Blackmon v. Hale

• Decision Date: 15 January 1970
• Citation: 463 P.2d 418,1 Cal.3d 548,83 Cal.Rptr. 194
• Court: California Supreme Court
• Parties: , 463 P.2d 418 Thomas L. BLACKMON, Plaintiff and Appellant, v. Louis H. HALE et al., Defendants and Respondents. L.A. 29674.

Page 194

83 Cal.Rptr. 194

1 Cal.3d 548, 463 P.2d 418

Thomas L. BLACKMON, Plaintiff and Appellant, v. Louis H. HALE et al., Defendants and Respondents.

L.A. 29674.

Supreme Court of California In Bank.

Jan. 15, 1970.

Max Fink and Victor Sherman, Beverly Hills, for plaintiff and appellant.

Matthew L. Hatfield, Lancaster, Robert H. Fabian, Harris B. Taylor, Peter J. Demos, Swanwick, Donnelly & Proudfit, Donald O. Welton and Michael M. Gless, Los Angeles, for defendants and respondents.

TRAYNOR, Justice.

Plaintiff Blackmon appeals from a judgment in favor of defendants Hale, Lee, United California Bank, and Bank or America entered in an action to recover.$23,500 plus interest. He sought to recover this sum from defendants on the ground that each of them was liable for the failure of defendant Adams to repay plaintiff.$23,500 that plaintiff entrusted to Adams. A default judgment against Adams is not involved in this appeal.

In July 1961 James C. Adams, an attorney, undertook to represent plaintiff in the latter's proposed purchase of a note and mortgage on real property in Nevada, owned by H. H. Records. Plaintiff went to Adams at the suggestion of Records. At that time Adams practiced law in Lancaster in partnership with defendant Hale under the name of Adams and Hale. The two attorneys had been partners since 1952. From November 1958 to May 1961 they had a third partner, defendant Lee, and during that period the three practiced law under the name of Adams, Hale, and Lee. On May 31, 1961, Lee withdrew from the firm. Adams and Hale continued the practice under the name Adams and Hale until they dissolved the firm on August 31, 1961.

About the middle of July 1961 Adams told plaintiff that funds would be needed to make an offer for the Nevada note and mortgage. Plaintiff testified that he told Adams that he would put up the money, but he wanted the money placed in a trust account so that it would be available when needed. If the offer was not accepted, the money was to be returned. Adams instructed plaintiff to make a check payable to Adams and Hale Trust Account and said 'in this manner that he could offer this money to these people and it would be available.' On August 17 plaintiff purchased a cashier's check for $24,500 from the Bank of America, payable to the order of Adams and Hale Trust Account and mailed the check to Adams. On August 18 Adams endorsed the check 'Adams and Hale Trust Account by J. C. Adams.' Below that endorsement was rubber stamped 'Pay to the order of California Bank; Adams, Hale and Lee Trust Account.' The check was deposited in the Adams, Hale, and Lee Trust Account at the California Bank in Lancaster.

During the existence of the Adams, Hale, and Lee partnership the firm maintained a trust account at the California Bank, which later became the United California Bank, in the name of Adams, Hale, and Lee Trust Account. Withdrawals from the account were authorized on the signature of Hale alone or on the joint signatures of Adams and Lee. After Lee left the firm on May 31, Adams and Hale continued to use the same account under the same name for the deposit of trust moneys and did not open a separate trust account under the name of Adams and Hale. Before 1958 they had a trust account in the name of Adams and Hale at the same branch of the California Bank, but for several years that account had been either dormant or closed.

On August 31 Adams and Hale dissolved their partnership. On September 6 Adams asked Hale to sign a check for $21,386 drawn on the Adams, Hale, and Lee Trust Account and payable to the J. C. Adams Trust Account. Hale signed the check and delivered it to Adams. Adams used the check to open a new account at the Security First National Bank under the name of J. C. Adams Trust Account. Over the next four months he diverted this money to his own use.

Apparently plaintiff's proposed purchase of the note and mortgage was never carried out, and in due course plaintiff demanded the return of his $24,500. In April 1962 Adams paid plaintiff $1,000, leaving a balance due of.$23,500.

The Banks' Liability

Plaintiff seeks to hold the banks liable on three theories. He first contends that the cashier's check for $24,500 could lawfully be deposited only in the Adams and Hale Trust Account. Since the check was made payable in that name, he urges that the California Bank is liable to him for depositing the check in the Adams, Hale, and Lee Trust Account and that the Bank of America is liable to him for paying the check on the endorsement of the Adams, Hale, and Lee Trust Account.

Plaintiff analogizes the designation of the Adams and Hale Trust Account as the payee to a restrictive endorsement that precludes the endorsee form negotiating the instrument contrary to the restriction. (See Civ.Code, § 3117; superseded by Com.Code, §§ 3204--3206.) The check, however, was credited to the precise account for which it was intended at the time it was drawn. Plaintiff testified that he wanted the money deposited in a trust account where it would be available when needed. No specific account was designated until Adams instructed plaintiff to make the check payable to the Adams and Hale Trust Account. The destination of the check was intended by both parties, however, to be the trust account used by Adams and by the firm of Adams and Hale for the deposit of trust moneys. That trust account was the Adams, Hale, and Lee Trust Account. The incompleteness and irregularity of the name of the payee was inconsequential, for the check reached its intended destination. Plaintiff was not injured by the deposit of the funds in the Adams, Hale, and Lee Trust Account instead of the Adams and Hale Trust Account.

Plaintiff next contends that the banks are liable for payment of the check on an ineffective endorsement. He urges that the signatures of both Adams and Hale were required. The check was endorsed Adams, Hale, and Lee Trust Account, the account for which the money was intended. It was also endorsed Adams and Hale Trust Account, by J. C. Adams. Although either Hale's signature or the signatures of both Adams and Lee were required to withdraw funds from the Adams, Hale, and Lee Trust Account, there is no evidence that the stamped endorsement was not authorized to effect a deposit in the trust account. The banks are not liable for carrying out the intention of plaintiff and Adams by relying on the stamped endorsement in depositing the check. ¹

Plaintiff finally contends that the California Bank had constructive notice of a possible misappropriation of trust funds when the proceeds of the cashier's check were deposited in an account with a name different from that of the payee, and that therefore the bank should have required the signatures of all the trustees of the Adams, Hale, and Lee Trust Account before allowing withdrawal of money from that account.

If a deposit is made in a bank to the credit of a person as trustee, the bank is charged with notice that the funds are received in a fiduciary capacity. (United States Fidelity & Guaranty Co. v. First Nat. Bank (1912) 18 Cal.App. 437, 440, 123 P. 352; Keeney v. Bank of Italy (1917) 33 Cal.App. 515, 518--519, 165 P. 735.) The bank is not liable for the misappropriation of trust funds by the trustee, however, unless the bank has knowledge, actual or constructive, of such misappropriation. (Lynch v. Wells Fargo Bank & Union Trust Co. (1931) 114 Cal.App. 565, 572--573, 300 P. 74; Southern Trust & Commerce Bank v. San Diego Savings Bank (1922) 60 Cal.App. 215, 219, 212 P. 385.) Since the bank properly deposited plaintiff's money in the Adams, Hale and Lee Trust Account, that act did not as a matter of law put the bank on notice of a possible misappropriation. The record reveals no other fact that would give the requisite notice. 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. So long as the checks drawn on the account are signed in conformity with the signature card, and absent any knowledge of a misappropriation, the bank is free from liability for honoring a check drawn in breach of trust. (Fin.Code, §§ 952, 953; Desert Bermuda Properties v. Union Bank (1969) 265 Cal.App.2d 146, 150--153, 71 Cal.Rptr. 93.)

The trial court correctly concluded that plaintiff failed to establish any basis for imposing liability on either of defendant banks.

Hale's Liability

At the time Adams received the cashier's check for $24,500 payable to the Adams and Hale Trust Account he was practicing law in partnership with defendant Hale. Adams deposited the check in the firm's trust account, and thereafter secured $21,386 from that account by means of a check signed by Hale. Hale's liability for Adams' misappropriation of plaintiff's money must be determined in the context of the two capacities in which Hale acted, namely, as a partner of Adams and as a cotrustee of the funds deposited in the trust account.

Hale's liability as a partner is governed by the Uniform Partnership Act. (Corp.Code, §§ 15001--15045.) Corporation Code, section 15014 provides that 'The partnership is bound to make good the loss: (a) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (b) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership.' Section 15015 provides that each partner is jointly and severally liable for everything chargeable to the partnership under section 15014. Accordingly, if Adams received plaintiff's money while acting within the scope of his apparent authority or the partnership received the money in the course of its business, Hale is jointly and severally liable for plai...