Perdue v. Crocker National Bank

Citation38 Cal.3d 913,216 Cal.Rptr. 345,702 P.2d 503
Decision Date18 July 1985
Docket NumberS.F. 24591
CourtUnited States State Supreme Court (California)
Parties, 702 P.2d 503, 54 USLW 2073 Paul PERDUE, Plaintiff and Appellant, v. CROCKER NATIONAL BANK, Defendant and Respondent.

Gary J. Near, Stephen Kaus, Kaus & Kerr, Allan B. Morrison, William B. Schultz, Steven M. Kipperman, Friedman, Shawn, Kipperman & Sloan, Mark M. Garay, Garay & Foreman, and Robert N. Weaver, San Francisco, for plaintiff and appellant.

Manuel Glenn Abascal, Howard M. Klepper, E. Robert Wallach, David B. Baum, Sidney M. Wolinsky, Victoria J. De Goff, Richard Sherman, Harry M. Snyder, Ephraim Margolin, Sandra Coliver, Ted Cassman and Emma Coleman Jordan, San Francisco, as amici curiae on behalf of plaintiff and appellant.

William Alsup, Ellen Borgersen, Paul Flum, Andrew Monach, Charles R. Farrar, Jr., Kathleen V. Fisher, Richard L. Keenan and Morrison & Foerster, San Francisco, for defendant and respondent.

Brian W. Smith, Ronald R. Glancz, Frank C. Bonaventure, Jr., L. Robert Griffin, Eugene M. Katz, Weyman I. Lundquist, Robert E. Borton, David P. Kincaid, Heller, Ehrman, White & McAuliffe, Almon B. McCallum and Loring E. Tocchini, San Francisco, as amici curiae on behalf of defendant and respondent.


Plaintiff filed this class action to challenge the validity of charges imposed by defendant Crocker National Bank for the processing of checks drawn on accounts without sufficient funds. (The parties refer to such checks as NSF checks and to the handling charge as an NSF charge.) He appeals from a judgment of the trial court entered after that court sustained defendant's general demurrer without leave to amend.

On July 3, 1978, plaintiff filed suit on behalf of all persons with checking accounts at defendant bank and a subclass of customers who have paid NSF charges to the bank. 1 The complaint first alleges a contract under which the bank furnishes checking service in return for a maintenance charge. 2 It then asserts that "It is the practice of defendants to impose and collect a unilaterally set charge for processing checks presented against plaintiffs' accounts when such accounts do not contain sufficient funds to cover the amount of the check." "Defendants have at various times unilaterally increased the NSF charge to an amount the defendants deemed appropriate, without reference to any criteria, and defendants imposed and collected the said increased amount without any explanation or justification by defendants to plaintiffs." At the time of filing of the suit, the charge was $6 for each NSF check, whether the check was honored or returned unpaid, even though "the actual cost incurred by the defendants in processing an NSF check is approximately $0.30."

The bank requires each depositor to sign a signature card which it uses "to determine and verify the authenticity of endorsements on checks". In extremely small (6 point) type, the signature card states that the undersigned depositors "agree with Crocker National Bank and with each other that ... this account and all deposits therein shall be ... subject to all applicable laws, to the Bank's present and future rules, regulations, practices and charges, and to its right of setoff for the obligations of any of us." The card does not identify the amount of the charge for NSF checks, and the bank does not furnish the depositor with a copy of the applicable bank rules and regulations. 3

On the basis of these allegations, plaintiff asserts five causes of action: (1) for a judicial declaration that the bank's signature card is not a contract authorizing NSF charges; (2) for a judicial declaration that such charges are oppressive and unconscionable; (3) to recover damages for unjust enrichment derived from the bank's collection of illegal NSF charges; (4) to enjoin alleged unfair and deceptive practices--the bank's failure to inform customers of the contractual nature of the signature card, and its practice of waiving NSF charges as to certain preferred customers; and (5) to recover the difference between the NSF charges and defendant's actual expenses in processing NSF checks on the theory that the charges represent an unreasonable attempt to fix liquidated damages.

Defendant filed general and special demurrers to each of the asserted causes of action. The superior court sustained the general demurrers and, taking notice of the fact that plaintiff had filed three previous complaints in another action raising similar issues, 4 denied leave to amend. Plaintiff appeals from judgment for defendant.

Plaintiff's third alleged cause of action is derivative; its charge of unjust enrichment depends upon a finding pursuant to some other cause of action that the NSF charges were invalid or excessive. This cause of action raises no issues for decision in the present appeal. The other four alleged causes of action, however, present independent and substantial issues. We review each in turn, applying the established principle that a demurrer "admits the truth of all material factual allegations in the complaint ...; the question of plaintiff's ability to prove those allegations, or the possible difficulty in making such proof does not concern the reviewing court." (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496, 86 Cal.Rptr. 88, 468 P.2d 216; Committee on Children's TV, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214, 197 Cal.Rptr. 783, 673 P.2d 660.)

I. Plaintiff's first cause of action: whether the signature card is a contract authorizing NSF charges.

The complaint alleges that "The signature card prepared by the defendants does not identify the amount of any charge to be paid by the plaintiffs for processing NSF checks and is not an agreement for such payment. The card does not constitute mutual assent to NSF charges in any particular sum or at all and accordingly is not a contract conferring authority to do the acts complained of herein." "Based upon the language of the signature card, the plaintiffs believed and expected that the signature card was intended as a handwriting example for purposes of identification and verification only." Plaintiff therefore seeks a judicial declaration "as to whether the signature card is a valid or enforceable contract and ... a lawful basis for the imposition of the NSF charge."

The cases unanimously agree that a signature card such as the Crocker Bank card at issue here is a contract. "The bank is authorized to honor withdrawals from an account on the signatures authorized by the signature card, which serves as a contract between the depositor and the bank for the handling of the account." (Blackmon v. Hale (1970) 1 Cal.3d 548, 556, 83 Cal.Rptr. 194, 463 P.2d 418; Bullis v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801, 811-812, 148 Cal.Rptr. 22, 582 P.2d 109.) Other California decisions (see Hoffman v. Security Pacific Nat. Bank (1981) 121 Cal.App.3d 964, 969, 176 Cal.Rptr. 14; Larrus v. First National Bank (1954) 122 Cal.App.2d 884, 889-890, 266 P.2d 143) and decisions of other states (see, e.g., In re Estate of Cilvik (1970) 439 Pa. 522, 267 A.2d 836, 838, fn. 2) also view the signature card as a contract.

Plaintiff does not seriously dispute this proposition. His complaint alleges that the depositors "agreed to pay [the bank's] maintenance charge ..." in return for checking privileges, and one could infer that they agreed to do so by affixing their signatures to the card. Complaints filed by plaintiff in an earlier action stated expressly that the signature card was a contract. 5

Plaintiff argues, however, that even if a signature card is a contract to establish a checking account, it is not a contract authorizing NSF charges. He contends that the contract is illusory because it permits the bank to set and change the NSF charges at its discretion, and without assent from the customer except such as may be inferred from the fact that the customer does not cancel his account after the bank posts notice of its rates. 6

Plaintiff relies on the rule that "[a]n agreement that provides that the price to be paid, or other performance to be rendered, shall be left to the will and discretion of one of the parties is not enforceable." (Automatic Vending Co. v. Wisdom (1960) 182 Cal.App.2d 354, 357, 6 Cal.Rptr. 31.) That rule, however, applies only if the total discretion granted one party renders the contract lacking in consideration. (See ibid.) If there are reciprocal promises, as in the present case, the fact that the contract permits one party to set or change the price charged for goods or services does not render the contract illusory. Thus in Cal. Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 289 P.2d 785, the court upheld a contract permitting the buyer of sugar beets to set the price to be paid. The buyer did not have arbitrary power, the court explained, because "where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing." (P. 484, 289 P.2d 785; see Automatic Vending Co. v. Wisdom, supra, 182 Cal.App.2d 354, 358, 6 Cal.Rptr. 31 and cases there cited; cf. Civ.Code, § 1611; Cal.U.Com.Code, § 2305; 1 Corbin, Contracts (1963 ed.) § 98.) Likewise, "a contracting party's discretionary power to vary the price or other performance does not render the agreement illusory if the party's actual exercise of that power is reasonable." (Powell v. Central Cal. Fed. Sav. & Loan Assn. (1976) 59 Cal.App.3d 540, 549, 130 Cal.Rptr. 635, italics original; see Vanguard Investments v. Central Cal. Fed. Sav. & Loan Assn. (1977) 68 Cal.App.3d 950, 958, 137 Cal.Rptr. 719; Frankini v. Bank of America (1939) 31 Cal.App.2d 666, 676, 88 P.2d 790.)

The recent decision in Lazar v. Hertz Corp. (1983) 143 Cal.App.3d 128, 191 Cal.Rptr. 849, offers an analogy to the present litigation. Hertz' car rental...

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