Clarke v. Pub. Nat. Bank & Trust Co. of New York

• Decision Date: 01 June 1932
• Citation: 181 N.E. 574,259 N.Y. 285
• Parties: CLARKE v. PUBLIC NAT. BANK & TRUST CO. OF NEW YORK.
• Court: New York Court of Appeals Court of Appeals

259 N.Y. 285

181 N.E. 574

CLARKE

v.PUBLIC NAT. BANK & TRUST CO. OF NEW YORK.

Court of Appeals of New York.

June 1, 1932.

Action by Richard H. Clarke, as substituted committee of the estate of David Rosenhaus, an incompetent, against the Public National Bank & Trust Company of New York, formerly known as the Public National Bank of New York. From a judgment of the Appellate Division (234 App. Div. 55, 254 N. Y. S. 201), reversing on the law and facts a judgment of the Trial Term on a directed verdict for defendant, a jury having been waived, and directing judgment for plaintiff, defendant appeals.

Reversed, and judgment of the Trial Term affirmed.

Appeal from Supreme Court, Appellate Division, First Department.

Sam L. Cohen and Felix A. Fishman, both of New York City, for appellant.

Richard H. Clarke and Nicholas A. Donnelly, both of New York City, substituted committee, respondent, in person.

LEHMAN, J.

Louis Rosenhaus was appointed, in 1919, committee of the estate of his son David Rosenhaus, who was adjudged an incompetent. In January, 1926, Louis Rosenhaus was removed as such committee by order of the Supreme Court, and this plaintiff appointed substituted committee in his stead. Louis Rosenhaus thereafter filed his accounts showing that as committee he had received from the United States government ‘compensation awards' in the sum of $7,845.16, and ‘insurance awards' in the sum of $4,887.50, making a total of $12,732.66. The order appointing the committee directed him to deposit in the Empire Trust Company all funds which may come into his possession. In 1923 Louis Rosenhaus opened an individual deposit account in the defendant bank in his own name. Between November, 1923, and November, 1925, the committee received twenty-six monthly checks made out to the order of ‘Louis Rosenhaus, Committee of David Rosenhaus,’ or, in a few instances, to ‘Louis Rosenhaus, Guardian of David Rosenhaus.’ They showed on their face that they were sent by the Veterans' Bureau for war insurance. Between April 1, 1924, and December, 1925, the committee also received twenty-one similar monthly checks from the Bureau for disability compensation. The bank accepted these checks from Rosenhaus for deposit in his individual account or in a few instances for deposit in the account of another individual. On the ground that the defendant bank thereby aided the committee in appropriating to his own use moneys received in a fiduciary capacity for the incompetent, the plaintiff, as substituted committee, has recovered judgment against the bank for the amount of all checks so received, aggregating the sum of $3,600.57, with interest.

We may assume that the checks on their face gave notice to the bank that they were received by Louis Rosenhaus in a fiduciary capacity for an incompetent veteran. Even so, deposit by the fiduciary in his individualaccount would not itself constitute a conversion. ‘Trust funds do not lose their character as such by being deposited in a bank for the individual credit and account of the person who is trustee.’ ‘A fiduciary may legally deposit the trust funds in a bank to his individual account and credit. Knowledge on the part of the bank of the nature of the funds received and credited does not affect the character of the act. The bank has the right to presume that the fiduciary will apply the funds to their proper purposes under the trust.’ Bischoff v. Yorkville Bank, 218 N. Y. 106, 111,112 N. E. 759, 761, L. R. A. 1916F, 1059. Thus to establish the plaintiff's cause of action there must be proof that the original committee did not thereafter apply the funds, deposited in his individual account, ‘to their proper purposes under the trust,’ and that the defendant had notice or knowledge, not only that the moneys were received for a trust purpose, but also that they were diverted from that purpose. We find no such proof in this record.

It is true that upon the accounting of the original committee the committee was allowed credits of only $478.07 and was ‘surcharged’ with the amount of $12,254.59, the difference between the credits allowed and the moneys received from the United States government from 1919 to 1926. Judgment for the amount of the surcharge against the committee was recovered, and $1,500 was collected on the surety company bond filed by the committee. Otherwise no substantial amount has been collected. We may, for the moment, disregard the fact that the defendant bank was not a party to the accounting proceeding or to any proceeding or action brought against the original committee, for even against the original committee the decrees and judgment establish only that the committee failed to show by satisfactory proof, fortified by proper vouchers, the amount that he did actually expend for the incompetent. Indeed, the referee...