Cotton Sales, as drawers, made and delivered seven commercial instruments, alleged to be sight drafts, payable to various payees. The face amount of the seven instruments totaled $63,926.65 and all were drawn on the respondent Security. Each instrument directed Security to pay the amounts stated at sight. The payees endorsed and deposited the drafts in America, which it took in due course of business without notice of any infirmities therein. Each of the individual drafts was identical in content except as to the name of the payee, the date and the amount thereof. While the date of presentment by America, the date of return by Security to America and the date of re-presentment by America to Security varied as to each draft, one of such drafts is illustrative of the group and the rest of the drafts can be considered identical insofar as the applicable legal principles are concerned. Referring to one of the drafts pro forma, it is dated December 12, 1965. It was endorsed and deposited in appellant America on December 28, 1965. On January 3, 1966, America in due course of business presented it to respondent Security for payment as a cash item. At the time the item was presented the drawers had sufficient money in their commercial account at Security to pay said sight draft. On January 4, 1966, Security returned said sight draft without giving a separate notice of dishonor or giving any other reason for said return. On January 4, 1966, in due course of business America re-presented said draft to Security for payment. On March 23, 1966, Security returned the draft unpaid.

The amended complaint alleges:

'At all times alleged, and for numerous years prior to the events described herein, there existed a banking custom in the Fresno area which dictated the return or payment of such re-presented items as herein described within no more than ten days. If such items were not returned or paid within such period it was deemed that the bank to which presentment was made agreed to pay such items.

'SECURITY was aware of said custom prior to and including the time that BANK re-presented said sight draft to it, and SECURITY had treated such items in accordance with said custom prior to the transaction herein described.

'. . . .

'SECURITY agreed to pay BANK the amount of said sight draft by not paying or returning it within the customary period described above.'

The appellant alleges notice of nonpayment to the drawers ¹ and an assignment from the payees for value to appellant America of all of their right, title and interest in and to said drafts.

Security's demurrer to the first amended complaint was sustained without leave to amend on the ground that the action was barred by the three-year statute of limitations contained in Code of Civil Procedure section 338. ² If the three-year statute is applicable the trial court was correct as it is conceded that more than three years elapsed between the time the cause of action arose (Com.Code, § 3122) and the suit was commenced. However, less than four years elapsed and it is appellant's position that the four-year statute of limitations contained in Code of Civil Procedure section 337 is applicable.

For the purpose of the demurrer, all facts well pleaded in the complaint and those which reasonably arise by implication from such facts must be deemed true (Girth v. Thompson (1970) 11 Cal.App.3d 325, 328, 89 Cal.Rptr. 823; Harvey v. City of Holtville (1969) 271 Cal.App.2d 816, 819, 76 Cal.Rptr. 795) and the court is mindful of the admonition contained in Code of Civil Procedure section 452 that on an appeal from a judgment entered on a demurrer the allegations of the complaint must be liberally construed with a view to obtaining substantial justice between the parties (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245, 74 Cal.Rptr. 398, 449 P.2d 462). However, appellant was given leave to amend once. It has not sought to amend and has not complained that leave to amend was not given upon sustaining the demurrer to its first amended complaint. We, therefore, assume that in its first amended complaint it has stated its case as favorably as can be stated and that it is desirous of standing upon the allegations of the complaint as amended.

Commercial Code section 3419 provides in pertinent part:

'(1) An instrument is converted when

'(a) A drawee to whom it is delivered for acceptance refuses to return it on demand; or

'(b) Any person to whom it is delivered for payment refuses on demand either to pay or to return it; . . .'

Assuming the complaint may be construed to allege a conversion, the applicable statute of limitations would be the three-year statute in Code of Civil Procedure section 338, subdivision 3. ³

Commercial Code section 4302 provides in pertinent part:

'In the absence of a valid defense such as breach of a presentment warranty (subdivision (1) of Section 4207), settlement effected or the like, if an item is presented on and received by a payor bank the bank is accountable for the amount of

'(a) A demand item other than a documentary draft whether properly payable or not if the bank, in any case where it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, regardless of whether it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline; . . .'

Section 4301 makes clear that the payor bank has until its midnight deadline to act. Section 4104, subdivision (1)(h), defines midnight deadline to be:

'(1) In this division unless the context otherwise requires

'(h) 'Midnight deadline' with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later;'

and section 3104, subdivision (2)(a), brings the instrument involved here within the definition of a demand item for the purpose of section 4302, subdivision (a). Section 4301, subdivision (3), sets forth that the return of an item for the purpose of dishonor is legally sufficient to constitute a dishonor.

We have been unable to find any California case delineating the scope of Commercial Code section 4302. Several cases from other jurisdictions have construed identical language contained in the Uniform Commercial Code to provide a basis for a statutory cause of action for the amount of the demand item involved (Rock Island Auction Sales v. Empire Packing Co. (1965) 32 Ill.2d 269, 204 N.E.2d 721; Farmers Co-op. Livestock Mkt. v. Second Nat. Bank (Ky., 1968) 427 S.W.2d 247, 249--250; National City Bank of Rome v. Motor Contract Co. (1969) 119 Ga.App. 208, 166 S.E.2d 742, 743). Those courts have construed the word 'accountable' contained in section 4302 to be synonymous with 'liable' and have imposed liability on the payor bank for the amount of the item for a delay in returning the item beyond the bank's midnight deadline. In the leading case of Rock Island Auction Sales v Empire Packing Co., supra, the court states:

'But the statute provides that the bank is accountable for the amount of the item, and not for something else. 'Accountable' is synonymous with 'liable', (Webster's New Twentieth Century Dictionary Unabridged, Second Edition; Webster's Dictionary of Synonyms,) and section 4--302 uses the word in that sense. The word 'accountable' appears to have been used instead of its synonym 'liable' in order to accommodate other sections of article 4 of the Code which relate to provisional and final settlements between banks in the collection process, and to bar the possibility that a payor bank might be thought to be liable both to the owner of the item and to another bank. The circuit court correctly held that the statute imposes liability for the amount of the item.' (204 N.E.2d at p. 723.)

The California Code Comments to section 4302 (West's Com.Code Ann.) state in part:

'If the bank fails to act by its midnight deadline, the bank is accountable for the amount of the item. This is in accord with prior California law. Kriste v. International Savings and Exchange Bank, 17 Cal.App. 301, 119 P. 666 (1911) (failure to give notice of dishonor within...