1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

CHRISTIAN CAMPOS,

CASE NO. CIV. S-04-1892 WBS

 Plaintiff and Appellant,

v. MEMORANDUM AND ORDER RE: 

BANKRUPTCY APPEAL

WELLS FARGO BANK, N.A.,

 Defendant and Appellee.

----oo0oo----

Appellant Christian Campos (debtor), in his individual

capacity, appeals, pursuant to 28 U.S.C. § 158(a), an order of

the United States Bankruptcy Court denying his claim for relief

from appellee Wells Fargo Bank’s (the Bank’s) seizure of funds

from his savings account.

I. Factual and Procedural Background

The following undisputed facts are largely taken from

the October 7, 2003 trial transcript where they were read into

the record. On September 22, 1994, the Bank obtained a judgment

against debtor for $8,850.87. (Appellant’s Excerpts of R. vol.

2, Rep.’s Tr. 13, Oct. 7, 2003.) This judgment arose out of a

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 1 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

business MasterCard account jointly issued to debtor and his

former spouse. (Id.) Debtor was never personally served with

the judgment, as service was completed by publication. (Id.)

In 1998, debtor tried to open a new checking account

with the Bank. (Id. at 15.) But before the Bank would accept

his business, debtor was required to settle $300 worth of badcheck charges identified in his credit check report. (Id. at 7.) 

He eventually avoided these fees, however, because when he

returned to pay this debt and open his account in 1999, the

charges had disappeared. (Id.) The Bank never mentioned the

unrelated outstanding judgment against him. (Id. at 15.)

When debtor successfully opened the 1999 account, he

signed what his attorney described as “a garden variety check

card” that included “a hundred pages of fine print . . . .” 

(Appellant’s Excerpts of R. vol. 9, Rep.’s Tr. 7, Aug. 4, 2004.) 

The agreement included a paragraph covering “the Bank’s right to

set off” that contained the following language:

To secure your performance of this agreement, you grant

the Bank a lien on the security interest and the

security in or affiliate of the Bank. In addition, you

acknowledge that the Bank may set off against any

accounts you own, including matured and unmatured time

accounts for any obligations you owe the Bank at any

time and for any reason allowed by law. . . . The Bank

may consider this Agreement as your consent to the

Bank’s asserting its security interest or exercising

its right of set off should any law require your

consent. 

(Id. at 12.) The agreement also provided that California law

would control the relationship between the parties. (Id. at 13.)

At some point, the Bank connected debtor to the 1994

judgment and on August 27, 2002 “set off the entirety of the

balances in the debtor’s checking and savings accounts of

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 2 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 $3,195.35 was the total amount in debtor’s checking and 1

savings accounts. Separately, he had $1,238.60 in checking and

$1,956.75 in savings. (Pl.’s Resp. to Def.’s Statement of

Undisputed Facts ¶ 5.)

3

$3,195.35, leaving a zero balance.” (Appellant’s Excerpts of R. 1

vol. 2, Rep.’s Tr. 15, Oct. 7, 2003.) However, on September 5,

2002, the Bank “returned $1,400 to the debtor so he could pay his

mortgage . . . .” (Id.) Thus only $1,795.35 remains in dispute. 

(Id.)

On November 8, 2002, debtor commenced a Chapter 7

bankruptcy case. (Pl.’s Resp. to Def.’s Statement of Undisputed

Facts ¶ 1.) Pursuant to 11 U.S.C. § 522, debtor next commenced

these proceedings on November 15, 2002 to recover the remaining

set off funds. (Br. of Appellee at 10); see also 11 U.S.C. § 522

(allowing the debtor in a bankruptcy case to assert, under some

circumstances, the reclamation powers of the bankruptcy trustee). 

After two days of evidentiary hearings and three post-trial

hearings, the bankruptcy court dismissed debtor’s complaint

without a written order. (Br. of Appellee at 10.) Debtor filed

this appeal on September 10, 2004.

II. Discussion

This court reviews the bankruptcy court’s findings of

fact for clear error and its conclusions of law de novo. In re

Dewalt, 961 F.2d 848, 850 (9th Cir. 1992). As the material facts

of this case appear largely undisputed, the court here need only

review the bankruptcy court’s legal determinations.

Debtor presents here, as he did in the bankruptcy

court, several theories for recovery. He argues first that the

agreement he signed when he opened the 1999 checking account did

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 3 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

not pledge the exempt account funds as a surety for existing

debts owed to the bank because he was unaware of any judgment

against him. He then argues that the seized funds were protected

by California law and whether taken as a set off or in execution

of a judgment, the bank was required to provide notice and an

opportunity to claim the funds as exempt. In addition, as a

result of these allegedly overly aggressive tactics, debtor

claims that the Bank secured a preferential payment in violation

of 11 U.S.C. §§ 547 and 522. Finally, debtor argues that the set

off is avoidable because the transfer of funds was fraudulent

under 11 U.S.C. § 548 and Cal. Civ. Code §§ 3439-3439.12 (Uniform

Fraudulent Transfer Act (UFTA)). The court will consider each of

these theories in turn.

A. Contractual Right to Set Off

Debtor disputes the Bank’s claim that it had a

contractual right to set off funds, exempt or otherwise, based on

the terms of the agreement signed and applicable to the 1999

checking account. He argues that because neither party was aware

of the outstanding judgment at the time they entered into the

agreement, the checking account funds were never pledged as

collateral for the judgment debt. (Appellant’s Opening Br. at

7.) In support of this argument, debtor relies on Los Angeles

Investment Co. v. Home Savings Bank of Los Angeles, 180 Cal. 601,

612-14 (1919) for the proposition that “[i]n California, a bank

may not ‘sneak something past’ a new depositor.” ((Appellant’s

Opening Br. at 6.) Los Angeles Investment, is, however,

factually distinguishable from the case at hand, as it involved a

statement not signed by the plaintiff. 180 Cal. at 613. The

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 4 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

California Supreme Court found no reason not to allow depositors

to enter even unreasonable agreements with banks, as long as the

depositor demonstrated affirmative consent to the agreement,

“either by being required to sign it or by having his attention

particularly called to it.” Id. (emphasis added). The court put

the burden on the signer to “know that he is accepting a contract

[and] . . . realize the necessity of acquainting himself with its

terms.” Id. The debtor here thus properly consented to the

terms of the agreement. 

Notwithstanding debtor’s consent, a valid contract also

requires bargained-for consideration, and debtor argues that the

bankruptcy court found this lacking in this case. (Appellant’s

Reply Br. at 5.) Debtor’s arguments take the findings of the

bankruptcy court out of context. When analyzing the facts of

this case under the fraudulent transfer statutes, the bankruptcy

judge did observe that “to the extent that [the agreement between

debtor and the Bank] refer[red] to past debts, there [was not]

reasonably equivalent consideration, even though there [was]

consideration.” (See Appellant’s Excerpts of R. vol. 9, Rep.’s

Tr. 23, Aug. 4, 2004.) However, as the bankruptcy judge’s

statement implies, the “reasonably equivalent” standard for

consideration is specific to those statutes and is not the

standard for evaluating the validity of a contract. Under the

more general contract formation analysis, “[g]ross inadequacy of

consideration may be relevant to issues of capacity, fraud and

the like, but the requirement of consideration is not a safeguard

against imprudent and improvident contracts except in cases where

it appears that there is no bargain in fact.” Restatement

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 5 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Under California law, certain types of property, specified 2

in Cal. Code. Civ. Proc. § 704.010-.210, are exempt from judgment

executions and cannot be levied upon. Likewise, Cal. Fin Code §

864(3) allows debtors covered by that provision to avoid set off

when the property qualifies as exempt under Chapter 4 of the

Judgements Law, Cal. Code. Civ. Proc. §§ 703.010-706. 

6

(Second) of Contracts § 79 cmt. C (1981).

If the parties have bargained for an exchange, “there

is no additional requirement of . . . equivalence in the values

exchanged.” Id. § 79(b). Furthermore, debtor cannot invalidate

his contract with the bank simply because he was mistaken as to

the value of the consideration he offered absent evidence that

the Bank knew debtor was mistaken as to a “basic assumption on

which he made the contract.” Id. § 153. No record evidence

supports this theory. The bankruptcy court therefore properly

found that the check card agreement was supported by

consideration, the adequacy of which is not at issue when

examining the validity of the contract. The Bank’s set off was

consequently justified by the plain terms of a binding contract.

B. Notice Requirement for Set Offs and Judgment Executions

Even if the check card agreement was not a valid

contract due to a lack of consideration, the Bank’s appropriation

of debtor’s funds was still legal. The Bank only needed the

check card agreement if the seized funds were indeed exempt and 2

thus protected from the Bank’s generic and historical set off

rights. As the Bank correctly notes, a portion of the funds

seized, those in the savings account, were not exempt and these

are the only funds still at issue in this case.

Debtor argues only one theory of exemption: his wages,

subject to continuing garnishment by the District Attorney to pay

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 6 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

a child support debt, were exempt under Cal. Code. Civ. Proc. §

704.070(b)(1). But he fails to respond to the Bank’s argument

that, while the checking account funds may have consisted of

debtor’s salary deposits, by his own admission, the savings

account did not. The Bank points to the following admission from

debtor’s testimony: “All of the funds they took from my accounts

and applied on the judgment were from my wages except for what

was in the savings account . . . .” (Br. of Appellee at 16

(quoting July 28, 2003 Campos Alternate Direct Test.)(emphasis

added).) In response, debtor provides only his unsupported

conclusion that “[t]he record clearly shows that most of the

funds deposited . . . were totally exempt from levy as they were

the debtor’s net earnings after the District Attorney’s

garnishment.” (Appellant’s Reply Br. at 8 n.2.) This statement

fails to overcome the Bank’s argument and the court therefore

finds that the funds in the savings account were not exempt.

The Bank was thus free to exercise its equitable right

to set off, separate from any contractual right it secured

through the check card agreement. Contrary to debtor’s

arguments, which present § 864 of the California Financial Code

as the sole and comprehensive source of a bank’s set off rights,

this power comes from common law and is codified in Cal. Code

Civ. Proc. § 431.70. See Kruger v. Wells Fargo Bank, 11 Cal. 3d

352, 363 (1974) (quoting Jojola v. Wells Fargo Bank, No. C71-900,

1973 WL 158166, at *3 (N.D. Cal. 1973)). “If the depositor is

indebted to the bank and his or her obligation is due, there is a

mutuality of obligation from which flows an equitable right of

setoff.” Martin v. Wells Fargo Bank, 91 Cal. App. 4th 489, 494

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 7 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

(2001) (quoting Chang v. Redding Bank of Commerce, 29 Cal. App.

4th 673, 681 (1994)). “Th[is] right . . . allows entities that

owe each other money to apply their mutual debts against each

other, thereby avoiding the absurdity of making A pay B when B

owes A.” Parker v. Cmty First Bank, 123 F.3d 1243, 1245 (9th

Cir. 1997) (quotations omitted).

Here, by virtue of debtor’s checking account and the

Bank’s judgment against debtor, the parties were in mutual

debtor-creditor relationships. In re Bernard, 96 F.3d 1279

(9th Cir. 1996) (under California law, a depositor is a creditor

of the bank and the bank is, in turn, the debtor). 

Notwithstanding any limitations imposed by statute, the Bank thus

had a right to offset the debt owed by debtor under the 1994

judgment against the debt owed to the debtor based on his

deposits. 

Debtor presents two possible limitations on the Bank’s

power to set off. First, debtor argues that Cal. Fin. Code §

864, which provides notice procedures and exemptions for set offs

imposed on individual consumers, describes the full extent of a

Bank’s set off power and the procedures that must be followed to

exercise it. Because these provisions do not apply when the debt

to be set off has been reduced to a judgment, debtor argues that

the Bank has no right to offset. Debtor misreads § 864 as a

grant of a Bank’s right to set off when it is actually a

limitation on the power under given circumstances, none of which

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 8 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 The parties are in agreement that Cal. Fin. § 864 does not 3

control here, although for different reasons. Debtor opines that

because the Bank had already secured a judgment, the provisions

did not apply. See id. § 864(a)(2). The Bank correctly notes

that § 864 does not limit its set off rights when the debt arises

from a relationship formed for commercial purposes. See Martin,

91 Cal. App. 4th at 491 (holding that § 864 does not apply when

depositor’s personal funds are seized to cover an unpaid

MasterCard account opened for depositor’s business).

9

are present in this case. See Martin, 91 Cal. App. 4th at 496 3

(explaining that, despite the passage of Cal. Fin. Code § 864,

banks continue to enjoy an equitable right to set off with

commercial clients). The Bank was thus not required to follow

the notice provisions of § 864.

Second, debtor argues that because the Bank had secured

a judgment, it was required to follow the notice procedures of

the California Enforcement of Judgments Law, Cal. Code Civ. Proc.

§§ 680.010-724.260. Even if the Judgments Law applied to this

case, however, debtor would not have had a right to notice that

was violated by the Bank’s approach. The Judgments Law provides

detailed procedures for levying on property in pursuit of a court

ordered judgment. The law painstakingly describes how to serve a

writ of execution when (1) a third party, (2) the judgment

debtor, or (3) the levying officer has possession of the property

on which levy is sought. Id. § 700.030-.050. Nowhere does the

law contemplate how to serve a writ of execution in the event

that the judgement creditor already has possession of the

judgment debtor’s funds, which leads the court to conclude that

the formalities of the Judgments Law are unnecessary under such

circumstances. Therefore, no applicable law provided procedures

to constrain the Bank’s seizure of debtor’s funds in this case. 

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 9 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Set off in the context of 11 U.S.C. § 553 is defined by 4

the Ninth Circuit as an “adjustment[] of mutual debts arising out

of separate transactions between the parties.” In re Harmon, 188

B.R. 421, 425 (B.A.P. 9th Cir. 1995). “Mutual” means debts

between the same parties, not necessarily based on the same

contractual relationship. See Doe v. United States, 58 F.3d 494,

498 (9th Cir. 1995) (holding that the IRS’s claims against the

bankruptcy estate could reduce any judgment against any

government agency under the Federal Tort Claims Act). Therefore,

even unrelated debts, like debtor’s claim to his funds in the

1999 checking account and the Bank’s judgment against debtor on a

separate MasterCard account, can be offset against each other.

 Although debtor is not the trustee in this case, 11 U.S.C. 5

§ 522(h) provides that the debtor may “recover a setoff to the

extent that the debtor could have exempted such property under

subsection (g)(1) of this section,” and if the trustee does not

herself attempt to avoid such transfer. Id. § 522(h)(1)-(2). 

10

C. Preferential Payment

Debtor’s next theory is that, due to the timing of the

Bank’s set off and debtor’s bankruptcy petition, the Bank

realized an unlawful preferential payment in violation of 11

U.S.C. §§ 547 and 522. As an initial matter, the court notes

that the preferential payment provisions of 11 U.S.C. § 553,

covering set offs, rather than those of § 547, covering

“transfers,” applies in this case. Lee v. Schweiker, 739 F.2d 4

870, 873 n.4 (3d Cir. 1984) (“[W]here a setoff right is being

asserted, section 553, rather than section 547, governs the

creditor’s rights.” (citing F.D.I.C. v. Bank of Am., 701 F.2d

831, 836 (9th Cir. 1983)); see also In re Rehab Project, Inc.,

238 B.R. 363, 372 (Bankr. N.D. Ohio 1999) (“[I]t is abundantly

clear that when § 553 is determined to be applicable, § 547

cannot thereafter be utilized to undo its effect.”). Section

553(b)(1) allows the bankruptcy trustee to recover a set off that 5

takes place “within 90 days before the date of the filing of the

petition” but only to the extent that the creditor improves his

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 10 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 11 U.S.C. § 548 was amended April 20, 2005 to extend the 6

relevant transaction period from one to two years. Pub. L. No.

109-8, 119 Stat 23 (to be codified at 11 U.S.C. § 548(a)).

11

position by offsetting within, rather than prior to, the 90 day

period. 

The Bank provides detailed calculations demonstrating

that, by executing a set off on August 27, 2002, rather than

August 10, 2002 (the 90th day prior to bankruptcy), it

“temporarily” improved its position by $671.20 (debtor had more

money on deposit on August 27 compared to August 10). (Br. of

Appellee at 12.) As the Bank notes, however, when it returned

$1,400 to debtor on September 5, 2002, it more than made up for

any gains realized by setting off during the restricted 90 day

period. Because neither party contended that the $1,400 was

returned to discharge some other obligation, even when invited by

the court to do so at oral argument, the court accepts the Bank’s

claim that any preference it may have received was netted out. 

The Bank’s refusal to return the remaining $1,795.35 therefore

does not offend 11 U.S.C. § 553 because the Bank’s actions did

not secure a preferential payment.

D. Fraudulent Transfer

This leaves debtor’s constructively fraudulent transfer

claims under 11 U.S.C. § 548 and California Civil Code § 3439.05. 

Federal law permits a bankruptcy trustee to void transactions

completed within a year prior to the debtor’s filing of a 6

petition for bankruptcy if, voluntarily or involuntarily, the

debtor “received less than a reasonably equivalent value in

exchange for such transfer or obligation” and became insolvent as

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 11 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Significantly, under § 522(g)(1) the challenged transfer 7

must have been involuntary, a requirement that the Bank argues

has not been met in this case. However, the court need not

search for a definition of voluntary, because even if debtor has

a cause of action for fraudulent transfer, it is not one on which

he can succeed.

 Although both the Federal and California fraudulent 8

transfer statutes address the timing of the “transfer or

obligation,” the court finds that a set off is more akin to an

obligation than a transfer. Indeed, under the Federal Bankruptcy

code, a set off “involves a mere netting-out of counterclaims or

reconciliation of accounts and not a transfer of money or

12

a result of the obligation. 11 U.S.C. § 548(a)(1)(B)(i),

(a)(1)(B)(ii)(I). Section 522(h)(1) extends this right of the

trustee to the debtor under certain circumstances specified in §

522(g)(1).7

Similarly, the UFTA, Cal. Civ. Code § 3439.05, defines

a transfer as fraudulent when made “without receiving a

reasonably equivalent value in exchange for the transfer or

obligation and the debtor was insolvent at that time or the

debtor became insolvent as a result of the transfer or

obligation.” When evinced by a writing, as in this case,

obligations are incurred at the time the writing is signed. Id.

§ 3439.06(e)(2).

The bankruptcy court determined “that the security

interest [in the checking account funds] was supported by

reasonably equivalent consideration to the extent that it picked

up future debt,” but not to the extent that it covered past debt.

(See Appellant’s Excerpts of R. vol. 9, Rep.’s Tr. 25, Aug. 4,

2004.) Debtor thus met the first requirement of both statutes–-

lack of reasonably equivalent consideration. However, the

demands of the federal law were not met because the obligation8

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 12 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

property . . . .” In re Hancock, 137 B.R. 835, 845 (Bankr. N.D.

Okl. 1992) (emphasis added); see also In re Remillong, 131 B.R.

727, 728 (Bankr. D. Mont. 1991) (“[T]he definition of ‘transfer’

under 11 U.S.C. § 101(54) excludes setoff . . . .”). For this

reason, the date on which debtor entered into a relationship with

the Bank impacts the application of the fraudulent transfer

statutes. In this case, the relevant date was thus the date on

which debtor undertook an obligation that exposed his resources

to set off by the Bank.

13

that debtor sought to avoid was entered into over a year before

he filed for bankruptcy. (Id. at 25.) Additionally, debtor’s

claims failed under the second part of both the federal law and

UFTA because he was not insolvent when he entered into the second

relationship with the Bank, nor was he made insolvent by that

obligation at the time it was made. (Id. at 26.)

The court agrees with the bankruptcy court regarding

debtor’s failure to meet the timing and insolvency requirements

and therefore need not address the question of “reasonably

equivalent” consideration. As the Bank points out, the purpose

of the fraudulent transfer laws is “to prevent the debtor from

depleting the resources available to creditors through gratuitous

transfers of the debtor’s property” in the final moments before

filing for bankruptcy. In re N. Merch., Inc., 371 F.3d 1056,

1060 (9th Cir. 2004). In furtherance of this goal, the relevant

transfer period is tethered to the debtor’s bankruptcy petition. 

This requirement grounds even the constructive fraudulent

transfer theory and prevents debtors, like Campos, from avoiding

their commitments by suggesting that they undertook certain

obligations solely to defraud creditors years down the road. 

Debtor is thus not entitled to avoid the Bank’s offset as a

constructive fraudulent transfer. To hold otherwise would

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 13 of 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14

unjustifiably extend the scope of both statutes beyond the

legislatures’ intent.

IT IS THEREFORE ORDERED that the bankruptcy court’s

order dismissing debtor’s complaint be, and the same hereby is,

AFFIRMED. 

DATED: November 30, 2005

Case 2:04-cv-01892-WBS Document 35 Filed 12/01/05 Page 14 of 14