Bullis v. Security Pac. Nat. Bank

CourtUnited States State Supreme Court (California)
Citation582 P.2d 109,148 Cal.Rptr. 22,21 Cal.3d 801
Decision Date10 August 1978
Parties, 582 P.2d 109, 7 A.L.R.4th 642 William M. BULLIS, as trustee, etc., et al., Plaintiffs and Respondents, v. SECURITY PACIFIC NATIONAL BANK, Defendant and Appellant. L.A. 30711.

Sheppard, Mullin, Richter & Hampton, Pierce T. Selwood and Thomas C. Nelson, Los Angeles, for defendant and appellant.

Schurmer, Drane, Bullis & McCarthy, Walter H. Drane, Ellis J. Horvitz and Arthur E. Schwimmer, Encino, for plaintiff and respondent.

BIRD, Chief Justice.

Security Pacific National Bank appeals a judgment for damages in favor of respondents, heirs of the estate of Florence McNaghten. This court must decide whether a bank's failure to require the signatures of both of an estate's co-executors for withdrawals from an estate account was sufficient to hold the bank liable for misappropriations from that account by one of the executors.

I

Florence Edna Letts McNaghten died in July 1966, having named Ann McNaghten Booth, decedent's daughter, and Edward Lampe, decedent's long-time financial advisor and accountant, as co-executors to administer her estate. Letters testamentary were subsequently issued to them by the probate court.

In August 1966, Booth and Lampe decided to open a checking account for the estate, but failed to discuss whether the signatures of one or both executors would be required to effect withdrawals. Lampe volunteered to open the account. He went to Security Pacific National Bank and presented a certified copy of the letters testamentary appointing Booth and himself as co-executors. Lampe then signed a signature card establishing a checking account for the "Estate of Edna L. McNaghten." A second card was mailed to Booth for her signature. Lampe did not discuss with any bank official whether one or both signatures would be necessary to make withdrawals.

A bank official wrote on Lampe's card that he was a "coexecutor." Booth's name was inserted in parentheses beneath Lampe's signature, with a notation to "see attached card." Booth returned the completed signature card and the bank stapled it to Lampe's signature card. Both signature cards stated that "(t)his account shall be governed by applicable banking laws, customs and Clearing House regulations . . . ."

In its operations manual, the bank specifically required that if there were two executors for an estate, the signatures of both executors were ordinarily necessary for any withdrawal. 1 To implement this requirement, such accounts were to be "flagged" by placing a stamp on each signature card indicating that more than one signature was needed. 2 If two signatures were not to be required, the bank's legal department was to be consulted. The manual also directed that new accounts be reviewed by a supervisory officer to assure that the correct procedure had been followed.

Notwithstanding these directives, no cautionary notation was placed on the signature cards for the McNaghten estate to alert bank officials that both signatures were necessary. Further, there was no evidence that appellant's legal department was consulted as required by the bank's operations manual.

Between August 1966 and October 1970, Lampe withdrew hundreds of thousands of dollars from the estate account with checks bearing only his signature. During this time, he misappropriated almost $250,000, personally investing it in a mining venture. An additional $34,000 was improperly distributed to one of the decedent's heirs without prior court approval.

Booth did not discover these misappropriations since the bank sent the cancelled checks and statements only to Lampe. Further, Lampe was able to manipulate the estate's financial records and successfully conceal the defalcations from the attorneys who prepared the estate's accountings. However, in October 1970 the mining venture failed and Lampe was forced to admit the unauthorized withdrawals. This action was promptly filed against the bank by co-executor Booth. 3

At a court trial, the bank was found liable on three separate grounds for the loss represented by each improper withdrawal from the estate account. The court found the failure of the bank to require the signatures of both co-executors on each withdrawal from the estate checking account breached the bank's common law duty to use reasonable care in its conduct with its depositors. Probate Code section 570 was also held to require both signatures to effect withdrawals. 4 Finally, the court found that the bank breached its deposit contract with the estate since that contract incorporated all "applicable banking . . . customs . . ." and custom required the signatures of both co-executors for withdrawals.

Since respondents' suit was timely filed under Code of Civil Procedure section 348, 5 damages were awarded in the amount of the unauthorized withdrawals. 6 The court also awarded prejudgment interest under Civil Code sections 3287, subdivision (a), and 3288 on each unauthorized withdrawal from the date of the withdrawal. 7 The bank appeals from this judgment for $317,008.35. 8

II

The trial court found that appellant breached its common law duty to act with reasonable care when it permitted Lampe to withdraw funds from the estate account without Booth's signature. Appellant clearly had a duty to act with reasonable care in its transactions with its depositors, including the McNaghten estate. (See, e. g., Pac. Coast Cheese, Inc. v. Sec. First Nat. Bk. (1955) 45 Cal.2d 75, 79, 286 P.2d 353; Basch v. Bank of America (1943) 22 Cal.2d 316, 321, 139 P.2d 1; Barclay Kitchen, Inc. v. California Bank (1962) 208 Cal.App.2d 347, 25 Cal.Rptr. 383.) This court must decide whether the trial court correctly determined that a bank acting with reasonable care would have required both signatures to effect withdrawals from the estate's account.

The trial court's determination that appellant did not act in accordance with the applicable standard of care, including implicit findings on the "questions of causality, foreseeability and reasonableness," was a finding of fact. (Ewing v. Cloverleaf Bowl (1978) 20 Cal.3d 389, 399, 143 Cal.Rptr. 13, 18, 572 P.2d 1155, 1159; Acosta v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 19, 27, 84 Cal.Rptr. 184, 465 P.2d 72.) Consequently, this court's review is limited to determining whether "there is any substantial evidence, contradicted or uncontradicted, which will support the conclusion reached by the (trial court)." (Weirum v. RKO General, Inc. (1975) 15 Cal.3d 40, 46, 123 Cal.Rptr. 468, 472, 539 P.2d 36, 40. See Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925, 101 Cal.Rptr. 568, 496 P.2d 480; Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881, 92 Cal.Rptr. 162, 479 P.2d 362.)

The standard of care required in a particular circumstance may be based on a statute (see, e. g., Evid.Code, § 669) or the custom and practice in the relevant community. (Perumean v. Wills (1937) 8 Cal.2d 578, 583, 67 P.2d 96; see 4 Witkin, Summary of Cal.Law (8th ed. 1974) Torts, § 498, pp. 2764-2765 and cases cited.) While the custom in the community does not necessarily establish how a reasonable person must act, it is evidence to be considered in determining the proper standard of care. (Polk v. City of Los Angeles (1945) 26 Cal.2d 519, 531-532, 159 P.2d 931; Prosser, Torts (4th ed. 1971) § 33, pp. 166-168; Rest. 2d Torts, § 295A.) 9

Evidence of the customer and practice in the banking industry of the number of signatures required for co-executors to withdraw funds from an estate checking account was presented at trial. Testimony as to the practice of some of the state's largest banks and numerous local banks in the Los Angeles area was presented. In each case, the bank required two signatures to withdraw funds.

Appellant's operations manual, which was regarded as a "bible," also required two signatures for withdrawals. (See fn. 1, Ante.) To ensure that this procedure was uniformly followed, the manual required that a cautionary notation be stamped on each signature card and that each new account be reviewed by a supervisory bank officer. (See fn. 2, Ante.) Exceptions were to be made only after consulting appellant's legal department. One of appellant's employees testified that these procedures were generally followed.

The letters testamentary presented to appellant by Lampe identified both Booth and Lampe as the co-executors of the McNaghten estate. Each co-executor completed a signature card, which appellant stapled together and retained. The bank's legal department was not consulted about deviating from the prescribed procedure for withdrawals. Nevertheless, neither Lampe's nor Booth's signature card was stamped to alert bank personnel that both signatures were required for withdrawals. This clear deviation from appellant's own written procedures and accepted practice permitted funds to be withdrawn with a single signature.

The trial court also took judicial notice of Probate Code section 570 in determining how a reasonable bank would handle an estate account administered by two co-executors. (See fn. 4, Ante.) Probate Code section 570 provides that one of two co-executors may act alone Only if the other co-executor is absent from the state or legally disqualified from acting. By expressly providing that unilateral action is effective only in those limited circumstances, the statute clearly implies that action under any other circumstance must be undertaken jointly. 10 This interpretation of section 570 has been implicitly assumed in a number of decisions by this court and has been approved by leading commentators. (See, e. g., Winder v. Winder (1941)18 Cal.2d 123, 125, 114 P.2d 347; Wheeler v. Bolton (1880) 54 Cal. 302, 306; 1 Goddard, Cal.Probate Court Practice (3d ed. 1977) § 663, p. 571; 7 Witkin, Summary of Cal.Law (8th ed. 1974) Wills and Probate, § 318, p. 5803; 2 Bancroft, Probate Practice (2d ed. 1950) § 376, p. 382.) 11

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