Von Bodungen v. Bank of America
| Decision Date | 28 October 1992 |
| Docket Number | No. 90-16357,90-16357 |
| Citation | 978 F.2d 717 |
| Parties | NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. Frederick VON BODUNGEN; Mary A. Von Bodungen, aka Mary A. Ward; Jean Ward De Velice; Los Amigos Inc., a Nevada corporation and Von Bodungen Inc., a Nevada corporation, Plaintiffs-counter-defendants-Appellants, v. The BANK OF AMERICA, National Trust and Savings Association, Defendant-counter-claimant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Appeal from the United States District Court for the Northern District of California, No. CV-88-01869-WHO; Claudia Wilken, United States Magistrate, Presiding.
N.D.Cal.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Before FLETCHER, WIGGINS and KOZINSKI, Circuit Judges
Plaintiffs/appellants, Frederick and Mary Von Bodungen, appeal an order of the federal magistrate granting summary judgment in favor of the defendant/counter-claimant, the Bank of America. 1 The Von Bodungens argue that the magistrate erred in finding that the Bank of America had a statutory right of charge-back as well as equitable rights to setoff and to "money had and received." The Von Bodungens also argue that the magistrate erred in denying their motion for summary judgment on the issue of conversion. This court has jurisdiction over the appellants' timely appeal under 28 U.S.C. §§ 1291 and 636(c)(3). We reverse.
In 1988, the Von Bodungens were investment intermediaries for, and five percent shareholders in, Global Mining, Ltd. In exchange for their five percent interest, the Von Bodungens were required to raise two million dollars. Kenneth Braid, another investor, agreed to raise one million dollars in return for an interest in the Von Bodungens' five percent of Global Mining. Braid was unable to produce the one million dollars immediately so the Von Bodungens loaned him $400,000. Prior to February 8, 1988, Braid had repaid the Von Bodungens $187,500 of the $400,000 loan. The repayment was received in the form of wire transfers. The money was to be applied to Braid's debt to the Von Bodungens and also to be applied toward the Von Bodungens' expenses on behalf of the Mine.
On February 8, 1988, Braid cashed a check made out to him in the amount of $100,000 at the Rancho Encinitas Branch of the Bank of America (Rancho Encinitas), where he had an account. The check was drawn on a Merrill Lynch Account of SDT International at Bank One in Columbus, Ohio. Although Braid had only $2,000 in his Bank of America account at the time, the Bank of America nevertheless cashed the check because Braid was a customer of long standing. Braid then had Rancho Encinitas issue a credit/entry letter 2 for $85,000 in the name of Mary Von Bodungen. The letter was wired to the South Lake Tahoe Branch of Bank of America (South Tahoe). Because there was no authorization to deposit the funds directly to the Von Bodungens' account, South Tahoe had to notify the Von Bodungens to collect the funds in person. When Mary Von Bodungen went to the bank to collect the funds, she was told that the funds were being transferred by wire, and that the credit/entry letter was the same as cash. She then deposited the wired funds in the Von Bodungens' account at South Tahoe. This exact same procedure (Braid cashing an SDT check and then transferring money to the Von Bodungens via credit/entry letter and the Von Bodungens collecting the funds and depositing them into their South Tahoe account) occurred on two other occasions. 3 On none of these occasions did Rancho Encinitas do anything to establish that the checks cashed by Braid were good or to protect itself in the event that they were not. The total amount of the credit/entry letters sent to the Von Bodungens was $320,000.
On each occasion, after depositing the funds in the Von Bodungen's account, Mary Von Bodungen used the proceeds to purchase cashier's checks. Ultimately, she purchased approximately $291,000 in cashier's checks, $190,000 of which were made out to Mary Ward (another name used by Mary Von Bodungen) (nine cashier's checks), $80,000 of which were made out to Mary Von Bodungen (three cashier's checks), and $21,955.78 of which were made out to Jones West Ford (one cashier's check). Of those made out to Mary Ward and Mary Von Bodungen, $100,000 worth were deposited in the Von Bodungens' account at the San Francisco Main Branch of the Bank of America (Main Branch).
Eleven days after the first SDT check was cashed, the Bank of America determined that the checks were not going to be honored. Upon discovering that the balance in Braid's account was insufficient to cover the checks, the Bank of America traced the funds through the credit/entry letters to the Von Bodungens. Some of the funds were still under the bank's control in the Von Bodungens' Main Branch account. Without notice, the Bank of America froze all of the Von Bodungens' accounts and stopped payment on those of the cashier's checks that had not yet been negotiated. Through these actions, the Bank of America seized $105,529.07 from the Von Bodungens' account and recouped $160,000 by placing a stop payment order on the cashier's checks. 4 The Von Bodungens, via demand letter to the Bank of America, requested the return of their funds and the payment of the cashier's checks. The Bank of America refused.
As a result of the Bank of America's actions, the Von Bodungens lost their five percent interest in Global Mining, Ltd. They sued the Bank of America, alleging conversion and other causes of action. The Bank of America counterclaimed and defended, claiming rights to statutory charge-back and equitable setoff. The magistrate denied the Von Bodungens' motion for summary judgment and granted the Bank of America's motion for summary judgment. The Von Bodungens appealed.
We conclude that the banking described above is comprised of three separate banking transactions. The first transaction involved Rancho Encinitas and Braid and included Rancho Encinitas' cashing of the SDT checks and converting them to credit/entry letters. The second transaction involved South Tahoe and the Von Bodungens and included South Tahoe's issuance of the credit/entry letters that the Von Bodungens then deposited. The third transaction involved the Von Bodungens and South Tahoe and included Mary Von Bodungen's purchase of cashier's checks with the funds in the Von Bodungens' South Tahoe account.
The credit/entry letters involved in this case contained no conditional language. The letters on their face state that the funds transferred have been paid to the bank and that they are already on deposit. The letters are labelled "Proof of Deposit--Credit/Entry Letter (Use for Interunit Credits)." The deposition testimony of the Bank of America's Vice President of Operating Loss Prevention and Investigation was that the Bank of America used this instrument as a means of transferring money from one branch to another and that the bank treats credit/entry letters as final settlements. They are not checks drawn on another's account; it is the bank's own money that is transferred. The defendant admitted that credit/entry letters cannot be refused and that payment on them cannot be stopped. By the Bank of America's own admission, credit/entry letters are not conditional.
Because Braid was a customer of long standing, the Rancho Encinitas branch did not reuqire that he first deposit his SDT check and wait for it to clear. At Braid's request, the Rancho Encinitas branch issued the credit/entry letters transferring the Bank of America's own funds to the South Tahoe branch and deposited the balance of the SDT checks in Braid's account. The form of the credit/entry letters was not modified in any way to condition their validity on the final settlement of the SDT checks. We conclude that there was nothing provisional about this end of these transactions.
When the South Tahoe branch accepted the credit/entry letters for payment to the Von Bodungens, the credit/entry letters became a final settlement. The South Tahoe branch advised the Von Bodungens when the credit/entry letters arrived for them. The Von Bodungens personally had to accept the payment before South Tahoe could deposit the money into their account. The South Tahoe branch told Mary Von Bodungen that the credit/entry letters were as good as cash. The Von Bodungens could have accepted the letter and then walked out of the bank with dollar bills in a gunny sack had they so chosen. We conclude that there was nothing provisional about this end of these transactions.
Accordingly, we hold that the credit/entry letters were a final unconditional settlement with the Von Bodungens and not a provisional settlement. Consequently, the Bank of America acted wrongfully in seizing the Von Bodungens' accounts and stopping payment on the cashier's checks.
The Bank of America claims that it is entitled to statutory charge-back against the accounts of the Von Bodungens under California Commercial Code sections 4212 and 4213. Section 4212 allows a bank that makes a provisional settlement with a customer to charge-back the amount of any settlement for which it does not receive final payment.
If a collecting bank has made provisional settlement with its customer for an item and itself fails by reason of dishonor, suspension of payments by a bank or otherwise to receive a settlement for an item ... the bank may revoke the settlement given by it, charge back the amount of any credit given to the customer's account or obtain refund from its customer....
Cal.Com.Code § 4212 (West 1991). One example of a...
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