Blackmon v. Hale

CourtUnited States State Supreme Court (California)
Writing for the CourtTRAYNOR
Parties, 463 P.2d 418 Thomas L. BLACKMON, Plaintiff and Appellant, v. Louis H. HALE et al., Defendants and Respondents. L.A. 29674.
Decision Date15 January 1970

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.

Page 196

[463 P.2d 420] [1 Cal.3d 553] 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 [1 Cal.3d 554] 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

Page 197

[463 P.2d 421] 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[1 Cal.3d 555] 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

Page 198

[463 P.2d 422] 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 [1 Cal.3d 556] 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...

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70 practice notes
  • Fujimoto v. Au, No. 22406.
    • United States
    • Supreme Court of Hawai'i
    • February 22, 2001
    ...the process of, the business of the partnership will subject the general partners to liability to creditors. (See Blackmon v. Hale (1970) 1 Cal.3d 548, 83 Cal.Rptr. 194, 463 P.2d 418; innocent partner in law firm liable for misappropriation of client trust funds by co-partner). However, the......
  • Pco, Inc. v. Christensen, Miller, Fink, No. B189856.
    • United States
    • California Court of Appeals
    • April 30, 2007
    ...course of business of the partnership or with authority of the partnership." (Corp.Code, § 16305, subd. (a); Blackmon v. Hale (1970) 1 Cal.3d 548, 557, 83 Cal.Rptr. 194, 463 P.2d 418; Black v. Sullivan (1975) 48 Cal.App.3d 557, 569, 122 Cal.Rptr. 119; 1 Mallen & Smith, Legal Malpra......
  • Rallis v. Cassady, No. B127047.
    • United States
    • California Court of Appeals
    • October 24, 2000
    ...Sons, Inc. (1986) 41 Cal.3d 962, 967, 227 Cal.Rptr. 106, 719 P.2d 676; former Corp.Code, §§ 15013 & 15015;18 Blackmon v. Hale (1970) 1 Cal.3d 548, 557, 83 Cal.Rptr. 194, 463 P.2d 418.) After the attorney leaves the firm, malpractice liability persists as to both the attorney and the fir......
  • Perdue v. Crocker National Bank, S.F. 24591
    • United States
    • United States State Supreme Court (California)
    • July 18, 1985
    ...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.) Other Cali......
  • Request a trial to view additional results
70 cases
  • Fujimoto v. Au, No. 22406.
    • United States
    • Supreme Court of Hawai'i
    • February 22, 2001
    ...the process of, the business of the partnership will subject the general partners to liability to creditors. (See Blackmon v. Hale (1970) 1 Cal.3d 548, 83 Cal.Rptr. 194, 463 P.2d 418; innocent partner in law firm liable for misappropriation of client trust funds by co-partner). However, the......
  • Pco, Inc. v. Christensen, Miller, Fink, No. B189856.
    • United States
    • California Court of Appeals
    • April 30, 2007
    ...course of business of the partnership or with authority of the partnership." (Corp.Code, § 16305, subd. (a); Blackmon v. Hale (1970) 1 Cal.3d 548, 557, 83 Cal.Rptr. 194, 463 P.2d 418; Black v. Sullivan (1975) 48 Cal.App.3d 557, 569, 122 Cal.Rptr. 119; 1 Mallen & Smith, Legal Malpra......
  • Rallis v. Cassady, No. B127047.
    • United States
    • California Court of Appeals
    • October 24, 2000
    ...Sons, Inc. (1986) 41 Cal.3d 962, 967, 227 Cal.Rptr. 106, 719 P.2d 676; former Corp.Code, §§ 15013 & 15015;18 Blackmon v. Hale (1970) 1 Cal.3d 548, 557, 83 Cal.Rptr. 194, 463 P.2d 418.) After the attorney leaves the firm, malpractice liability persists as to both the attorney and the fir......
  • Perdue v. Crocker National Bank, S.F. 24591
    • United States
    • United States State Supreme Court (California)
    • July 18, 1985
    ...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.) Other Cali......
  • Request a trial to view additional results

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