EDUARDO v. BANK OF AMERICA

Filed 4/27/06 (opn. on rehearing)

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

APPEAL from a judgment of the Superior Court of Los Angeles County. Victor H. Person, Judge. Affirmed.

Daar & Newman and David Daar for Plaintiffs and Appellants.

Barton, Klugman & Oetting and Robert Louis Fisher for Defendant and Respondent.

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Appellants Eduardo Gil (Eduardo) and Rafael Gil (Rafael) appeal from a judgment entered after the trial court granted the demurrer of respondent Bank of America, National Association (Bank) to their second amended complaint. We are asked to determine whether the California Uniform Commercial Code supersedes a payee's common law cause of action for negligence where the collecting bank accepts a check with a missing indorsement. We hold that the negligence cause of action stated here is subsumed in a conversion action dictated by the California Uniform Commercial Code. The judgment of the trial court is affirmed.

CONTENTIONS

Appellants contend that the trial court erred in granting Bank's demurrer because: (1) the California Uniform Commercial Code does not supersede common law negligence claims where Bank paid on a check with a missing indorsement; (2) under the California Uniform Commercial Code, Bank is liable for conversion; and (3) appellants stated a cause of action for misrepresentation.

FACTS AND PROCEDURAL BACKGROUND

Appellants filed the operative second amended complaint (SAC) on October 4, 2004, against Bank and other defendants[1] for, among other causes of action, misrepresentation, negligence, and conversion.[2]

The SAC alleged the following. Eduardo and his son Rafael, owned a house in Whittier, which was damaged by fire in January 2002. In response to appellants' claim, on March 7, 2002, Allstate Insurance Company (Allstate) drew a check on its account at Bank, in the amount of $50,463.53 made payable to Eduardo, Washington Mutual, and insurance adjuster Claims West Adjusters (the check). Washington Mutual was the lender-lienholder of the Whittier residence. J. Reyes Construction Company (Reyes) contracted with appellants to repair the Whittier residence. Allen Connette (Connette), an employee of Claims West Adjusters, and Marco Galindo (Galindo), an employee of Reyes, falsely represented to Eduardo that upon Eduardo's indorsement, they would present the check to Washington Mutual. After Eduardo indorsed the check, it was accepted by Bank and deposited into Reyes's account at a branch of Bank, without the indorsement of Washington Mutual. Reyes failed to repair the Whittier residence and abandoned the project.

The SAC alleged that as part of a fraudulent scheme, Ezequivel Montejano (Montejano), Bank's branch manager, established a practice of accepting fire insurers' checks and depositing them into Reyes's account at Bank, without the necessary indorsements by lienholder financial institutions named as payees. This happened on at least four separate occasions. The SAC alleged that by accepting the check without the indorsement of Washington Mutual, Bank was negligent and also committed conversion within the meaning of California Uniform Commercial Code section 3420.

Bank paid Washington Mutual $50,463.53 in 2004. Appellants alleged that they suffered consequential and special damages, which included giving up the family home.

On December 16, 2004, the trial court granted Bank's demurrer to appellants' SAC.

This appeal followed.

DISCUSSION

I. Standard of Review

The appellate court assumes the truth of all properly pleaded material allegations of the complaint, and gives â€