Weaver v. Bank of America National Trust & Savings Ass'n

This case concerns the liability of a bank whose wrongful dishonor of plaintiff’s check resulted in plaintiff’s arrest and temporary detention on a charge of petty theft. For the reasons which we shall subsequently set forth we have concluded: (1) that although the payee’s complaint to the police constituted the immediate cause of the arrest, a sufficient causal connection remains between the arrest and the bank’s dishonor of plaintiff’s check to afford plaintiff a cause of action against the bank; (2) that damage to plaintiff’s reputation and impairment of her health incident to plaintiff’s arrest constitute “actual damage’’ within the meaning of Civil Code section 3320. 1

*430 Plaintiff’s complaint alleges that she maintained a checking account with defendant bank, which “agreed at all times to pay out the amount . . . deposited by plaintiff, in accordance with checks drawn by plaintiff on said Defendant Bank when duly presented.” Plaintiff drew a check for $32.68 to the order of J & E Tire Shop. Although plaintiff had on deposit a sum sufficient to cover the check, defendant “wrongfully refused to pay” the check and “marked upon the face of the check . . . the letters ‘account closed’, thereby indicating that plaintiff had no account in the bank.” J & E Tire Shop, “upon receipt of said check marked ‘account closed’, and in reliance upon and as a proximate result of said markings,” swore out a warrant for plaintiff’s arrest. Thereafter plaintiff was arrested, charged with petty theft, and temporarily confined.

Plaintiff further alleges that the bank and its employees “knew or should have known that the issuance of a check upon a bank when the maker thereof has no account is a public offense which notoriously and frequently results in the arrest and imprisonment of the maker,” and “that notwithstanding said knowledge . . . Defendant Bank wrongfully, negligently and wilfully refused to honor said check.” The complaint concludes “that as a direct and proximate result of Defendant Bank’s wrongful and negligent dishonor of said check, plaintiff’s reputation was damaged, her health impaired, and plaintiff was arrested and imprisoned causing injury to plaintiff in the sum of $50,000. ’ ’

Defendant demurred on the ground that the complaint failed to state facts sufficient to constitute a cause of action. The court sustained the demurrer without leave to amend and accordingly entered judgment for defendant. Plaintiff appeals from the judgment.

Turning to the first issue, that of proximate causation, we summarize the positions of the parties on that subject. While defendant recognizes that a wrongful dishonor generally gives the depositor a cause of action against the bank, it contends that plaintiff seeks damages only for injuries incident to an arrest which the bank did not proximately cause. To support this contention it relies on Hartford v. *431 All Night & Day Bank (1915) 170 Cal. 538 [150 P. 356, L.R.A. 1916A 1220], and Bearden v. Bank of Italy (1922) 57 Cal.App. 377 [207 P. 270]. 2 Plaintiff, on the other hand, would distinguish Hartford and Bearden on the ground that those eases sounded in contract while her complaint lies in tort. We do not believe that Hartford and Bearden can be satisfactorily distinguished on plaintiff’s basis; those eases, however, were apparently decided upon a theory of proximate causation which has since been repudiated by this court. Thus, as we shall point out, Hartford and Bearden should be overruled on the issue of proximate causation; plaintiff’s complaint should be held to state a cause of action.

The complaint, we believe, states a cause of action in both tort and contract. As Allen v. Bank of America (1943) 58 Cal.App.2d 124 [136 P.2d 345], sets forth: “ [Whenever the bank fails to discharge its agreement by dishonoring a duly presented check, a right of action then accrues. . . . [W] hile in a sense the injury arises from contract it is nevertheless viewed in another sense, independent of contract, and sounds in tort.” (P. 127.) The weight of authority supports that proposition. 3 Although a few courts have restricted the plaintiff to a single form of action, they are almost equally *432 divided between torti 4 and contract, 5 and in none does it appear that the plaintiff urged the alternative form of action.

In the present case, plaintiff has clearly alleged a contract, its breach, and the negligent or wilfully tortious nature of the breach; plaintiff thus has stated a cause of action in both contract and tort. 6 (See Siminoff v. Jas. H. Goodman & Co. Bank, supra.) Having undertaken no action which could prejudice defendant, plaintiff need not elect her remedy but may go to the trier of fact upon both theories. (Acadia, California, Ltd. v. Herbert (1960) 54 Cal.2d 328, 336 [5 Cal.Rptr. 686, 353 P.2d 294] ; see Dresser, Procedural Control of Damages by Election of Remedies, 12 Hastings L.J. 171, 179-182 (I960).)

Although we have thus concluded that the complaint encompasses a cause of action in tort, we cannot hold that Hartford and Bearden may be distinguished on the suggested theory that those cases sounded only in contract. The complaint in Hartford charged negligence; the complaint in Bearden, that defendant “negligently, willfully and maliciously refused to honor said check.” (57 Cal.App. at p. 378.) Insofar as the opinions in those cases indicate, the depositors stated causes of action in tort as well as contract. Although Hartford’s dependence upon section 3302 may imply that the action there sounded in contract (see Abramowitz v. Bank of America, supra (1953) 131 Cal.App.Supp. 892, 897, it could be *433 argued as convincingly that Hartford’s discussion of negligence, proximate cause, and intervening cause implies that the court considered the action in tort.

While Hartford and Bearden cannot be distinguished upon the above-proffered grounds, those cases attempt to uphold a proposition which, we believe, no longer enlists support. They hold that the act of the payee of the check in procuring the depositor’s arrest constitutes a superseding cause which severs the chain of causation. Whether we treat the action as one of tort or contract, however, we have concluded that the bank's dishonor of the cheek serves as a proximate cause of the arrest.

Considering the complaint first as setting out an action in tort, we recognize that the Hartford and Bearden rule of proximate cause commands considerable support in older eases. 7 The rule, however, was rejected by the Supreme Courts of North Carolina (Woody v. National Bank of Rocky Mount (1927) 194 N.C. 549 [140 S.E. 150, 58 A.L.R 725]) and Ohio (Mouse v. Central Savings & Trust Co. (1929) 120 Ohio St. 599 [167 N.E. 868]). In the most recent decision upon the issue the highest court of Connecticut specifically declined to follow Hartford on proximate cause. (Collins v. City Nat. Bank & Trust Co. (1944) 131 Conn. 167 [38 A.2d 582, 584,153 A.L.R. 1030].) 8

Not only do these cases sustain the conclusion that the negligence of the bank operated as the proximate cause *434 of the damage but that conclusion finds support in the doctrine of recent cases that the intervening act of a third party will not terminate the defendant’s liability for negligence if that act were reasonably foreseeable. (See e.g., Richardson v. Ham (1955) 44 Cal.2d 772 [285 P.2d 269] ; Warner v. Santa Catalina Island Co. (1955) 44 Cal.2d 310, 319 [282 P.2d 12] ; Mosley v. Arden Farms Co. (1945) 26 Cal.2d 213, 218 [157 P.2d 372, 158 A.L.R. 872] ; id. at p. 222 [concurring opinion of Traynor, J.]; Restatement, Torts, §§ 447-449.)

We cannot hold as a matter of law that the intervening arrest here was so remote a possibility that the bank could not reasonably have foreseen it. The foreseeability of the risk generally frames a question for the trier of fact (see Hilyar v. Union Ice Co. (1955) 45 Cal.2d 30, 37-38 [286 P.2d 21], and cases there cited; Prosser, Torts pp. 373-375; compare Mosley v. Arden Farms Co., supra, at pp. 218-219 with id. at p. 223 [concurring opinion of Tray-nor, J.]). Indeed, as to this factual issue we note the opinion of the Ohio Supreme Court that “by the exercise of reasonable diligence, the bank could have foreseen that this exact consequence would occur, for the issuance of a check upon a bank without funds or credit to meet it is a public offense which, notoriously, frequently results in the arrest and imprisonment of the drawer of the check.” (Mouse v. Central Savings & Trust Co. (1929) 120 Ohio St. 599 [167 N.E. 868, 870].)

If we consider the ease from the viewpoint of a contract action, we reach the same conclusion. While the causal extent of damages may be more limited than in tort (see Hunt Bros. Co. v. San Lorenzo Water Co. (1906) 150 Cal. 51, 56-57 [87 P. 1093, 7 L.R.A. N.S. 913] ; Abramowitz v. Bank of America, supra, at p. 896; compare Civ. Code, § 3300 with Civ. Code, § 3333), nevertheless, damages actually contemplated, or within the reasonable contemplation of the parties, are recoverable. Such contemplation of the parties does not ordinarily compose an issue which can be resolved on demurrer. (See e.g., Arvin-Kern Co. v. B.J. Service, Inc. (1960) 178 Cal.App.2d 783, 790 [3 Cal.Rptr. 238] ; Csordas v. United Slate Tile etc. Roofers (1960) 177 Cal.App.2d 184 [2 Cal.Rptr. 133] ; Ely v. Bottini (1960) 179 Cal.App.2d 287, 294 [3 Cal.Rptr. 756].) The risk of the arrest of the depositor does not depend upon any special circumstances unknown to the bank; it is not so remote a contingency that this court could hold as a matter of law that it would have *435 been unreasonable for the parties to consider it. As stated by Prosser (Proximate Cause in California, supra) : “Arrest under a bad check law appears to be an obvious risk against which the bank has undertaken to protect the depositor."

We therefore hold that, whether plaintiff’s complaint be conceived as sounding in tort or contract, plaintiff has alleged a breach of duty and consequential damages which are sufficiently causally connected to state a cause of action. To the extent that they are inconsistent with this conclusion, Hartford v. All Night & Day Bank (1915) 170 Cal. 538 [150 P. 356, L.R.A. 1916A. 1220] and Bearden v. Bank of Italy (1922) 57 Cal.App. 377 [207 P. 270], are overruled.

We turn now to the second phase of this case: the question of the interpretation of Civil Code section 3320. (See fn. 1.) Upon consideration of the purpose of that section, and of the cases interpreting similar statutes in other states, we have concluded that the damages alleged by plaintiff constitute “actual damage" within the meaning of that section. 9

We begin with a brief historical review of section 3320. The preexisting rule at common law had provided that “ [I]n the absence of statute, a bank is liable for substantial damages to a merchant or trader whose check it has wrongfully dishonored, even though no actual damages are proved. A merchant or trader is conclusively presumed to have sustained substantial damages because the dishonor of his check creates an immediate injury to his credit which is usually the foundation of his business. If the depositor ... is not a merchant or trader, the majority of tile courts hold that he can recover only such damages for the wrongful dishonor as he alleges and proves." 10 (1 Patón’s Digest, §21 at p. 1112; see also *436 Valley Nat. Bank v. Witter (1942) 58 Ariz. 491 [121 P.2d 414, 418]; 5A Michie, Banks & Banking, (Perm, ed., revd. 1950) §§ 241-246.) Injury to reputation, except to the extent that the depositor could prove a definite loss of business credit, and mental or emotional distress did not compose recoverable items of damage. (See 5A Michie, Banks & Banking, (Perm, ed., revd. 1950) § 244; but see Westesen v. Olathe State Bank (1924) 75 Colo. 340 [225 P. 837].)

The California courts followed these common-law rules (see Siminoff v. Jas. H. Goodman & Co. Bank (1912) 18 Cal.App. 5 [121 P. 939]; Reeves v. First Nat. Bank (1912) 20 Cal.App. 508 [129 P. 800]) until the Hartford ease held that section 3302 of the Civil Code limited damages for wrongful dishonor to the amount of the check plus interest. 11

Section 3320, enacted two years after Hartford, emanated from a uniform law drafted by the American Bankers Association and was incorporated in the law of seventeen states. The Association issued a statement justifying the statute upon the ground that plaintiffs suffered little or no damage in the majority of instances in which the common law presumed substantial damages, and that banks thus were being “mulcted in damages’’ out of proportion to the injury inflicted. 12

*437 Assuming the purpose o£ the statute to be the repeal of the common-law presumption of damages, such purpose would not be thwarted by recognition of compensatory damages for actual loss of reputation and impairment of health. The injury consequent upon arrest, arraignment, and imprisonment, although difficult to measure, is real enough. The purpose of the common law presumption was to permit substantial recovery although specific damages could not be shown due to the difficulty of proof. If a concomitant amelioration of the standards of specificity and proof does not accompany the repeal of the presumption, a statute designed to prevent injustice to banks will be carried beyond the point necessary to that end; it will, instead, inflict injustice upon the depositor.

The issue of whether a plaintiff’s suffering which occurs incident to an arrest constitutes actual damage under the uniform law has been expressly decided in Mouse v. Central Savings & Trust Co. (1929) 120 Ohio St. 599 [167 N.E. 868]. 13 In that case the court stated that: “ [W]hen the Legislature enacted this section, it did not intend to deprive a depositor of the right of action in case of the nonpayment of his check through error or mistake, and without malice, but intended merely to eliminate speculative and punitive damages in the absence of malice on the part of the depositary. ‘Actual damages’ is a term synonymous with compensatory damages, and covers all loss recoverable as matter of right. ...” Analyzing the nature of the damages, the court said: ‘‘What could be a more real and existing damage to a person of *438 good reputation than confinement in the county jail upon a charge concededly erroneous ? Such damage is actual, so real, present, and existing, in tact, that the unlawful restraint by one person of the physical liberty of another gives rise to a cause of action all its own, namely, that of false arrest. We have little sympathy with the proposition that a genuine damage would be proved here if the bank’s act had resulted in a damage to the plaintiff in his trade or occupation, but that the dishonor thrust upon him by this act of negligence has no existence in fact. . . .” (P. 871 [167 N.E.].)

Concurring with the analysis and conclusion of the Ohio Supreme Court in Mouse, we hold that loss of reputation and impairment of health caused by the arrest of a depositor may be recovered as actual damages under section 3320.

In brief, we see no reason for according to an institution so basic to the contemporary society as a bank a special non-statutory exemption from general tort liability. Such immunity would necessarily rest upon the outmoded concept that the chain of causation would break in this case because of the intervening, but foreseeable, act of a third party. We can no more adopt that unrealistic approach than we can grant the bank exoneration upon the similarly contrived ground that injury to reputation and impairment of health did not, within the meaning of section 3320 of the Civil Code, inflict “actual damage” upon plaintiff.

The judgment of the superior court is reversed and the case remanded with directions that defendant be permitted to answer within 10 days after the issuance of the remittitur.

Gibson, C. J., Traynor, J., Schauer, J., Peters, J., and Peek, J., concurred.