Lee v. Bank of America

Decision Date13 March 1990
Docket NumberNo. B037851,B037851
CourtCalifornia Court of Appeals Court of Appeals
Parties, 12 UCC Rep.Serv.2d 181 Hae Won LEE, Plaintiff and Appellant, v. BANK OF AMERICA, Defendant and Respondent.

Law Offices of Donald Barnett, Donald Barnett and Vincent W. Davis, Los Angeles, for plaintiff and appellant.

Harrington, Foxx, Dubrow & Canter, Dale B. Goldfarb and Jennifer N. Pahre, Los Angeles, for defendant and respondent.

FRED WOODS, Associate Justice.

Does a complaint state a tort cause of action for conversion or breach of the good faith, fair dealing covenant or wrongful dishonor when it alleges these facts: I had a one person checking account; the bank paid an unauthorized $1000 check on it; later the bank returned two checks to me requesting two account signatures; I discovered the unauthorized $1000 check payment and demanded reinstatement; and within 30 days the bank made reinstatement.

Our answer is no. We therefore affirm the trial court's order sustaining the demurrer without leave to amend.


On September 14, 1987, appellant filed a complaint against respondent bank alleging two causes of action: breach of the covenant of good faith and fair dealing and conversion. The prayer was for compensatory damages, interest on the unauthorized $1000 check, $75,000 for emotional distress, and $250,000 punitive damages.

On April 26, 1988, appellant filed a first amended complaint which added a third cause of action, wrongful dishonor, but retained the original prayer.

Respondent demurred, appellant opposed the demurrer, and the court sustained the demurrer without leave to amend. 1

As alleged, these are the facts. Appellant opened a one person checking account with respondent bank. On May 25, 1986, the bank paid an unauthorized 2 $1000 check drawn on appellant's account.

On February 5, 1987, appellant wrote a $37 check payable to Bank of America (respondent) and on February 17, 1987, a $56 check payable to Pacific Bell. On February 18, 1987, the bank sent appellant a letter requesting two 3 new account signatures and returned to her the $37 and $56 checks. 4

On March 1, 1987, appellant "discovered" the unauthorized $1000 check payment. 5

5 Appellant demanded the bank reinstate the $1000 to her account. Within 30 days the bank did so.


The reason given by the trial court for sustaining the demurrer was "the statute of limitation applies." The referent, presumably, was to Code of Civil Procedure section 340, subdivision (3) 6 and Commercial Code section 4406, subdivision (4), 7 each providing a one year limit on actions by a customer against her bank arising from payment of an unauthorized check.

The reason was mistaken. The one year limitation prescribed by these sections applies only to a cause of action based upon warranty. (Sun 'N Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671, 698, 148 Cal.Rptr. 329, 582 P.2d 920.) None of appellant's causes of action were based upon warranty.

The statute of limitations did not bar any of appellant's causes of action. A two year statute applied to appellant's breach of good faith and fair dealing cause of action. (Purdy v. Pacific Automobile Ins. Co. (1984) 157 Cal.App.3d 59, 81, 203 Cal.Rptr. 524.) A three year statute applied to appellant's conversion cause of action. (Code Civ.Proc., § 338, subd. (3); 3 Witkin, Cal.Proc. (3d ed. 1985) § 433, p. 465.) Even if a one year statute applied to appellant's wrongful dishonor cause of action (Code Civ.Proc., § 338, subd. (3); 3 Witkin, Cal.Proc. (3d ed. 1985) § 341, p. 369) it did not commence until February 1987, when the two checks were allegedly dishonored, and had not expired in September 1987 when the complaint was filed. 8

Standards of review

It is the validity of the court's action in sustaining a demurrer, not its reasons, which is reviewable. (Maheu v. CBS, Inc. (1988) 201 Cal.App.3d 662, 670, 247 Cal.Rptr. 304.)

"In reviewing a judgment of dismissal entered upon the sustaining of a demurrer without leave to amend, we treat the demurrer as admitting all material facts properly pleaded and all reasonable inferences which can be drawn therefrom. [Citations.] The function of a demurrer is to test the sufficiency of a pleading by raising questions of law. [Citations.] It is error to sustain a demurrer where a plaintiff has stated a cause of action under any possible legal theory. [Citations.] But it is not an abuse of discretion to sustain a demurrer without leave to amend if there is no reasonable possibility that the defect can be cured by amendment. [Citation.] Plaintiff bears the burden of demonstrating that the trial court abused its discretion by showing in what manner it can amend its complaint and how that amendment will change the legal effect of its pleading. [Citation.]" (Von Batch v. American Dist. Telegraph Co. (1985) 175 Cal.App.3d 1111, 1117-1118, 222 Cal.Rptr. 239.)

Breach of good faith, fair dealing covenant

Since the complaint fails to allege any bad faith act or any unfair dealing by respondent bank, the complaint fails to To this cause of action the demurrer was properly sustained.

state a breach of good faith, fair dealing covenant cause of action. 9


The relationship between a bank and its depositor is that of debtor and creditor. (Morse v. Crocker National Bank (1983) 142 Cal.App.3d 228, 232, 190 Cal.Rptr. 839.) "Title to the deposited funds passes immediately to the bank which may use the funds for its own business purposes. [Citations.] The bank does not thereby act as trustee and cannot be charged with converting the deposit to its own use." (Ibid.; Smiths' Cash Store v. First Nat. Bank (1906) 149 Cal. 32, 35, 84 P. 663; Metropolitan Life Ins. Co. v. S.F. Bank (1943) 58 Cal.App.2d 528, 534, 136 P.2d 853; Allied Concord Fin. Corp. v. Bank of America (1969) 275 Cal.App.2d 1, 8, 80 Cal.Rptr. 622.)

Thus the complaint failed to allege a cause of action for conversion and the demurrer, to this cause of action, was properly sustained.

Wrongful Dishonor

Assuming appellant alleged a cause of action for wrongful dishonor she failed to allege facts entitling her to any relief.

Although her prayer requested $250,000 punitive damages none are permitted for a dishonor which occurs, as in the instant case, by mistake. (Com.Code, § 4402; 10 Weaver v. Bank of America (1963) 59 Cal.2d 428, 437-438, 30 Cal.Rptr. 4, 380 P.2d 644.) Moreover, for any cause of action punitive damages are allowed only upon a showing of "oppression, fraud, or malice" (Civ.Code, § 3294), which appellant failed to allege. Negligence, even if gross or reckless, cannot justify punitive damages. (Krusi v. Bear, Stearns & Co. (1983) 144 Cal.App.3d 664, 679, 192 Cal.Rptr. 793.)

Appellant also sought $75,000 for emotional distress. Although proximately caused emotional distress is recoverable in torts such as wrongful dishonor (Civ.Code, § 3333), more than an allegation of a "subjective state of discomfort" is required. (Kendall Yacht Corp. v. United California Bank (1975) 50 Cal.App.3d 949, 958, 123 Cal.Rptr. 848.) Although damages for emotional distress unaccompanied by physical injury may be awarded in a tort action "the injury suffered must be severe, i.e., substantial or enduring as distinguished from trivial or transitory." (Young v. Bank of America (1983) 141 Cal.App.3d 108, 114, 190 Cal.Rptr. 122.) Further, "California courts have limited emotional suffering damages to cases involving either physical impact and injury to plaintiff or intentional wrongdoing by defendant. Damages for emotional suffering are allowed when the tortfeasor's conduct, although negligent as a matter of law, contains elements of intentional malfeasance or bad faith." (Quezada v. Hart (1977) 67 Cal.App.3d 754, 761, 136 Cal.Rptr. 815; see also Rosener v. Sears, Roebuck & Co. (1980) 110 Cal.App.3d 740, 755, 168 Cal.Rptr. 237; Jahn v. Brickey (1985) 168 Cal.App.3d 399, 406-407, 214 Cal.Rptr. 119.) The complaint failed to allege facts which satisfied any of these requirements: appellant suffered no physical injuries or emotionally severe ones and respondent committed no intentional malfeasance or act of bad faith.

The third prayed for relief, interest on the $1000, is recoverable under appellant's conversion theory, not wrongful dishonor.

Finally, appellant sought "compensatory damages, according to proof" but she failed to allege facts showing any harm To put the matter simply, her entire case consisted of two checks, one for $37 and one for $56. There is no allegation that either check was returned to the payee or last endorser nor that respondent bank imposed any insufficient funds charge upon appellant's account. To the contrary, the complaint stated that both checks were returned to appellant.

for which there could be compensatory damages.

No grounds for relief having been alleged, the trial court properly sustained the demurrer to the wrongful dishonor cause of action.

Appellant has failed to show that the trial court abused its discretion in sustaining the demurrer without leave to amend. The simple, essential facts did not change from the original complaint to the first amended complaint nor were they altered in the proferred second amended complaint.


The judgment is affirmed. Costs on appeal are awarded to respondent.

LILLIE, P.J., concurs.

JOHNSON, Associate Justice.

I concur in the majority's conclusion that the trial court properly sustained the Bank of America's (the Bank) demurrer as to Lee's causes of action for conversion and breach of the covenant of good faith or fair dealing. I respectfully dissent from their conclusion that a bank customer may not maintain an action for breach of the covenant of good faith and fair dealing against a bank. I further dissent from the majority's conclusion that Lee has not stated a cause of action for wrongful dishonor for which compensatory damages may be...

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