Copesky v. Superior Court

Decision Date23 April 1991
Docket NumberNo. D013448,D013448
Citation229 Cal.App.3d 678,280 Cal.Rptr. 338
CourtCalifornia Court of Appeals Court of Appeals
Parties, 14 UCC Rep.Serv.2d 525 Paul COPESKY, Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent; SAN DIEGO NATIONAL BANK, Real Party in Interest.

Duke, Gerstel, Shearer & Bregante, Bryan R. Gerstel, John S. Huiskamp, and Paul A. Zumberge, San Diego, for petitioner.

No appearance for respondent.

Miller, Boyko and Bell, Roy Morrow Bell, and Gary D. Garcia, San Diego, for real party in interest.

FROEHLICH, Associate Justice.

This petition seeks review of the sustaining without leave to amend of a demurrer to one cause of action of petitioner's complaint. The cause so terminated was entitled, and is properly characterized as, "Breach of the Implied Covenant of Good Faith and Fair Dealing." By means of this cause of action the petitioner sought to recover tort damages because of the real party in interest bank's wrongful cashing of checks drawn without proper signature. The allegations of the complaint were obviously drawn so as to bring the action within the rationale of this court's decision in Commercial Cotton Co. v. United California Bank (1985) 163 Cal.App.3d 511, 209 Cal.Rptr. 551 (hereinafter Commercial Cotton ). In argument before the superior court, counsel for petitioner contended the case was controlled by Commercial Cotton, and indeed that his case was "a mirror image of Commercial Cotton."

The trial court responded "Commercial Cotton is flat out wrong.... I don't think our appellate court is going to uphold the decision they took in Commercial Cotton back in 1985. I don't think they would do that in this case." The principal category of argument in the petitioner's brief is entitled "The sole issue is whether Commercial Cotton remains viable." While this pithy characterization of the issue is perhaps more abbreviated than would become an appellate court, it accurately goes right to the point.

We believe this is one of those unusual cases in which writ review at the pleading stages is appropriate (see Coulter v. Superior Court (1978) 21 Cal.3d 144, 148, 145 Cal.Rptr. 534, 577 P.2d 669), and therefore undertake the in-depth review of the Commercial Cotton principle referenced by petitioner. As will be seen below, we will agree with the trial court in concluding that certain propositions of law enunciated in Commercial Cotton are no longer viable (although we would not accept the argument that it was "flat out wrong," at least at the time of its determination).

1. Factual and Procedural Background 1

Petitioner is an individual doing business as Torrey Pines Chiropractic Clinic. Petitioner maintained an ordinary commercial checking account with real party in interest bank. Checks from the account were authorized upon the signature only of petitioner or his wife. Over a period of some 18 months, from March 1987 through September 1988, a number of checks with forged signatures were presented to the bank; all checks were in denominations under $1,000. The forgeries were accomplished by petitioner's bookkeeper, using his signature stamp. Petitioner's failure to discover the forgeries over the period of 18 months was the result of the absence of his wife from the business for that period of time, the wife being the person who customarily supervised the bookkeeper's activities. The total of improperly withdrawn funds was $32,913.

The bank was negligent in cashing the checks by failing to require identification from the bookkeeper when the checks were presented, and also by accepting checks executed were presented, and also by accepting checks executed with a signature stamp rather than manual signature. Petitioner alleged that the checks constituted obvious forgeries which the bank reasonably should have noted. When petitioner reported the forgeries to the bank it refused to redeposit the lost funds, asserting a one-year statute of limitations on petitioner's claim as well as the contention that the bank had not been negligent in failing to discover the forgeries. Each of these defenses, petitioner contends, was without merit and constituted "stonewalling."

In addition to stating causes of action for breach of the contractual terms of the deposit agreement and for negligence, petitioner stated a "textbook" cause of action for "breach of the implied covenant of good faith and fair dealing." 2 The principal allegations of this cause of action are as follows:

Petitioner and the bank, in entering upon the contract were in inherently unequal bargaining positions and the bank dictated the terms of the contract;

Petitioner's motivation for entering into the agreement was strictly nonprofit and was to secure "peace of mind, security and protection of ... funds;"

Ordinary contract damages would be inadequate;

Petitioner was particularly vulnerable because his funds were placed at the disposal of the bank, and a "special quasi-fiduciary relationship existed between [petitioner] and [bank]" which resulted in a duty of good faith and fair dealing;

This duty was breached when the bank refused to recredit the account but instead interposed "stonewalling" defenses without any reasonable belief in their validity;

This intentionally tortious action on the bank's part warrants the imposition of punitive damages.

A general demurrer was interposed only as to the "breach of the implied covenant" cause of action. As noted above, the demurrer was sustained without leave to amend, the court concluding that as a matter of law the bank-depositor contractual status revealed by the pleadings could not give rise to a relationship between the parties sufficient to support the tort cause of action for breach of the implied covenant.

2. Revisitation of Commercial Cotton

Since everyone involved in this case (the court below and all counsel) agree that its disposition depends upon the continued viability of the rule in Commercial Cotton, we are perhaps well advised at the outset to summarize that case. Commercial Cotton was decided by a unanimous panel of this court in 1985. As asserted by counsel for petitioner, the facts of Commercial Cotton bear considerable similarity to the facts of this case. The plaintiff, a commercial enterprise, maintained an ordinary checking account with defendant bank. Some of the plaintiff's blank checks were lost, and the loss was reported to the bank. Later one of the checks was presented to the bank with forged signatures, and paid. When the loss was discovered some time later by the depositor, demand for repayment was made. The bank refused to cover the loss, relying upon the defense of the one-year statute of limitations as well as a claim of comparative negligence. (Id. 163 Cal.App.3d at p. 514, 209 Cal.Rptr. 551.)

Unlike our case, Commercial Cotton went to trial, and the presentation to the appellate court was by way of ordinary appeal from a jury verdict in favor of the plaintiff. The portion of the appeal of interest to us is that which dealt with the breach of the covenant of good faith and fair dealing. The trial court permitted this claim to be presented to the jury, and the jury awarded $100,000 in punitive damages based thereon.

In its review of the factual background of the case, our court was particularly impressed with the shallow nature of the defenses asserted by the bank. Some eleven days before the final letter of denial from the bank's general counsel, the Supreme Court in Sun 'N Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671, 699, 148 Cal.Rptr. 329, 582 P.2d 920 had specifically ruled that the three-year statute of limitations, rather than the one-year statute, was applicable for a claim such as that of Commercial Cotton.

Our court found it "inexplicable that [the bank's] general counsel could have been unaware of the Supreme Court's holding affecting the bank for which he was general counsel at the time he wrote the ... letter." (Commercial Cotton, 163 Cal.App.3d at p. 515, 209 Cal.Rptr. 551.) Our court also found the contention of contributory negligence on the part of the depositor to be spurious, since whatever negligence was involved in failing promptly to note the forged check when it was returned to the depositor had no causal relationship to its original negligent cashing. It is fair to say, therefore, that our court regarded the bank's refusal to reimburse its depositor and its continued assertions of spurious defenses, right through a jury trial and to appeal, as an example of the most egregious of "stonewalling" tactics. Although not mentioned in the opinion, the fact that the dispute involved a mere $4,000 adds practical argument to the conclusion that the bank's position was completely unreasonable.

In its discussion of the tort of breach of the covenant of good faith and fair dealing, the Commercial Cotton court acknowledged the contention that the tort existed, outside the insurance context, only as to parties in a "special relationship." It cited Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 820, 169 Cal.Rptr. 691, 620 P.2d 141 (hereinafter Egan ) for the proposition that this relationship (at least in the insurance context) is characterized by "elements of public interest, adhesion, and fiduciary responsibility." ( Commercial Cotton, 163 Cal.App.3d at p. 516, 209 Cal.Rptr. 551.) It was noted that in the then very recent Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 206 Cal.Rptr. 354, 686 P.2d 1158 (hereinafter Seaman's ), the Supreme Court had found it unnecessary to determine how far, if at all, the doctrine should extend to ordinary commercial contracts.

The court then ventured into what the Supreme Court had identified as uncharted seas, and found that the assertion by the bank of spurious defenses to the claim was an "unjustifiable, stonewalling effort to prevent an innocent depositor from recovering money," and...

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