Sanchez-Corea v. Bank of America

• Citation: 38 Cal.3d 892,701 P.2d 826,215 Cal.Rptr. 679
• Decision Date: 11 July 1985
• Docket Number: S.F. 24709,SANCHEZ-COREA
• Court: United States State Supreme Court (California)
• Parties: , 701 P.2d 826 Antonio R.et al., Plaintiffs, Cross-Defendants and Appellants, v. BANK OF AMERICA, Defendant, Cross-Complainant and Respondent; Virgil McGowen, Defendant and Respondent.

Page 679

215 Cal.Rptr. 679

38 Cal.3d 892, 701 P.2d 826

Antonio R. SANCHEZ-COREA et al., Plaintiffs, Cross-Defendants and Appellants, v. BANK OF AMERICA, Defendant, Cross-Complainant and Respondent Virgil McGowen, Defendant and Respondent.

S.F. 24709.

Supreme Court of California In Bank.

July 11, 1985.

Daniel M. Crawford, Donald T. Ramsey and Carroll, Burdick & McDonough, San Francisco, for plaintiffs, cross-defendants and appellants.

David B. Flinn and Leland, Parachini, Steinberg, Flinn, Matzger & Melnick, San Francisco, for defendant, cross-complainant and respondent.

No appearance for defendant and respondent.

REYNOSO, Justice.

Plaintiffs Antonio and Lucille Sanchez-Corea and Edward Towers, trustee in bankruptcy, appeal from an order that vacated a $2.1 million judgment in their favor and granted defendant Bank of America's motion for new trial. We initially address the following question: Where the trial court fails to comply with the mandatory statutory requirement (Code Civ.Proc., § 657) that a new trial order state grounds therefor, can such noncompliance--where it is the result of judicial and not clerical error--be cured nunc pro tunc? Our conclusion is that it may not. We next inquire whether the defective order is void. Our determination is that the order is not void. Though noncompliance with the statute precludes our upholding the order on the basis of insufficiency of the evidence or excessiveness or inadequacy of damages, we may consider its validity on any other statutory ground for new trial advanced in defendant's motion and supported by the record. After reviewing the record, however, we conclude that there is no ground on which to affirm the order, which therefore must be reversed.

I

This case arises from a dispute over a commercial bank account maintained by the Sanchez-Corea with the defendant Bank of America (Bank). In 1964, Antonio Sanchez-Corea formed Cormac in partnership with a third person, not a party here, who sold his interest in Cormac to Mr. Sanchez-Corea in 1971. Cormac was engaged in designing and installing electronic communications systems. From its inception, Cormac banked with defendant Bank. Between 1965 and 1973 defendant Virgil McGowen, a Bank vice president and branch manager, handled Cormac's commercial account. He arranged, without the knowledge of the Bank, for Bank funds to be used to cover overdrafts on the Cormac account. At the heart of this controversy is a disagreement over the amount of money owed by Cormac to the Bank as a result of these "loans."

An embezzlement scheme was discovered by the Bank and suspicion later focused on McGowen. The Bank audited McGowen's records and discovered that he had embezzled funds from the Bank, including $246,000 which the Bank alleges was credited to Cormac's account. Prior to discovering the McGowen embezzlement scheme, the Bank had loaned Cormac $70,000. However, upon discovery of the alleged $246,000 debt, the Bank demanded payment and refused to extend further commercial credit to Cormac.

In 1972, Cormac had begun to move into the new and growing life safety systems field and in 1974, Cormac made loan arrangements for further development and growth in this area. Equity Financing of Chicago agreed to invest $150,000 in Cormac in exchange for a 20 percent stock interest. The plan was contingent upon the reduction of the Bank's claim to $180,000 payable over 10 years and upon a $100,000 loan from the Small Business Administration. The Bank would not agree to the reduction and informed the Small Business Administration that the Sanchez-Coreas might be charged with receiving stolen property. The deal with Equity Financing of Chicago was never completed.

In April 1974, Cormac filed for proceedings under chapter 11 of the Bankruptcy Act. The company went out of business in October 1974.

The Sanchez-Coreas and the trustee in bankruptcy (hereinafter the Sanchez-Coreas) sued the Bank and McGowen for breach of contract, fraud, breach of the implied covenant of good faith and fair dealing, disparagement of credit, interference with prospective economic advantage, promissory estoppel, negligence, and intentional infliction of emotional distress. The Sanchez-Coreas requested both general and punitive damages.

The Bank answered, denying the allegations, and filed a cross-complaint for recovery of both the $246,000 allegedly credited to the Cormac account by McGowen the $70,000 debt from the final loan admittedly received by the Sanchez-Coreas.

After a three-week trial the jury returned a verdict awarding the Sanchez-Coreas $2,100,015.50 on the complaint, consisting (as explained in answers to special interrogatories (Code Civ.Proc., § 625)) of $1 million for general damages, $100,000 for emotional distress, $1 million for punitive damages against the Bank and $15.50 in punitive damages against McGowen. The jury awarded the Bank, on its cross-complaint, only the $70,000 loaned to Cormac, and made no award to the Bank on the $246,000 alleged debt. Judgment was entered on September 25, 1979. On September 28 notice of entry of judgment was mailed to the parties.

The Bank timely moved for a new trial, asserting the following six grounds: (1) irregularity in the proceedings of the jury which prevented the defendant from having a fair trial; (2) misconduct of the jury; (3) excessive damages; (4) insufficiency of the evidence; (5) that the verdict was against law and (6) error in law to which defendant excepted during trial.

On November 27, 1979--exactly 60 days after notice of entry of judgment was mailed--the trial court granted the Bank's motion for new trial. The minute order entered by the clerk stated: "Defendants [sic] motion for new trial is granted. Specifications to follow." No grounds for the new trial order were specified at that time. Neither party asserts that this omission was the result of clerical error. On December 4, 1979, the trial court filed an "Order Granting New Trial" vacating the judgment and granting the Bank's motion. This second order explained that the sole ground for granting the motion was insufficiency of the evidence.

The Sanchez-Coreas appeal. They contend that (1) the November 27 order was defective (but not void) for failure to state the ground (insufficiency of the evidence) on which the motion was granted (Code Civ.Proc., § 657) and (2) that the December 4 order was invalid because it was made after expiration of the 60-day period in which the court had jurisdiction to rule on the motion (Code Civ.Proc., § 660). ¹ Because, they argue, the new trial order cannot be affirmed on any ground, the order should be reversed and the judgment should be reinstated. ² The Bank of America contends not only that the order is valid and enforceable, but also that it should be interpreted to include a new trial on all issues raised in the cross-complaint. The Bank has not filed a cross-appeal as provided in California Rules of Court, rule 3(c).

As will appear below, we agree with plaintiffs.

II

This case is governed by sections 657 and 660, which impose limitations and requirements on consideration of motions for new trials. The power of the trial court to grant a new trial may be exercised only by following the statutory procedure and is conditioned upon the timely filing of a motion for new trial, the court being without power to order a new trial sua sponte. (Smith v. Superior Court (1976) 64 Cal.App.3d 434, 436; Healy Tibbits Constr. Co. v. Employers' Surplus Lines Ins. Co. (1977) 72 Cal.App.3d 741, 754, 140 Cal.Rptr. 375.)

After the court is presented with a motion for a new trial, its power to rule on the motion expires at the end of the 60-day period provided by section 660. The period runs from the mailing of notice of entry of judgment by the clerk or the service of notice of entry of judgment, whichever is earlier, or if no such notice is given, from initial notice of intent to move for new trial. ( § 660.) If no determination is made within the 60-day period, the motion is deemed to have been denied. (Id.)

If the motion for new trial is granted, additional requirements are imposed by statute. In pertinent part, section 657 provides that whenever the motion is granted "the court shall specify the ground or grounds upon which it is granted and the court's reason or reasons for granting the new trial...." The section goes on, however, to distinguish between grounds andreasons. While the order passing upon and determining the motion "must state the ground or grounds relied upon by the court," the order "may contain the specification of reasons." (Emphasis added.) If the order stating the grounds does not also specify the reasons for the new trial, then "the court must, within 10 days after filing such order, prepare, sign and file such specification of reasons in writing with the clerk." Thus, under section 657, the grounds for the new trial must be stated in the order. The reasons may also be stated in the order, but the trial court has the option of filing a statement of the reasons at a later time.

Section 657 also specifies guidelines for appellate review. It provides that an order granting a new trial "shall be affirmed if it should have been granted upon any ground stated in the motion, whether or not specified in the order or specification of reasons...." One qualification to this rule is that the appellate court cannot affirm on the grounds of insufficiency of the evidence or of excessive or inadequate damages unless such ground was specified in the trial court's order. ( § 657.)

In the case at bench, the trial court stated both the grounds and the reasons only in its second order. The Sanchez-Coreas contend that the trial court's attempt to grant the Bank's motion for a new trial was defective for failure to comply with section 657, in that the initial order did not state any grounds relied upon by the court. They concede that this order, signed by the judge and filed...