Hoffman v. Security Pacific Nat. Bank

• Citation: 176 Cal.Rptr. 14,121 Cal.App.3d 964
• Court: California Court of Appeals
• Decision Date: 27 July 1981
• Parties: Diane HOFFMAN, Plaintiff and Appellant, v. SECURITY PACIFIC NATIONAL BANK, Defendant and Respondent. Civ. 60052.

Page 14

176 Cal.Rptr. 14

121 Cal.App.3d 964

Diane HOFFMAN, Plaintiff and Appellant, v. SECURITY PACIFIC NATIONAL BANK, Defendant and Respondent.

Civ. 60052.

Court of Appeal, Second District, Division 2, California.

July 27, 1981.

Hearing Denied October 7, 1981.

David Daar, Miller & Daar and Erwin Sobel, Beverly Hills, for plaintiff and appellant.

Rogers & Wells, Sheppard, Mullin, Richter & Hampton and William A. Masterson, Los Angeles, for defendant and respondent.

William Alsup, Charles R. Farrar, Jr., Agustin Medina and Morrison & Foerster, as amicus curiae on behalf of defendant and respondent.

FLEMING, Acting Presiding Justice.

Plaintiff Diane Hoffman, individually and on behalf of all others similarly situated, appeals a judgment on a nonsuit and directed verdict in favor of defendant Security Pacific National Bank (Bank). The action attacks the legality of the Bank's practice of charging its customers $4 when they write checks for amounts exceeding the balance in their accounts. We affirm the trial court's judgment.

The action was commenced in October 1974 by Harry Resnick, on behalf of himself and all others similarly situated, to, inter alia, declare illegal and unenforceable the then $3 service charge imposed by the Bank for processing checks written by depositors when the funds in the depositor's account are less than the amount of the check(s) (NSF checks). The charge is assessed whether the bank exercises its option under Commercial Code section 4401 to pay the check and charge the depositor's account or whether it refuses to pay and returns the check. The original complaint contained nine causes of action, of which five were disposed of by demurrer summary judgment, or plaintiff's abandonment. In March 1976 Diane Hoffman was substituted for Resnick as the class representative.

The four remaining causes of action were all based upon the theory that the service charge imposed by Bank for processing an NSF check constitutes an unlawful liquidation of damages, a "penalty" under former Civil Code section 1670. That section declared: "Every contract by which the amount of damage to be paid, or other compensation to be made, for a breach of an obligation, is determined in anticipation thereof, is to that extent void, except as expressly provided in (former § 1671)." Former section 1671 authorized the parties to agree in advance "upon an amount which (would) be presumed to be the amount of damage sustained by a breach of (their contract), when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage." ¹ Plaintiff alleged the depositors had covenanted with Bank not to write NSF checks and the imposed charge was a penalty for breaching that covenant.

In August 1979 the trial court certified the class as one consisting of persons who have had non-business checking accounts with Bank during a period from 1970 to 1978 and who have paid non-sufficient fund charges for writing NSF checks. ² The court then declared that the common issues of law and fact to be tried were (1) whether there was an implied covenant in the depositors' contracts with Bank that the depositors would not write overdrafts, and (2) if there was such a covenant, whether the charge fixed in anticipation of a breach of that covenant was justified by the impracticability or extreme difficulty of assessing damages, or whether it was merely a penalty.

At trial, the court bifurcated the threshhold issue of an implied covenant not to write NSF checks and received evidence on that issue only. After several days of trial Bank moved for a directed verdict or nonsuit. The court concluded plaintiff had failed to show any obligation on the part of a depositor in a personal checking account to refrain from writing NSF checks, granted the motion, and directed the jury to return a verdict in favor of Bank. Subsequently, the court entered judgment for defendant on the directed verdict.

A nonsuit or directed verdict in favor of a defendant is proper when, disregarding conflicting evidence and indulging every legitimate inference in favor of plaintiff's evidence, there is no evidence of sufficient substantiality to support a decision in plaintiff's favor. (Grudt v. Los Angeles (1970) 2 Cal.3d 57, 586-587, 86 Cal.Rptr. 465, 468 P.2d 825; Four Seas Investment Corp. v. International Hotel Tenants' Assoc. (1978) 81 Cal.App.3d 604, 609, 146 Cal.Rptr. 531; Contreras v. St. Luke's Hospital (1978) 78 Cal.App.3d 919, 926, 144 Cal.Rptr. 647.) At bench, plaintiff alleged and sought to prove that the NSF charge imposed by defendant Bank constituted an invalid damage liquidation, a "penalty" under former Civil Code section 1670. But if no contractual obligation has been breached, a charge cannot be either a valid assessment of agreed-upon and anticipated damages for breach or a penalty for that breach. For plaintiff to prove the depositors' claim under section 1670 it was necessary for her to first establish that the charges were imposed for breach of a promise not to write checks which, if honored, would create overdrafts on their accounts.

Plaintiff argued, and attempted to prove, that the depositors entered into a covenant not to write NSF checks when they executed signature cards which contained the statement: "This account shall be governed by applicable banking laws, customs, and Clearing House regulations and by the rules presented in the bank book, and shall be subject to the service charge schedule of the bank." Plaintiff attempted to show that industry custom prohibited the writing of overdrafts without prior agreement and that the depositors' promise to pay a service charge for any NSF check contained an implied covenant not to write such checks.

Plaintiff...