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Court of Appeal, First District, Division 1, California.

Paul PERDUE, Plaintiff and Appellant, v. CROCKER NATIONAL BANK, Defendant and Respondent.

Civ. 46808.

Decided: March 25, 1983

Gary J. Near, Steven M. Kipperman, Stephen Kaus, Kaus & Kerr, Mark M. Garay, Garay & Foreman, San Francisco, for plaintiff and appellant. William Alsup, Ellen Borgersen, San Francisco, Paul Flum, Oakland, Morrison & Foerster, San Francisco, for defendant and respondent. E. Robert (Bob) Wallach and David B. Baum, Sidney M. Wolinsky, San Francisco, for amicus curiae, Ralph Santiago Abascal, et al.;   Victoria J. De Goff and Richard Sherman, Berkeley, of counsel. Manuel Glenn Abascal, Howard M. Klepper, Manuel Glenn Abascal, A Law Corp., Berkeley, for amicus curiae, Manuel Glenn Abascal, pro se. Ronald R. Glancz, L. Robert Griffin, Litigation Div., Comptroller of the Currency, Administrator of Nat. Banks, Washington, D.C., for amicus curiae, Comptroller of the Currency. Weyman I. Lundquist, David P. Kincaid, Heller, Ehrman, White & McAuliffe, San Francisco, for amicus curiae, Wells Fargo Bank, Nat. Bank.

Appellant Paul Perdue, a depositor with respondent Crocker National Bank (Crocker), filed a purported class action below challenging the validity of charges assessed by Crocker against its depositors for processing checks drawn on commercial checking accounts without sufficient funds.   Thereafter, Crocker's general demurrer was sustained without leave to amend and a judgment of dismissal entered.   This appeal ensued.

We examine the complaint before us under established principles governing review of a judgment of dismissal based upon a claimed failure to state a valid cause of action.  (E.g. Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 170, 164 Cal.Rptr. 839, 610 P.2d 1330;  Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496, 86 Cal.Rptr. 88, 468 P.2d 216.)

The complaint asserts five causes of action alleging in substance that Crocker's customary practice in dealing with a check drawn by a depositor on an account lacking sufficient funds (“NSF check”) is either to honor and pay it as an overdraft or to dishonor and return it to the payee's bank;  that in either event Crocker assesses a special handling charge (“NSF charge”) against the account of its depositor-maker.   It is further alleged that appellant has periodically drawn NSF checks on his Crocker checking account which Crocker—in either honoring or dishonoring such checks—has assessed a special handling charge of $6 for processing each NSF check.


The gravamen of the first three causes of action for declaratory relief and unjust enrichment is that Crocker lacked any contractual or statutory authority to impose charges for NSF checks.   The first cause of action seeks a declaration that the signature card signed by appellant upon opening his account, which contains an agreement that the account shall be “subject to all applicable laws, to the Bank's present and future rules, regulations, practices and charges ” does not constitute a valid contract to serve as a basis for imposing NSF charges.  (Emphasis added.)   In the second cause of action, appellant seeks a declaration that the signature card constitutes an unenforceable contract of adhesion.   In the third cause of action for unjust enrichment, damages are sought by way of a refund of the difference between the charges assessed and Crocker's actual cost in processing the NSF charges.

We will conclude that neither theory survives critical analysis.  [Appellant concedes the third cause of action is viable only if one of the first two causes of action is valid.]

We consider the validity of the several causes of action in a sequence convenient for discussion.


 The courts have long recognized that a bank signature card serves as a contract between the depositor and the bank for the handling of the account.  (See Bullis v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801, 811–812, 148 Cal.Rptr. 22, 582 P.2d 109;  Blackmon v. Hale (1970) 1 Cal.3d 548, 556, 83 Cal.Rptr. 194, 463 P.2d 418;  Manti v. Gunari (1970) 5 Cal.App.3d 442, 450–451, 85 Cal.Rptr. 366;  Torrance N. Bk. v. Enesco F. Credit Union (1955) 134 Cal.App.2d 316, 320–321, 285 P.2d 737;  Larrus v. First National Bank (1954) 122 Cal.App.2d 884, 889–890, 266 P.2d 143;  Faulkner v. Bank of Italy (1924) 69 Cal.App. 370, 374–375, 231 P. 380.)   The fact that the signature card itself does not indicate the amount of Crocker's NSF charges does not negate the contractual nature of such charges, particularly where, as here, the bank's rules and regulations specifying the charges are incorporated into the signature card agreement.  (State v. San Francisco Sav. etc. Soc. (1924) 66 Cal.App. 53, 61, 225 P. 309;  Larrus v. First Nat. Bank, supra, 122 Cal.App.2d at pp. 889–890, 266 P.2d 143.)

Moreover, since appellant acknowledges he had notice of the bank's scheduled charges for processing NSF checks ($6 per check), the argument advanced is patently untenable.   Under the terms of the subsisting agreement, Crocker has express contractual authority to assess its scheduled service charges whenever its depositor, including appellant, presents an NSF check.

A similar contention was raised and implicitly rejected in Hoffman v. Security Pacific Nat. Bank (1981) 121 Cal.App.3d 964, 176 Cal.Rptr. 14, involving a depositor's claim that the bank's imposition of service charges for processing an NSF check constituted unlawful liquidated charges on the theory that the agreement contained in the signature card to pay scheduled service charges amounted to an implied covenant by the depositor not to write overdrafts.   In upholding a judgment of nonsuit, the court reasoned as follows:  “Plaintiff failed to establish any such custom or any agreement on the depositors' part not to write overdrafts.   Moreover, statutes governing the obligations of banks and their depositors, which are incorporated into and become part of the contract between a bank and its depositors [citations], treat an overdraft as an application for advance credit rather than as a breach of an express or implied covenant.  California Uniform Commercial Code section 4401 specifically authorizes a bank to pay overdrafts and to charge customers' accounts to recover amounts paid, even when payments result in overdrafts on the account.   While a bank has a statutory obligation to honor any check drawn by a depositor for an amount not exceeding the balance in his account, and while the depositor has a contractual obligation to pay a service charge when he presents a NSF check, the depositor has no statutory or contractual obligation to refrain from drawing checks for amounts in excess of the balance in his account.  (Cal.U.Com.Code, § 4401.)   In brief, plaintiff did not and could not prove that the depositors breached an obligation to Bank when they negotiated NSF checks.   Accordingly, the service charge they agreed in advance to pay for presenting such an overdraft was not a penalty under former Civil Code section 1670.”  (Id., p. 969, 176 Cal.Rptr. 14;  emphasis added.)  (Accord Shapiro v. United California Bank (1982) 133 Cal.App.3d 256, 184 Cal.Rptr. 34.)

 Nor do we find merit in appellant's further argument that the signature card is an illusory contract because it permits the bank unilaterally to fix the NSF charges and to make future changes at will.   It is well established that an agreement which reserves the power to one party to vary a term is not thereby rendered illusory or otherwise void for lack of mutuality.  (See Vanguard Investments v. Central Cal. Fed. Sav. & Loan Ass'n (1977) 68 Cal.App.3d 950, 958, 137 Cal.Rptr. 719;  Powell v. Central Cal. Fed. Sav. & Loan Ass'n (1976) 59 Cal.App.3d 540, 549, 130 Cal.Rptr. 635 [loan agreement permitting lender to increase rate of interest];  Automatic Vending Co. v. Wisdom (1960) 182 Cal.App.2d 354, 358, 6 Cal.Rptr. 31 [agreement permitting vendor to change commission rate];  Inderkum v. German Old People's Home (1937) 23 Cal.App.2d 733, 735, 74 P.2d 83 [life care contract subject to future amendments of by-laws].)   However, the exercise of the power to effect changes must be reasonable.   Thus, for example, in Inderkum the court held that the future by-law amendments must be “reasonable administrative amendments” and not changes impairing the substance of the contract.  (23 Cal.App.2d at p. 738, 74 P.2d 83.)   In Automatic Vending, the court held the new price must be fixed “in such amount as the object of the contract is reasonably worth.”  (182 Cal.App.2d at p. 358, 6 Cal.Rptr. 31.)   And in Powell v. Central Cal. Fed. Sav. & Loan Ass'n, supra, the court found the lender's one percent increase in the interest rate was reasonable when compared with the interest increases for depositors.  (59 Cal.App.3d at pp. 549–550, 130 Cal.Rptr. 635.) 1

Appellant advances an alternative argument that the signature card constitutes an unenforceable contract of adhesion because depositors receive inadequate notice that execution of the signature card subjects them to NSF charges and by reason of the great disparity between the NSF charge and the bank's actual cost of processing NSF checks.   We disagree on the record before us.

 Conceptually, a contract of adhesion generally “ ‘․ signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ ”  (Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 817, 171 Cal.Rptr. 604, 623 P.2d 165;  Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694, 10 Cal.Rptr. 781.)   Although arguably the signature card may reasonably be interpreted as a contract of adhesion between the bank and its depositor, such determination does not end the inquiry.  “There is nothing sinful or illegal about a contract of adhesion;  the only significant result of the existence of such a contract is that it is interpreted against the supplier of the goods or services (who prepared it) so as to meet the reasonable expectations of the customer.”   (Powell v. Central Cal. Fed. Sav. & Loan Ass'n, supra, 59 Cal.App.3d 540, 551, 130 Cal.Rptr. 635.)

 As Scissor-Tail instructs, the provisions of an adhesion contract are fully enforceable in the absence of two judicially imposed constraints:  “The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or ‘adhering’ party will not be enforced against him.  (See, e.g., Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 271–272 [54 Cal.Rptr. 104, 419 P.2d 168];  Steven v. Fidelity & Casualty Co. (1962) 58 Cal.2d 862, 869–870 [27 Cal.Rptr. 172, 377 P.2d 284];  Wheeler v. St. Joseph Hospital, supra, 63 Cal.App.3d 345, 357 [133 Cal.Rptr. 775];  see generally Sybert, supra, at pp. 305–306, and cases there cited.)   The second—a principle of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or ‘unconscionable.’  (See, e.g., Steven, supra, 58 Cal.2d at pp. 878–879 [27 Cal.Rptr. 172, 377 P.2d 284];  Jacklich v. Baer (1943) 57 Cal.App.2d 684 [135 P.2d 179].)”  (Fns. omitted.)  (Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d at p. 820, 171 Cal.Rptr. 604, 623 P.2d 165;  see also Holmes v. City of Los Angeles (1981) 117 Cal.App.3d 212, 216–217, 172 Cal.Rptr. 589, app. dis. 454 U.S. 884, 102 S.Ct. 376, 70 L.Ed.2d 199.)   Although in Scissor-Tail the court determined that the contract between a sophisticated promoter and a music performer was a contract of adhesion, the court further concluded that the contractual provision requiring arbitration of disputes was in nowise contrary to the promoter's expectations, particularly since he had been a party to literally thousands of contracts containing similar arbitration provisions and was undoubtedly aware of the arbitration requirement.  (Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d at p. 821, 171 Cal.Rptr. 604, 623 P.2d 165.)

 In congruent analysis, we find nothing ambiguous or unexpected about the specific NSF charges imposed by Crocker.   The signature card agreement plainly states that the depositor will pay the bank's scheduled processing charges.   As noted, appellant acknowledges he was aware of the NSF charges before he wrote the NSF checks.   Under such uncontroverted circumstances, we conclude that the signature card in no way conflicts with appellant's reasonable expectations.

 Appellant's next argument, to which the parties and amici devote considerable discussion in their briefs, focuses on the second factor underscored in Scissor-Tail limiting enforcement of adhesion contracts:  namely, whether the contract or provision is unduly oppressive or unconscionable.   Appellant contends that the disparity between the bank's actual costs of processing NSF checks (alleged to be 30¢ per check) and the charges imposed ($6 per check) is so excessive as to render the contract unconscionable and unenforceable.   Again we are unable to agree.

In the recent decision of A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 186 Cal.Rptr. 114, the appellate court thoroughly examined the flexible concept of unconscionability in the context of the enforceability of a warranty disclaimer and damages exclusion clause contained in a commercial contract.   We can add little to that enlightening exegesis by Justice Wiener which we adopt in pertinent part herein:  “Phrased another way, unconscionability has both a ‘procedural’ and a ‘substantive’ element.   (Industralease Automated & Scientific Eq. Corp., etc. (1977) 58 App.Div.2d 482 [396 N.Y.S.2d 427, 431, fn. 4];  see also Leff, supra, 115 U.Pa.L.Rev. at p. 487;  White and Summers,supra, § 4–3 at p. 151.)

“The procedural element focuses on two factors:  ‘oppression’ and ‘surprise.’  (See U.Com.Code com. No. 1, 23A West's Ann.Cal.U.Com.Code (1964 ed.) § 2302, p. 198;  Geldermann and Company, Inc. v. Lane Processing, Inc. (8th Cir.1975) 527 F.2d 571, 575.)  ‘Oppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice.’  (Williams v. Walker-Thomas Furniture Company, supra [D.C.Cir.], 350 F.2d [445] at p. 449;  Fleischmann Distilling Corp. v. Distillers Co. Ltd. (S.D.N.Y.1975) 395 F.Supp. 221, 232;  see Spanogle, Analyzing Unconscionability Problems (1969) 117 U.Pa.L.Rev. 931, 944–946.)   ‘Surprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in a prolix printed form drafted by the party seeking to enforce the disputed terms.  (See Ellinghaus, In Defense of Unconscionability (1969) 78 Yale L.J. 757, 764–765;  Eddy, On the ‘Essential’ Purposes of Limited Remedies:  The Metaphysics of UCC Section 2–719(2) (1977) 65 Cal.L.Rev. 28, 43;  Spanogle, supra, 117 U.Pa.L.Rev. at pp. 934–935, 943.)   Characteristically, the form contract is drafted by the party with the superior bargaining position.  (See Calamari and Perillo, Contracts (2d ed. 1977) § 9–40, p. 325.)

“Of course the mere fact that a contract term is not read or understood by the nondrafting party or that the drafting party occupies a superior bargaining position will not authorize a court to refuse to enforce the contract ․ [since] commercial practicalities dictate that unbargained-for terms only be denied enforcement where they are also substantively unreasonable.   (Ellinghaus, supra, 78 Yale L.J. at pp. 766–767;  Murray on Contracts, supra, at pp. 748–749.)   No precise definition of substantive unconscionability can be proffered.   Cases have talked in terms of ‘overlyharsh’ or ‘one-sided’ results.  (See, e.g., Schroeder v. Fageol Motors, Inc. (1975) 86 Wn.2d 256 [544 P.2d 20, 23];  Weaver v. American Oil Company (1972) 257 Ind. 458 [276 N.E.2d 144, 146, 49 A.L.R.3d 306].)   One commentator has pointed out, however, that ‘․ unconscionability turns not only on a “one-sided” result, but also on an absence of “justification” for it’ (Eddy, supra, 65 Cal.L.Rev. at p. 45), which is only to say that substantive unconscionability must be evaluated as of the time the contract was made.  (See U.Com.Code, § 2–302.)   The most detailed and specific commentaries observe that a contract is largely an allocation of risks between the parties, and therefore that a contractual term is substantively suspect if it reallocates the risks of the bargain in an objectively unreasonable or unexpected manner.  (Murray, Unconscionability:  Unconscionability (1969) 31 U.Pitt.L.Rev. 1, 12–23;  see also Eddy, supra, 65 Cal.L.Rev. at pp. 45–51;  Geldermann and Company, Inc. v. Lane Processing, Inc., supra, 527 F.2d at p. 576.)   But not all unreasonable risk reallocations are unconscionable;  rather, enforceability of the clause is tied to the procedural aspects of unconscionability (see ante [135 Cal.App.3d] pp. 485–476 [186 Cal.Rptr. 114] ) such that the greater the unfair surprise or inequality of bargaining power, the less unreasonable the risk reallocation which will be tolerated.   (See Spanogle, supra, 117 U.Pa.L.Rev. at pp. 950, 968.)”  (Id., 135 Cal.App.3d at pp. 486–487, 186 Cal.Rptr. 114.)

In this case, although the procedural aspects of unconscionability arguably are manifest, we find nothing commercially or objectively unreasonable in the NSF charges actually imposed.   The extent of the service charge imposed for the bank's handling of an NSF check was neither hidden nor unexpected, but instead was concededly known to appellant before he wrote NSF checks.   Appellant could have easily avoided the NSF charge by simply refraining from writing checks on an account with insufficient funds.   Under governing principles and in light of the total circumstances reflected in this record, we determine as a matter of law that the alleged disparity between the cost of processing and the charges actually imposed does not rise to the level of substantive unconscionability so as to deny enforcement of the service charge agreement.2

In conclusion, we hold that Crocker possessed a valid and enforceable contractual right to impose the particular NSF service charges alleged.   Accordingly, the demurrer was properly sustained as to the first three causes of action.


 Appellant's fourth cause of action alleges unfair and deceptive business practices by Crocker in that depositors were not apprised that the signature card subjected them to NSF charges, and were led to believe the card was only a handwriting exemplar.3  But the complaint fails to allege any ultimate facts indicating in what manner depositors were misled or deceived.   As repetitively shown, the signature card explicitly recites the depositor's agreement to pay service charges, a fact openly acknowledged by appellant.   Such facial inadequacy was vulnerable to a general demurrer;  the order sustaining Crocker's demurrer thereto was clearly proper.


 In his fifth cause of action,4 appellant complains that the NSF charges constitute unenforceable liquidated damages under the provisions of former Civil Code section 1670 (repealed by Stats.1977, ch. 198, § 2, operative July 1, 1978;  see now Civ.Code § 1671, as amended).   The specific complaint is likewise unfounded.

As earlier noted, identical arguments were urged unsuccessfully in Shapiro v. United California Bank, supra, 133 Cal.App.3d 256, 184 Cal.Rptr. 34, and Hoffman v. Security Pacific Nat. Bank, supra, 121 Cal.App.3d 964, 176 Cal.Rptr. 14.   We subscribe to the reasoning in those decisions that the standardized signature card did not include an implied promise by the depositor to refrain from writing NSF checks which would support a conclusion that the provision amounted to an unenforceable penalty.   Rather, an NSF check is deemed to be an application for advance credit.   Consequently, the issuance of an NSF check does not constitute a breach of contract and the provisions of former Civil Code section 1670 do not apply.

The judgment is affirmed.


1.   We emphasize that no question is raised in this case regarding Crocker's exercise of its power to change the NSF charges.   Accordingly, we express no opinion as to the permissible latitude in increasing such charges unilaterally.

2.   We are not unmindful of the compelling policy arguments advanced by amici in support of appellant.   Our decision is, of course, limited to the record before us and is itself subject to review.   But the question of potential abuse in the form of expansive or indiscriminate charges is not before us;  any corrective measures necessary to prevent such likelihood should be directed to the Legislature and not the courts.

3.   Unfair competition, proscribed by sections 17200–17208 of the Business and Professions Code, is defined to include an “unlawful, unfair or fraudulent business practice․”  (Bus. & Prof.Code, § 17200.)

4.   The general demurrer to this count was sustained pursuant to stipulation.

RACANELLI, Presiding Justice.

ELKINGTON and NEWSOM, JJ., concur.