Martin v. Wells Fargo Bank
| Decision Date | 09 August 2001 |
| Docket Number | No. C036454.,C036454. |
| Citation | 91 Cal.App.4th 489,110 Cal.Rptr.2d 653 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Jack N. MARTIN et al., Plaintiffs and Appellants, v. WELLS FARGO BANK, Defendant and Respondent. |
Randall L. Wiens, Sacramento, for Plaintiffs and Appellants.
Murphy, Pearson, Bradley & Feeney, Gregory A. Bastian, and Mark E. Ellis, Sacramento, and Alan M. Steinberg for Defendant and Respondent.
Plaintiffs Jack N. Martin and Anita L. Martin (the Martins), appeal from a judgment of dismissal entered upon an order sustaining the demurrer of defendant Wells Fargo Bank (the bank) to their first amended complaint.
The bank issued business credit cards to the Law Offices of Jack Martin, one in the name of plaintiff Jack N. Martin, and one in the name of plaintiff Anita L. Martin, which they used for personal and household expenses. The bank exercised a right of setoff for amounts due on Anita's card by debiting the Martins' joint checking account.
The Martins, as credit card debtors and depositors, sued the bank to recover damages caused by a claimed improper exercise of the setoff. The validity of the action turns on the applicability of Financial Code section 864 to the Martins' debt.1 The section limits a bank's right to setoff a matured debt "arising from an extension of credit to a natural person primarily for personal, family, or household purposes" (hereafter consumer goods) (§ 864, subd. (a)(2).)
The Martins claim an extension of credit occurs when a debt is created by the use of a credit card. The bank claims an extension of credit occurs when the bank issues a credit card and it is at that point that it must be determined whether the credit is primarily for personal, family or household purposes. We agree with the bank.
The application of section 864 is conditioned by the primary purpose for which credit is extended and that is determined when the credit card is issued rather than on each occasion when the card is used for a transaction or purchase. Since the primary purpose of a business credit card is commercial, the bank may setoff the debts incurred in its use without compliance with section 864. Conversely, the primary purpose of a personal credit card is for personal expenditures and the bank is subject to the setoff limitations of section 864.
We will affirm the judgment.
The Martins, Jack N. Martin and Anita L. Martin, husband and wife, had joint checking and savings accounts at defendant bank in their personal capacity.
Thereafter, the Martins from time to time incurred debt primarily for personal, family, or household purposes on their MasterCard business accounts arising from the bank's extension of credit to the Martins.
On or about September 11, 1998, the bank set off amounts due on Anita Martin's MasterCard business card by taking $848.47 from the Martins' joint checking account without the Martins' knowledge or permission and without complying with the mandatory requirements of section 864. The setoff resulted in an aggregate balance of less than $1,000 for all demand deposit accounts maintained by the Martins at defendant bank. The funds contained in the joint checking account included paid earnings and social security benefits, which are statutorily exempt from the right of setoff. As a result of the exercise of this right of setoff, the Martins were deprived of the use of the funds from their joint account, were forced to default on other obligations, had checks written on that account wrongfully dishonored, incurred charges and expenses as a result of the charges, lacked the ability to purchase the necessities of life, and were damaged in their personal and credit reputations.
On September 14, 1998, the bank mailed the Martins a "Notice of Setoff which stated that the bank had a right to set off the amount then owing on Anita Martin's MasterCard business card by taking $848.47 from the Martins' joint checking account.
On September 23, 1998, the bank again exercised its right of setoff to satisfy the debt due on the Martins' MasterCard business cards by taking $585.88 from the Martins' joint savings accounts without the Martins' knowledge or permission, without complying with the requirements of section 864, leaving an aggregate balance of less than $1,000 for all demand deposit accounts maintained by the Martins, and taking funds exempt from setoff.
On or about September 24, 1998, the bank mailed the Martins two "Notices of Setoff which stated that the bank had a right to set off the amounts then owing on the Martins' MasterCard business cards by taking a total of $585.88 from the Martins' joint savings accounts.
As a result of the bank's exercise of its right of setoff, the Martins were deprived of the use and ownership of the funds taken from their joint savings account to pay their daily bills, they defaulted on their other obligations, lacked the ability to purchase the necessities of life, and were damaged in their personal and credit reputations.
In their first amended complaint, the Martins alleged 10 causes of action for negligence, conversion, fraud, breach of the covenant of good faith and fair dealing, the intentional infliction of emotional distress, and unfair business practices, claiming that the bank improperly exercised its right of setoff under section 864, and seeking damages as well as equitable and injunctive relief. The Martins also sought certification to maintain a class action on behalf of all persons who have or had accounts with defendant bank in the State of California whose accounts have been similarly set off.
The bank demurred. The trial court granted the demurrer without leave to amend, finding that section 864 did not apply to debt arising from the extension of credit on a business credit card account, and entered final judgment.
Plaintiffs filed a timely notice of appeal from the final judgment.
At issue is whether section 864 applies to debts incurred when a business credit card is issued to a customer of the bank who elects to use it for personal expenditures.
A bank has an equitable right to set off a matured debt, owed the bank by a depositor, against funds in the customer's demand deposit account. (Security Pacific National Bank v. Wozab (1990) 51 Cal.3d 991, 996, fn. 3, 275 Cal.Rptr. 201, 800 P.2d 557; Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352, 357-358, 113 Cal Rptr. 449, 521 P.2d 441 (Kruger); Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 541, 71 Cal.Rptr.2d 462; Gonsalves v. Bank of America (1940) 16 Cal.2d 169,173, 105 P.2d 118.) The right to a setoff arises from the contractual relationship between the bank and the depositor. (Bank of Marin v. England (1966) 385 U.S. 99, 101, 87 S.Ct. 274, 17 L.Ed.2d 197, 200; Kruger, supra, 11 Cal.3d at p. 357, fn. 3, 113 Cal. Rptr. 449, 521 P.2d 441.) The bank is the owner of the funds and is the debtor of the depositor. (Gonsalves v. Bank of America, supra, 16 Cal.2d at p. 173, 105 P.2d 118.) "If the depositor is indebted to the bank and his [or her obligation] is due, there is a mutuality of obligation from which flows an equitable right of setoff. . . ." (Chang v. Redding Bank of Commerce (1994) 29 Cal. App.4th 673, 681, 35 Cal.Rptr.2d 64.)
Section 864 exempts from setoff an aggregate balance in a demand deposit account of $1,000 and funds obtained from specified sources, (§ 864, subds.(b) and (c)(3); See fn. 6, infra) when the debt "aris[es] from an extension of credit to a natural person primarily for personal, family, or household purposes . . . ." (§ 864, subd. (a)(2).)
The parties proffer different meanings of "extension of credit." The Martins claim an "extension of credit" occurs on each occasion on which the card is used. The bank claims an "extension of credit" occurs when the bank grants a right to incur debt by the issuance of the card.
The parties tender an ambiguity in the statutory language, i.e., at least two semantically plausible candidates of consequence to the case. (California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1986) 177 Cal.App.3d 855, 859, fn. 1, 223 Cal.Rptr. 246 [].) An ambiguity may be resolved by a variety of means, beginning with the text and structure of the statute. (In-Home Supportive Services v. Workers' Comp. Appeals Bd. (1984) 152 Cal.App.3d 720, 199 Cal.Rptr. 697.)
A debt is defined by section 864 as: (1) an interest-bearing obligation or an obligation payable in installments, (2) not reduced to judgment, (3) arising from an extension of credit, (4) to a natural person, (5) primarily for personal, family, or household purposes (hereafter "consumer purposes"). (§ 864, subd. (a)(2).)3
This case concerns elements (3) and (5).4 The Martins advance a transactional test, applicable to credit cards of whatever type, issued to a natural person. They claim an "extension of credit" occurs when the cardholder uses the credit card for personal, family or household purchases and that is determined from the nature of each purchase. The bank claims an "extension of credit" occurs when the bank grants a right to incur debt by the issuance of the credit card and the "primary" purpose of the extension of credit is determined by the type of credit card account. Following this definition, the bank claims the primary purpose of a business credit is commercial and not the...
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