Bank of America Nat. Trust & Sav. Ass'n v. Ryan

• Decision Date: 19 September 1962
• Court: California Court of Appeals Court of Appeals
• Parties: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a National Banking Association, Plaintiff and Respondent, v. John A. RYAN et al., Defendants and Appellants. Civ. 25829.

Page 739

24 Cal.Rptr. 739

207 Cal.App.2d 698

BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a National Banking Association, Plaintiff and Respondent, v. John A. RYAN et al., Defendants and Appellants.

Civ. 25829.

District Court of Appeal, Second District, Division 2, California.

Sept. 19, 1962.

Hearing Denied Nov. 13, 1962.

N. E. Youngblood, Beverly Hills, for appellants.

Hugo A. Steinmeyer, Gibson, Dunn & Crutcher, Sherman Welpton, Jr., F. Lee Coulter, Jr., Los Angeles, for respondent.

FOX, Presiding Justice.

Plaintiff bank brought this suit to impose a constructive trust upon certain assets standing in the name of the Ryans and for an accounting. Plaintiff alleges, in effect, that during the time defendant John A. Ryan ¹ was an officer of plaintiff bank he occupied a confidential and fiduciary relationship with and to the bank and that he violated the duty thus imposed; that he was guilty of fraudulent conduct; and that he was part of a conspiracy with his wife and others to defraud plaintiff. In sum, the bank charges that as a trusted official Ryan induced numerous borrowers from the bank to pay him fees, commissions, gratuities and gifts of substantial value for inducing the bank to approve their applications for loans and for persuading the bank to make the loans in question to such borrowers; and that in other transactions defendant used and personally profited by information that was available to him by reason of his position with and relationship to the bank. The defendants have appealed from an adverse judgment.

In view of some of the arguments that are made, it is important to have a comprehensive and accurate picture of defendant's various positions and responsibilities with plaintiff. The findings provide such a picture. They reveal that defendant went to work for plaintiff in May 1934 and that his connection with the bank was terminated on August 2, 1957. During all of this period he was a full-time employee and agent of the bank in a variety of capacities from teller to supervisor of loans, supervisor of loan development, assistant Vice President and Manager of one of plaintiff's branches. From July 1, 1938 to the termination of his connection with the bank, defendant was 'a trusted officer of plaintiff'. During the five year period from 1937 to 1942 defendant's duties included the making and servicing of real estate loans to individuals but not to contractors and builders. During this period he acquired specialized knowledge in making and servicing such loans. In approximately April 1944 defendant was assigned to special duties by plaintiff at its Los Angeles headquarters which included the investigation of and reporting on matters relating to the making of loans by plaintiff that were insured by the Federal Housing Administration; in May 1946 defendant was appointed a Supervisor of Loan Development. In April 1955 defendant became Assistant Vice President of plaintiff; in June 1957 he was made Manager of the Santa Monica-Vermont Branch.

More specifically, with respect to plaintiff's lending operations it appears that commencing in May 1946 defendant's duties were to review and supervise the making, servicing and collection of loans made by plaintiff through its several branches to persons engaged in the business of building houses in subdivisions. By November 1949 defendant's duties were expanded to receiving and processing applications for loans to finance subdivision building operations. Such duties included discussion of the general terms of such financing with prospective borrowers and with branch managers where the applications were originated; the obtaining and analyzing of credit and other pertinent information, the formation of judgments and recommendations based on such information and analysis, and the submission of such information to other more senior officers of plaintiff who were charged with final decisions in such matters, with his (defendant's) recommendation as to what action should be taken by plaintiff on the application for credit and as to the terms of the proposed credit. The court further found: 'Plaintiff at all times placed trust in and reliance upon said defendant in the performance of his said duties and believed that the information obtained and submitted by said defendant with respect to proposed borrowers was truthful and accurate and believed that recommendations made by said defendant for the granting or withholding of credit and the terms and conditions upon which such credit should be granted were made in good faith by said defendant, and believed that in submitting such applications and recommendations said defendant was motivated solely to protect the best interests of plaintiff in the conduct of its banking business of extending credit,'; also, that 'During all of the time the said John A. Ryan was employed by plaintiff, the plaintiff reposed the utmost faith, confidence and trust in him, believed in and relied upon his honesty and integrity and believed that the said John A. Ryan would deal fairly and honestly with plaintiff in all things and would not abuse the power and authority vested in him * * *' and that during the time defendant was an officer of plaintiff (since July 1, 1938) he 'occupied a confidential relationship with and to plaintiff.'

At the time of defendant's employment on a permanent basis in November 1934 he agreed in writing that he would not use any information that he might receive as an employee of plaintiff for any purpose other than for the advancement of the interests of plaintiff.

In finding V the court stated: 'Said John A. Ryan during his employment by plaintiff embarked upon and effected a scheme, practice and course of conduct beginning in 1944 by which he obtained fees, commissions, gratuities and gifts of substantial value from borrowers and customers of plaintiff as a result of and by virtue of his position with plaintiff and in violation and breach of his position with plaintiff and of his confidential and fiduciary relationship with and to plaintiff, which course of conduct was concealed from plaintiff. Pursuant to the said scheme, practice and course of conduct said John A. Ryan exacted from such borrowers and customers of plaintiff or persuaded them to pay to him or to persons designated by him for his benefit sums of money for his assistance to such borrowers and customers in obtaining loans from plaintiff, * * *'

With respect to Mrs. Ryan's connection with defendant's activities the court found that she had 'full knowledge' of her husband's scheme and practice of obtaining fees, commissions, gratuities and gifts of substantial value from borrowers from plaintiff bank by reason of his position with the bank and in violation of his confidential and fiduciary relation to it, and with such knowledge she connived, colluded and participated with her husband in carrying out and concealing said scheme and practice.

The court further found ² that plaintiff had no knowledge of defendant's said scheme and course of conduct until August 1, 1957.

The initial question is: upon what theory is defendant liable to plaintiff? Reference to a few analogous cases and the principles there developed will be helpful in answering this question. In the early case of Farmers' & Merchants' Bank of Los Angeles v. Downey, 53 Cal. 466, it appears that defendant who was president of the bank loaned bank funds to the purchasers of a certain piece of property. The borrowers executed a note in favor of the bank for the amount of the loan with interest. As a part of the same transaction Downey made an agreement with the borrowers to the effect that he was to have one-sixth of the profits on the purchase and sale of the property. The court held that Downey could not be permitted to retain for himself the profits thus contracted for but must turn them over to the bank. The court stated: 'Upon well-settled principles governing Courts of Equity, the defendant cannot be permitted to retain these profits for himself. They constitute part of the consideration which the borrower paid or agreed to pay in obtaining the loan, and are as clearly the property of the corporation as is the interest accrued and stipulated to be paid on the face of the note itself.' In the course of the opinion the court quoted with approval from Bain v. Brown, 56 N.Y. 285, 288: 'When agents and others, acting in a fiduciary capacity, understand that these rules will be rigidly enforced, even without proof of actual fraud, the honest will keep clear of all dealings falling within their prohibition, and those dishonestly inclined will conclude that it is useless to exercise their wits in contrivances to evade it.'

Broadway Federal Etc. Loan Ass'n v. Howard, 133 Cal.App.2d 382, 285 P.2d 61, was an action by a savings and loan association to recover secret profits made by Howard who was an officer of the association. In that case '[t]he court * * * found that in numerous transactions the lending powers of the association and its powers to purchase loans were employed by Howard in making secret profits; * * *. In order to further conceal from plaintiff his interest, Howard sometimes caused his profit in such transactions to be paid by plaintiff to Avalon [a corporation wholly owned by defendant Howard and his wife]. In other cases he concealed the profit by a check made payable to one of his 'dummies' or caused the check for his profits to be made payable to the seller or to some third person who had no connection with or interest in the transaction, without, however, the payee's knowledge or consent. * * * The court found that Howard, by the same devices as hereinbefore mentioned, procured loans from plaintiff for borrowers and received a fee or commission therefor, but concealed this fact from the association.' (Emphasis added.) In affirming a judgment in favor of the savings and loan association, this court stated: 'It is admitted that during the time...