Blackmon v. Hale

• Decision Date: 05 June 1969
• Citation: 78 Cal.Rptr. 569
• Court: California Court of Appeals Court of Appeals
• Parties: 6 UCC Rep.Serv. 816 Thomas L. BLACKMON, Plaintiff and Appellant, v. Louis H. HALE et al., Defendants and Respondents. Civ. 32470.

Page 569

78 Cal.Rptr. 569

6 UCC Rep.Serv. 816

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

Civ. 32470.

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

June 5, 1969.

As Changed June 19, 1969.

For Opinion on Hearing, see 83 Cal.Rptr. 194, 463 P.2d 418.

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

Matthew L. Hatfield, Lancaster, for respondent Hale.

Robert H. Fabian, Harris B. Taylor and Peter J. Demos, Los Angeles, for respondent Bank of America National Trust and Savings Association.

Swanwick, Donnelly & Proudfit, Donald O. Welton and Michael M. Gless, Los Angeles, for respondent United California Bank.

FLEMING, Associate Justice.

Blackmon appeals that part of a judgment in favor of defendants Hale, Lee, United California Bank, and Bank of America on his suit to recover $23,500. The validity of his judgment for $23,500 against defendant Adams is not contested.

In July 1961 Adams, an attorney, undertook to represent Blackmon in the latter's proposed purchase of a note and mortgage on real property in Nevada. At that time Adams practiced law in Lancaster in partnership with defendant Hale under the name Adams and Hale. The two attorneys had been partners since 1952, but from November 1958 to May 1961 they had had a third partner, defendant Lee, and during that period the three practiced law under the name Adams, Hale and Lee. On 31 May Lee withdrew from the firm, and Adams and Hale continued the practice under the name Adams and Hale. Neither the firm of Adams and Hale nor the firm of Adams, Hale and Lee conducted any business other than the practice of law.

About the middle of July 1961 Adams told Blackmon he would need funds to make an offer for the Nevada mortgage. Blackmon said he would put up the money, but he wanted it placed in a trust account so it would be available for the offer, would remain there until accepted, and be returned if not used. Adams instructed him to make out a check 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.' Thereafter, on 17 August, Blackmon purchased a cashier's check for $24,500 from Bank of America in Bellflower, payable to the order of Adams and Hale Trust Account, and mailed it to Adams in Lancaster. On 18 August the check was endorsed 'Adams and Hale Trust Account, by J. C. Adams, partner,' endorsed 'Adams, Hale and Lee Trust Account,' and 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 California Bank in the name 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's departure from the firm on 31 May, 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 Adams and Hale. Prior to 1958 they had had a trust account in that name at the California Bank, but for several years that account had been either dormant or closed.

On 31 August the partnership of Adams and Hale was dissolved. Thereafter on 6 September Adams sought Hale's signature on a check for $21,386 drawn on the Adams, Hale and Lee Trust Account and payable to J. C. Adams Trust Account. This check represented over 80 per cent of the money in the Adams, Hale and Lee Trust Account. After some conversation between the two attorneys, the nature of which we do not know, Hale signed the check and delivered it to Adams. With this check for $21,386 the latter opened a new account at Security First National Bank under the name, J. C. Adams Trust Account, and over the next four months diverted this money to his own use. Nothing was paid on the real estate mortgage purchase for which the money had been put up, and in due course Blackmon demanded his $24,500 back. He received $1,000 from Adams in April 1962, but the balance of $23,500 remained unpaid.

At the time of trial Adams did not appear, and judgment went against him by default. Blackmon testified he did not know Hale, that he had not been a client of the law firm of Adams and Hale, or of Adams, Hale and Lee.

Liability of the Banks

Blackmon sought judgment against California Bank (now United California Bank) and Bank of America on the theory that a cashier's check payable to the order of Adams and Hale Trust Account could only be deposited in an account of the same name; alternatively, that the signatures of both Adams and Hale as co-trustees were required for an effective endorsement of the check; and alternatively, that the depositary bank had constructive notice of possible misappropriation by the individual defendants. We think each of these theories is wholly inapposite to the facts of the case.

It clearly appears that the cashier's check was credited to the precise account for which it was intended at the time the check was drawn and that Blackmon's money found its way into the account to which both Blackmon and Adams intended it should go. The incompleteness or irregularity of the name of the payee of a check is inconsequential if the check reaches its intended destination. Obviously, the destination here was the trust account used by Adams and by the firm of Adams and Hale for the deposit of trust moneys, and it is immaterial that the account carried the slightly different designation of Adams, Hale and Lee Trust Account. We think the views expressed by Justice Moore in a slightly different context in Schweitzer v. Bank of America, 42 Cal.App.2d 536, 540-544, 109 P.2d 441, 444, completely dispose of this first contention: 'The reason for the rule is that the drawer intended the check to be endorsed by the identical person to whom it was delivered. Under such circumstances the drawee bank is to be protected when it has paid the check upon such endorsement. [Citations.] The soundness of the rule obtains in the fact that the money has actually been paid to the person for whom it was really intended. * * * While a name may serve to identify an individual, yet if the check was received by the identical person to whom the drawer intended to deliver it, and was by that person endorsed with the name to which it was made payable, the bank owed no further obligation with reference to it. [Citation.]'

The second theory of bank liability, lack of an effective endorsement, is rebutted by the fact that the cashier's check was properly endorsed by Adams, Hale and Lee, who were the representatives of the account for which the check was intended. Additionally, California Bank in the exercise of due care obtained an additional endorsement on the check from Adams appropriate to the closed or dormant Adams and Hale Trust Account. We do not emphasize this additional endorsement, however, for we think the Adams, Hale and Lee endorsement fully served the purpose of depositing the money in that particular account.

On this point some slight digression is appropriate, for the trial court, as well as defendant banks, concluded that since the cashier's check was payable to an account and not to an individual it became a bearer instrument which needed no endorsement. We do not agree with this view, for we look on the check as an order instrument payable to the order of those persons authorized to deposit and withdraw from the particular account involved. (Pacific Indemnity Co. v. Security First Nat. Bank, 248 Cal.App.2d 75, 86-93, 56 Cal.Rptr. 142; Commercial Code, section 3110(1)(e).) ¹ While the Commercial Code did not become effective in California until 1 January 1965 and therefore has no direct application to this case, we think the rule it sets forth has always been good law. (Young v. Hembree, (1937), 181 Okl. 202, 73 P.2d 393.) In Scala v. Miners' & Merchants' Bank, 64 Colo. 185, 171 P. 752, the Supreme Court of Colorado held that a check payable to 'The Royal Consulate of Italy' was payable to order and not to bearer because it designated the payee with reasonable certainty. To the same effect is the statement in 1 Witkin, Summary of California Law, page 584: 'But where an instrument is made payable to the order of 'Estate of X,' the term is intended as an abbreviated designation of the executor or administrator, and it should be considered order paper.'

The third theory of bank liability is that the depositary bank should make good any misappropriation of trust money by the individual defendants because the deposit in an Adams, Hale and Lee Trust Account rather than in an Adams and Hale Trust Account gave the bank constructive notice of possible misappropriation. Thereafter, according to this theory, the bank should have required the signatures of all trustees of the Adams, Hale and Lee Trust Account before permitting withdrawals from that account. But a bank is authorized to honor withdrawals from an account on the strength of the signatures authorized by the signature card, which serves as the contract between the depositor and the bank for the handling of the account. Sections 952 and 953 of the Financial Code relieve the bank from liability for honoring a check drawn on an account in breach of a trust but in compliance with the signature card. (Desert Bermuda Properties v. Union Bank, 265 A.C.A. 163, 167-170, 71 Cal.Rptr. 93.) If the bank had no actual knowledge of a breach of trust, it cannot be held liable to the beneficiary of the trust on a theory of improper endorsement or withdrawal when the endorsement or withdrawal was authorized by the signature card. (United States Fidelity & Guaranty Co. v. First Nat. Bank, 18 Cal.App. 437, 123 P. 352.) In the present case there was no evidence whatsoever of any knowledge by the bank of a breach of trust.

We conclude that the basis for any liability of the banks is wholly lacking, that the finespun...