Opinion ID: 1153673
Heading Depth: 2
Heading Rank: 1

Heading: Plaintiff's first cause of action: whether the signature card is a contract authorizing NSF charges.

Text: The complaint alleges that The signature card prepared by the defendants does not identify the amount of any charge to be paid by the plaintiffs for processing NSF checks and is not an agreement for such payment. The card does not constitute mutual assent to NSF charges in any particular sum or at all and accordingly is not a contract conferring authority to do the acts complained of herein. Based upon the language of the signature card, the plaintiffs believed and expected that the signature card was intended as a handwriting example for purposes of identification and verification only. Plaintiff therefore seeks a judicial declaration as to whether the signature card is a valid or enforceable contract and ... a lawful basis for the imposition of the NSF charge. The cases unanimously agree that a signature card such as the Crocker Bank card at issue here is a contract. The bank is authorized to honor withdrawals from an account on the signatures authorized by the signature card, which serves as a contract between the depositor and the bank for the handling of the account. ( Blackmon v. Hale (1970) 1 Cal.3d 548, 556 [83 Cal. Rptr. 194, 463 P.2d 418]; Bullis v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801, 811-812 [148 Cal. Rptr. 22, 582 P.2d 109, 7 A.L.R.4th 642].) Other California decisions (see Hoffman v. Security Pacific Nat. Bank (1981) 121 Cal. App.3d 964, 969 [176 Cal. Rptr. 14]; Larrus v. First National Bank (1954) 122 Cal. App.2d 884, 889-890 [266 P.2d 143]) and decisions of other states (see, e.g., In re Estate of Cilvik (1970) 439 Pa. 522 [267 A.2d 836, 838, fn. 2]) also view the signature card as a contract. Plaintiff does not seriously dispute this proposition. His complaint alleges that the depositors agreed to pay [the bank's] maintenance charge ... in return for checking privileges, and one could infer that they agreed to do so by affixing their signatures to the card. (2) (See fn. 5.) Complaints filed by plaintiff in an earlier action stated expressly that the signature card was a contract. [5] (3a) Plaintiff argues, however, that even if a signature card is a contract to establish a checking account, it is not a contract authorizing NSF charges. He contends that the contract is illusory because it permits the bank to set and change the NSF charges at its discretion, and without assent from the customer except such as may be inferred from the fact that the customer does not cancel his account after the bank posts notice of its rates. [6] Plaintiff relies on the rule that [a]n agreement that provides that the price to be paid, or other performance to be rendered, shall be left to the will and discretion of one of the parties is not enforceable. ( Automatic Vending Co. v. Wisdom (1960) 182 Cal. App.2d 354, 357 [6 Cal. Rptr. 31].) (4) That rule, however, applies only if the total discretion granted one party renders the contract lacking in consideration. (See ibid. ) If there are reciprocal promises, as in the present case, the fact that the contract permits one party to set or change the price charged for goods or services does not render the contract illusory. Thus in Cal. Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474 [289 P.2d 785, 49 A.L.R.2d 496], the court upheld a contract permitting the buyer of sugar beets to set the price to be paid. (5) The buyer did not have arbitrary power, the court explained, because where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing. (P. 484; see Automatic Vending Co. v. Wisdom, supra, 182 Cal. App.2d 354, 358 and cases there cited; cf. Civ. Code, § 1611; Cal. U. Com. Code, § 2305; 1 Corbin, Contracts (1963 ed.) § 98.) Likewise, a contracting party's discretionary power to vary the price or other performance does not render the agreement illusory if the party's actual exercise of that power is reasonable. ( Powell v. Central Cal. Fed. Sav. & Loan Assn. (1976) 59 Cal. App.3d 540, 549 [130 Cal. Rptr. 635], italics original; see Vanguard Investments v. Central Cal. Fed. Sav. & Loan Assn. (1977) 68 Cal. App.3d 950, 958 [137 Cal. Rptr. 719]; Frankini v. Bank of America (1939) 31 Cal. App.2d 666, 676 [88 P.2d 790].) (3b) The recent decision in Lazar v. Hertz Corp. (1983) 143 Cal. App.3d 128 [191 Cal. Rptr. 849], offers an analogy to the present litigation. Hertz' car rental agreement permitted it to determine unilaterally the price charged for gas used to fill the tanks of returned rental cars. Plaintiff's suit alleged that Hertz fixed unreasonably high prices, in breach of its duty of good faith and fair dealing. Discussing this cause of action, the court said that [t]he essence of the good faith covenant is objectively reasonable conduct. Under California law, an open term in a contract must be filled in by the party having discretion within the standard of good faith and fair dealing. (P. 141.) We conclude that plaintiff here is not entitled to a judicial declaration that the bank's signature card is not a contract authorizing NSF charges. To the contrary, we hold as a matter of law that the card is a contract authorizing the bank to impose such charges, subject to the bank's duty of good faith and fair dealing in setting or varying such charges. Plaintiff may, upon remand of this case, amend his complaint to seek a judicial declaration determining whether the charges actually set by the bank are consonant with that duty.