Chern v. Bank of America

• Citation: 15 Cal.3d 866,544 P.2d 1310,127 Cal.Rptr. 110
• Court: United States State Supreme Court (California)
• Decision Date: 23 January 1976
• Parties: , 544 P.2d 1310 Gertrude CHERN, Plaintiff and Appellant, v. BANK OF AMERICA, Defendant and Respondent. L.A. 30479.

Page 110

127 Cal.Rptr. 110

15 Cal.3d 866, 544 P.2d 1310

Gertrude CHERN, Plaintiff and Appellant, v. BANK OF AMERICA, Defendant and Respondent.

L.A. 30479.

Supreme Court of California,

In Bank.

Jan. 23, 1976.

Palley & Schwartz, Inc., Lawrence I. Schwartz, Inc., Michael R. Palley and Lawrence I. Schwartz, Los Angeles, for plaintiff and appellant.

Robert H. Fabian, Harris B. Taylor and Ullar Vitsut, Los Angeles, for defendant and respondent.

RICHARDSON, Justice.

Plaintiff Gertrude Chern brought an action on behalf of herself and a class of all persons similarly situated against defendant Bank of America for breach of contract, damages, and injunctive relief. The trial court granted summary judgment in favor of defendant bank on all counts, dismissed plaintiff's class action, and awarded costs to defendant. Plaintiff appeals. We have concluded that summary judgment was proper as to plaintiff's damage claims, but not as to plaintiff's action for injunctive relief.

According to plaintiff's complaint and declarations filed herein, in June 1970 plaintiff telephoned the Santa Maria branch of defendant bank to arrange a loan of $5,000. She was told at that time that the rate of interest on this loan would be 9 percent. She then went to the bank where she was shown a promissory note for $5,000 'with interest . . . at the rate of 9 per cent per annum . . ..' At the same time, she was shown a 'Federal Truth in Lending Statement' which set forth the interest on the $5,000 loan as an annual percentage rate of 9 1/4 percent. Plaintiff pointed out the discrepancy to defendant's employee and was advised that defendant computed its interest in a different manner than that required for federal disclosure law purposes. Defendant's method for calculating interest was briefly explained to plaintiff who, although she protested that the method was dishonest, nevertheless executed the various forms.

The procedure of computing defendant's interest, the '3 65/360 method,' is substantially as follows. An interest rate is selected and divided by 360 instead of 365 to determine the rate per day. This daily rate is multiplied by the number of days that the loan is outstanding. The result is the amount of interest the borrower must pay. To compute the amount due for a loan taken for a full 365-day year, this daily rate would, of course, be multiplied by 365. Under this method of computation, a Stated interest rate of 9 percent calculated on the basis of a 360-day year, as in the present case, results in daily interest of .0025 percent (.09)/(360) and an actual annual rate of 9.125 percent (.0025 365). In contrast, if the daily rate applied is calculated on a 365-day year, a 9 percent annual rate results in approximately .00247 percent per day (.09)/(365). Thus, the shorter the period of time used in arriving at the stated interest rate, the higher the actual rate of daily interest and the greater the disparity between the stated rate and the actual annual interest rate. We note that under the federal Truth in Lending Act (15 U.S.C. § 1601 et seq.), which requires disclosure of interest rates to borrowers, interest is to be computed on a 365-day year and rounded off to the nearest quarter of a percent (12 C.F.R. § 226.5); in the instant case, the parties agree that the interest rate under this method would be 9 1/4 percent.

In April 1971 plaintiff filed an action on behalf of herself and others similarly situated. Her first amended complaint, although containing six counts, was predicated upon essentially two theories: (1) That defendant breached its loan contract with her and all other class members by charging a higher annual interest rate than the 9 percent specified on the promissory note; and (2) that defendant's method of computing interest rates is misleading within the meaning of Business and Professions Code section 17500. She alleged damages to the class in excess of $100,000 and individual damages of 36 cents; she also asked for injunctive relief.

After answering the complaint and asserting various affirmative defenses, defendant, in December 1972, filed a motion for summary judgment. The motion was based on the pleadings and the declarations of counsel and of the bank employee who had negotiated the loan. Summary judgment was granted in favor of defendant, apparently on the ground that plaintiff's prior knowledge of the discrepancies in the rates quoted to her precluded her action. Subsequently the entire complaint was dismissed and costs were awarded to defendant.

1. Collateral Estoppel

Preliminarily, defendant asserts that plaintiff is estoppel to pursue her claims because of a prior summary judgment entered against her in a suit raising identical issues brought against a different bank. (Chern v. Security Pacific National Bank, 2 Civ. 42725, hg. den. Jan. 23, 1975.) Under the doctrine of collateral estoppel, a prior judicial determination of a legal issue with respect to specific facts may be given effect in a subsequent action between the same parties. (Todhunter v. Smith (1934) 219 Cal. 690, 695, 28 P.2d 916; Pacific Maritime Assn. v. California Unemp. Ins. Appeals Board (1965) 236 Cal.App.2d 325, 332, 45 Cal.Rptr. 892; Braye v. Jones (1954) 129 Cal.App.2d 827, 830, 278 P.2d 29; Rest., Judgments, § 70; James, Civil Procedure (1965) § 11.22, pp. 583--584.) In Bernhard v. Bank of America (1942) 19 Cal.2d 807, 813, 122 P.2d 892, we held that this principle may be applied in favor of a party who was not involved in the prior action. Defendant contends that under the Bernhard rule, plaintiff is precluded from raising in this present action any of the issues litigated in her prior action.

In the present case, however, estoppel is asserted on the basis of representations made by a different defendant in a different transaction than that complained of in the prior suit. While we find no cases on point, the authorities suggest that 'where the subsequent action involves parallel facts, but a different historical transaction, the application of the law to the facts is not subject to collateral estoppel.' (Developments--Res Judicata (1952) 65 Harv.L.Rev. 818, 843; see Rest., Judgments, § 70, com. e; 4 Witkin, Cal. Procedure (2d ed.1971) Judgment, § 216, pp. 3351--3352; Scott, Collateral Estoppel by Judgment (1942) 56 Harv.L.Rev. 1, 10.) In general it may be said that rulings of law, divorced from the specific facts to which they were applied, are not binding under principles of res judicata. (James, Civil Procedure, Supra, § 11.22, pp. 583--584; see Commissioner of Internal Revenue v. Sunnen (1948) 333 U.S. 591, 597--599, 68 S.Ct. 715, 92 L.Ed. 898 (collateral estoppel effect denied as to suit for income tax between same parties raising same legal issue but in different years); Grandview Dairy, Inc. v. Jones (2d Cir. 1946) 157 F.2d 5, 10, cert. den. 329 U.S. 787, 67 S.Ct. 355, 91 L.Ed. 675 (question of law redecided by War Food Administration as to subsequent, identical facts between the same parties).) As will appear, a principal issue in the instant case is essentially a legal one, namely, whether defendant's alleged practice constitutes false or misleading advertising under California law. No material dispute exists concerning the relevant facts in the present case. In contrast, the estoppel cases relied on by defendant, including Bernhard, involved attempts to relitigate Factual issues arising out of the same subject matter or transaction as the prior suit. The difference is significant.

We acknowledge, further, a sound judicial policy against applying collateral estoppel in cases which concern matters of important public interest. In Louis Stores, Inc. v. Department of Alcoholic Beverage Control (1962) 57 Cal.2d 749, 22 Cal.Rptr. 14, 371 P.2d 758, for example, we declined to give estoppel effect to bar an administrative agency from relitigating the issue of whether a certain practice by a defendant constituted sufficient cause to revoke a liquor license, noting that the statute authorizing the revocation of licenses 'concerns the public interest in an industry requiring close supervision.' (Id. at p. 758, 22 Cal.Rptr. at p. 18, 371 P.2d at p. 762; see also, Panhandle Eastern Pipe L. Co. v. Federal Power Com'n (3d Cir. 1956) 236 F.2d 289, 292; People v. Haring (1955) 286 App.Div. 676, 146 N.Y.S.2d 151; 2 Davis, Administrative Law Treatise (1958) § 18.03, pp. 558--559.)

The California Legislature has evidenced a strong interest in protecting the public through its comprehensive scheme of banking and financial regulations. (see, e.g., fiN.code, § 1 et seq.; Cal.U.Com.Code, § 4101 et seq.; note also the extensive federal legislation and regulations; e.g., 15 U.S.C. § 1601 et seq.; 12 C.F.R. § 1.1 et seq.) The laws proscribing false advertising and deceptive practices provide for both civil and criminal liability. (Bus. & Prof.Code, §§ 17531.9, 17534, 17534.5, 17535.5, 17536, 17568.) Several state and local officers as well as private individuals are specifically authorized to pursue injunctive relief for violations of these laws (Bus. & Prof.Code, § 17535) and special penalties are imposed for violating any injunction so obtained. (Bus. & Prof.Code, § 17535.5.) In the last several years, the area of false advertising has seen a proliferation of new protective legislation enlarging both the practices proscribed and the remedies available against these practices. (See, e.g., Bus. & Prof.Code, §§ 17500.3, 17500.5, 17507, 17508, 17510--17510.7, 17530.5, 17531.6--17531.9, 17533.8, 17534.5, 17535.5--17540.10, 17569--17572.) Given the quality and intensity of the public interest involved, a reexamination of the legal significance of recurring factual events in which the same plaintiff is involved should not be foreclosed under collateral estoppel principles. For this reason and the other reasons hereinabove discussed we decide the legal issues raised by plaintiff in the present suit.

2. Damages

As noted, plaintif...