SPIGNER v. BANK OF AMERICA (1983)

In plaintiff Verdis D. Spigner's action against defendant Bank of America National Trust and Savings Association (Bank), for damages for conversion of plaintiff's checking account of $3,038.48, he obtained a judgment of $15,000 against the Bank.   The Bank has appealed from the judgment.

The relevant facts, as apparently here agreed upon by the parties (we have no trial record), follow:

“On January 16, 1978 a ‘Judgment Pursuant to Written Stipulation’ was filed in the San Mateo County Municipal Court against Spigner, and in favor of the Bank.   The amount of that judgment was $2,984.42․   Spigner had a checking account at the Bank's Plaza Center Branch in Redwood City, California.   That account was in the name of Spigner, doing business as ‘My Plumbing.’   Spigner was the sole proprietor of ‘My Plumbing’ and the funds in that account ․ were all derived from his sole proprietorship․  [T]he Bank set off the sum of $3,038.48 from Spigner's ‘My Plumbing’ account.   The amount of $3,038.48 consisted of the principal amount of the stipulated judgment entered against Spigner, and in favor of the Bank, plus accrued interest.   Thereafter, as a result of the setoff by the Bank, a number of checks drawn by Spigner on his ‘My Plumbing’ account were returned unpaid for insufficient funds.   Some of these checks were subsequently remitted and honored․  [W]hen the Bank set off funds to satisfy the stipulated judgment, the Bank sent Spigner an advice of charge, notifying him of the amount of ․ such setoff.   None of the funds in Spigner's ‘My Plumbing’ checking account were [sic] derived from ․ sources [causing them to be exempt from execution upon the judgment]․  At no time has Spigner contested the validity of the stipulated judgment, nor does he deny that the Bank had the right to execute on that judgment.”

“The checking account maintained by Mr. Spigner at the Bank of America was for his business.   He wrote checks on that account for the family expenses as well as for suppliers and other business expenses.   Between January 16, 1978, the date of judgment, and November 15, 1978, the date of the ․ setoff, the Bank of America did not obtain the issuance of a writ of execution from the municipal court, procure such a writ of execution with written instructions to levy execution, file any memorandum of credit, accrued interest or costs after judgment nor send to Mr. Spigner any written documents other than the advice of charges forwarded after the fact of setoff.”

Additionally, the parties agree in their briefs, as they undoubtedly did at the trial, that the obligation owed the Bank on which its judgment was founded was interest bearing, and for “Bankamericard” credit transactions by plaintiff.

The trial was bifurcated.   The issue of the Bank's liability was first tried to the court which ruled as follows:

“1. Financial Code § 864 is applicable to the facts presented herein.   2. Defendant Bank of America had no right of setoff against plaintiff for the debt owed by plaintiff to such defendant once the debt was reduced to judgment.   3. Defendant Bank of America is liable to plaintiff for all damages caused by defendant's use of setoff against plaintiff's deposit accounts with defendant.”

On the issue of damages a jury thereafter returned a $15,000 verdict for plaintiff.

The instant appeal is from the judgment which was entered upon that verdict.

The Bank contends, contrary to the superior court's determination, that it “properly exercised its right of set-off to collect the judgment entered in favor of the bank against Spigner.”

 Responding, plaintiff argues:  (1) “Financial Code § 864 precludes the use of setoff on a judgment debt;  [2] 15 U.S.C. 1666h prohibits the use of the banker's lien on a credit card debt.”

Our problem thus becomes one of statutory interpretation.

Civil Code section 3054 had long provided:

“A banker has a general lien, dependent on possession, upon all property in his hands belonging to a customer, for the balance due to him from such customer in the course of the business.”

Where the statute was otherwise applicable the “lien,” as it applied to a bank's depositor's funds, was more correctly to be termed a “setoff” based upon general principles of equity.   It gave to a bank neither more, nor less, than the right of setoff held by any private creditor;  such a right was not absolute, but was subject to judicial limitations imposed to uphold a state policy.   But since such a banker's setoff did not involve state action, it was not subject to the due process requirements of the state's Constitution, article I, section 13.  (Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352, 357–358, 363, 366, 367, 113 Cal.Rptr. 449, 521 P.2d 441;  hereafter sometimes, Kruger.)

Kruger concerned the exercise by a bank of the “lien” or setoff right resulting from unpaid “MasterCharge” transactions, against the account of a depositor who claimed that the funds, or a portion of them, were by law exempt from execution as statutory unemployment and disability benefits.   The Kruger court held that such exempt benefits were protected from setoff by the bank, and, that Mr. Kruger had stated a cause of action for their recovery.

Manifestly as a response to Kruger, the Legislature promptly (1975) amended the above-quoted Civil Code section 3054 by adding thereto, subdivision (b) reciting:

“The exercise of this lien with respect to deposit accounts shall be subject to the limitations and procedures set forth in Section 864 of the Financial Code.”

The amendment is to be found in Chapter 948, 1975 Statutes and Amendments to the Codes, entitled:  “An act to amend Section 3054 of the Civil Code, and to add Sections 864 and 7609.51 to the Financial Code relating to liens.”

Implementing the announced rule of Kruger, and endeavoring to furnish a modicum, or sort, of due process not constitutionally required, the Legislature by the newly enacted Financial Code section 864 laid down certain rules.   Among other things a bank, upon exercising its claimed right to setoff shall promptly give to the depositor notice thereof and the reasons therefor, and of his right to timely declare, under penalty of perjury, that the claimed debt (1) “has been paid,” (2) “is not now owing,” or (3) “is not subject to set-off because the money in the account” was exempt from execution for any of several stated statutory reasons.   Upon such a declaration the statute then, without more, required that “the setoff for any debt claimed to be owed to the bank by a customer ․ shall be reversed and such amount shall [again] be credited to the deposit account.”   The bank was thereupon left to its right to sue its depositor on the claimed debt.

It will be seen that Financial Code section 864 enlarged upon the relief in such cases made available by Kruger, which held only that one situated as was its plaintiff, had stated a cause of action for relief.

But Financial Code section 864, by its terms related only to offsetting “debts,” as defined therein,² of a depositor to the bank.   It did not relate, as here, to “interest bearing obligations ․ arising from an extension of credit to a natural person primarily for personal, family or household purposes,” which had “been reduced to judgment.”

Here, as noted, plaintiff's obligation to the Bank had been “reduced to judgment.”   And treated either as such a judgment, or as the delinquent Bankamerica card transactions upon which it was based, it was an “interest bearing obligation  arising from an extension of credit to a natural person primarily for personal, family or household purposes.”

We first consider plaintiff's contention that:  “Financial Code § 864 precludes the use of setoff on a judgment debt.”

We iterate fundamental rules of statutory construction.  “In construing a statute to determine the intent of the Legislature the court ‘turns first to the words themselves for an answer.’ ”  (Tracy v. Municipal Court (1978) 22 Cal.3d 760, 764, 150 Cal.Rptr. 785, 587 P.2d 227.)   And:  “We are required to give effect to statutes ‘according to the usual, ordinary import of the language employed in framing them.’ ”  (Palos Verdes Faculty Assn. v. Palos Verdes Peninsula Unified Sch. Dist. (1978) 21 Cal.3d 650, 658, 147 Cal.Rptr. 359, 580 P.2d 1155.)   Moreover:  “When [as here] a statute prescribes the meaning to be given to particular terms used by it, that meaning is generally binding on the courts.”  (Great Lakes Properties Inc. v. City of El Segundo (1977) 19 Cal.3d 152, 156, 137 Cal.Rptr. 154, 561 P.2d 244.)

 The plain language employed by Financial Code section 864, we opine, makes manifest that the section is inapplicable to such obligations of a bank's depositor, as that with which we are concerned, and which have been reduced to judgment.

The Summary Digest, Statutes of 1975 (appendix, p. 244) agrees.  (See Kriz v. Taylor (1979) 92 Cal.App.3d 302, 313, 154 Cal.Rptr. 824.)   It points out that a bank's general lien, upon Financial Code section 864's adoption, “would be limited in exercising a setoff for a debt, as defined ” (our emphasis);  no such limitation appears on a setoff for a judgment.

The patent reason for the exception from section 864's application, of a depositor's obligation which had “been reduced to judgment,” was that inherent in such a judgment was judicial assurance that the first two of section 864' s three concerns, i.e., whether the debt “has been paid” or “is not owing,” were there absent.   It was only the third concern, ordinarily a more complex problem of fact, or of law, whether the funds of the bank deposit were exempt from execution,³ that the Legislature chose to leave to judicial resolution, as in Kruger.   Such legislative discrimination is entirely proper.  “A legislative body addressing a particular area need not attack all problems at once but generally may address one or more, pursuant to perceived priorities.”  (United States Steel Corp. v. Public Utilities Com. (1981) 29 Cal.3d 603, 613, 175 Cal.Rptr. 169, 629 P.2d 1381.)  “ ‘The Legislature is not bound, in order to adopt a constitutionally valid statute, to extend it to all cases which might possibly be reached, but is free to recognize degrees of harm and to confine its regulation to those classes of cases in which the need is deemed to be the most evident.’ ”  (In re Ricky H. (1970) 2 Cal.3d 513, 521–522, 86 Cal.Rptr. 76, 468 P.2d 204.)

 Furthermore, were we arguendo to find the relevant language of Financial Code section 864 to be ambiguous (which we expressly do not), we should be obliged to give it the more reasonable interpretation.  (In re Eric J. (1979) 25 Cal.3d 522, 537, 159 Cal.Rptr. 317, 601 P.2d 549.)   It would be unreasonable, we think, to ascribe a legislative purpose that an obligation attended by uncertainty as to whether it was owed, or had been paid, might be the subject of a banker's lien or setoff, but that a final judgment where such uncertainty had been judicially removed, might not.

From the foregoing we conclude that the trial court's determination, and plaintiff's instant contention, that Financial Code section 864 precludes the use of a Civil Code section 3054 setoff against plaintiff's judgment debt, are erroneous.

 The conclusion we have reached gives effect also, to the state's public policy that judgments for the payment of money against one able to do so, be promptly paid.   Plaintiff, the debtor of an unconditional municipal court judgment directing payment of money, who was able to do so, was under a statutory obligation to “pay the same immediately.”  (Civ.Code, § 85.)

 We advert now to plaintiff's second contention that nevertheless, “15 U.S.C. 1666h prohibits the use of the banker's lien on a credit card debt.”

Subdivision (b) of Title 15, section 1666h, United States Code provides:

“This section does not alter or affect the right under State law of a card issuer to attach or otherwise levy upon funds of a cardholder held on deposit with the card issuer if that remedy is constitutionally available to creditors generally.”

We discern no narrow meaning of the word “levy” in the statute's phrase “attach or otherwise levy.”  “[T]he word ‘levy’ has been defined as meaning to raise;  to collect;  to raise or collect;  to raise or set up;  to collect or exact money;  to exact;  to assess and collect by authority or force, as to levy tribute; ․”  (53 C.J.S., p. 2, and see authority there collected.)

In California the remedy of setoff is constitutionally available to creditors generally (Code Civ.Proc., § 431.70).   And as has been pointed out, between banks generally and their depositors, banks may, as here, in a proper case assert a banker's lien or setoff against a judgment debtors' deposit.

We need not consider the additional point whether plaintiff had suffered damages from the Bank's exercise of its lien, or setoff, under the above-related circumstances, when by an execution upon the Bank's judgment, plaintiff would have suffered even greater prejudice (i.e., costs of execution also) without, as he concedes, any judicial remedy.

The judgment is reversed;  the superior court will enter judgment for defendant Bank of America National Trust and Savings Association.

FOOTNOTES

FN1. We are not here concerned with Financial Code section 7609.5.  Relating to savings and loan associations, it carries language similar to that of section 864 affecting only banks..  FN1. We are not here concerned with Financial Code section 7609.5.  Relating to savings and loan associations, it carries language similar to that of section 864 affecting only banks.

2.   Financial Code section 864, subdivision (2):“ ‘Debt’ means an interest-bearing obligation or an obligation which by its terms is payable in installments, which has not been reduced to judgment, arising from an extension of credit to a natural person primarily for personal, family, or household purposes, and does not mean a charge for bank services or a debit for uncollected funds or for an overdraft of an account imposed by a bank on a deposit account.”

3.   No contention was made in the superior court, or here, that the obligation had “been paid,” or was “not owing,” or that the subject funds were exempt from execution.

 ELKINGTON, Acting Presiding Justice.

NEWSOM and BREINER *, JJ., concur.