Rodgers v. Bankers' Nat. Bank
| Decision Date | 17 January 1930 |
| Docket Number | No. 27457-8.,27457-8. |
| Citation | 179 Minn. 197,229 N.W. 90 |
| Parties | RODGERS et al. v. BANKERS' NAT. BANK. |
| Court | Minnesota Supreme Court |
Appeal from District Court, Hennepin County; H. D. Dickinson, Judge. Action by William C. Rodgers, as trustee in bankruptcy of the Radio & Sporting Goods Supply Company, bankrupt, and another, against the Bankers' National Bank. From orders denying its motion for new trial, defendant appeals. Reversed.
Brill & Maslon and Fowler, Carlson, Furber & Johnson, all of Minneapolis, for appellant.
Cobb, Hoke, Benson, Krause & Faegre, Glen S. Stiles, and Claude Krause, all of Minneapolis, for respondents.
Fowler, Carlson, Furber & Johnson and Ralph H. Comaford, all of Minneapolis, for Minnesota Bankers' Ass'n.
The bank has appealed from an order in each of these two cases denying its motion for a new trial.
Raymond L. Henderson was the trustee in bankruptcy of the estate of the Butterfly Confectionery Company, a corporation, from June 17, 1924, until October 21, 1925, when he resigned and Marshall Bartlett is his successor. Raymond L. Henderson also was the trustee in bankruptcy of the estate of the Radio & Sporting Goods Supply Company, a corporation, from June 29, 1925, until October 21, 1925, when he resigned and was succeeded by William C. Rodgers.
From August, 1919, to September, 1925, inclusive, Henderson carried a personal checking account with defendant bank. He occasionally borrowed moderately from the bank. While so acting as such trustee in these two estates, Henderson came into possession of five checks which he deposited in his checking account with the defendant and thereafter checked out the proceeds for unauthorized purposes under circumstances amounting to embezzlement. These checks as delivered to the bank by Henderson were in the form, excluding bank indorsements, and indorsed, as follows:
Exhibit E.
Indorsed on back:
Exhibit H.
Exhibit J.
Exhibit L.
Exhibit N.
Indorsed on back:
"R. L. Henderson Trustee Raymond L. Henderson."
The cashier's check, Exhibit E, belonged to the Butterfly estate and the other four checks belonged to the Radio estate. These two actions are prosecuted by the present trustees of the respective bankrupt estates to charge the bank with liability for the proceeds of these checks.
1. There is much authority for and against liability of a bank for the proceeds of deposits of a fiduciary of his trust funds to his personal account and the dissipation thereof. The authorities which impose liability do so upon the theory that the bank, being charged with constructive notice from the form of the checks deposited plus the deposit thereof to the personal account, assists by affording to the fiduciary the machinery by which he misappropriates the proceeds and without securing adequate assurance of the propriety of the conduct of the fiduciary.
It seems illogical and inexpedient to say that there is a distinction between such a deposit when made by a trustee and one made by an agent. One of the recent cases supporting plaintiff's theory, in which many cases are cited, is McIntosh v. Detroit Savings Bank, 247 Mich. 10, 225 N. W. 628. See also Oklahoma State Bank v. Galion Iron Works & Mfg. Co. (C. C. A.) 4 F.(2d) 337. The numerical weight of authority favors nonliability. 40 Harv. Law Rev. 1077, 1080, and cases there cited; 34 Harv. Law Rev. 469; Empire Trust Co. v. Cahan, 274 U. S. 473, 47 S. Ct. 661, 71 L. Ed. 1158, 57 A. L. R. 921. To this proposition appellant cites: 6 Cal. Law Rev. 171, 173; 10 Minn. Law Rev. 611; 32 Yale Law J. 377; 35 Yale Law J. 854; Gray v. Johnston, L. R. 3 H. L. 1; Shields v. Bank of Ireland (1901) 1 Ir. R. 222; Coleman v. Bucks and O. Union Bank (1897) 2 Ch. 243; Corporation Agencies, Ltd., v. Home Bank of Canada [1927] A. C. 318; Bischoff v. Yorkville Bank, 218 N. Y. 106, 112 N. E. 759, L. R. A. 1916F, 1059; Taylor v. Astor National Bank, 105 Misc. Rep. 386, 174 N. Y. S. 279; Wickenheiser v. Colonial Bank, 168 App. Div. 329, 153 N. Y. S. 1036, affirmed Wickenheiser v. Herring, 224 N. Y. 651, 121 N. E. 898; Corn Exchange Bank v. Manhattan Savings Institution, 105 Misc. Rep. 615, 173 N. Y. S. 799; Mills v. Nassau Bank, 52 Misc. Rep. 243, 102 N. Y. S. 1119; Whiting v. Hudson Trust Co., 234 N. Y. 394, 138 N. E. 33, 25 A. L. R. 1470; Fid. & Dep. Co. v. Queens County Trust Co., 226 N. Y. 225, 123 N. E. 370; Batchelder v. Central Nat. Bank, 188 Mass. 25, 73 N. E. 1024; City of Newburyport v. Spear, 204 Mass. 146, 90 N. E. 522, 134 Am. St. Rep. 652; City of Newburyport v. First Nat. Bank, 216 Mass. 304, 103 N. E. 782; Allen v. Puritan Trust Co., 211 Mass. 409, 97 N. E. 916, L. R. A. 1915C, 518; Allen v. Fourth Nat. Bank, 224 Mass. 239, 112 N. E. 650; Francis H. Kendall et al. v. Fid. Trust Co., 230 Mass. 238, 119 N. E. 861; Eastern Mut. Ins. Co. v. Bank, 260 Mass. 485, 157 N. E. 520; United States Fid. & Guar. Co. v. First Nat. Bank, 18 Cal. App. 437, 123 P. 352; Goodwin v. American Nat. Bank, 48 Conn. 550; Munnerlyn v. Augusta Sav. Bank, 88 Ga. 334, 14 S. E. 554, 30 Am. St. Rep. 159; McDaniel v. Farmers' & Merchants' Bank, 37 Ga. App. 782, 142 S. E. 178; Duckett v. Mechanics' Bank, 86 Md. 400, 38 A. 983, 39 L. R. A. 84, 63 Am. St. Rep. 513; Brookhouse v. Union Pub. Co., 73 N. H. 368, 62 A. 219, 2 L. R. A. (N. S.) 993, 111 Am. St. Rep. 623, 6 Ann. Cas. 675; Interstate Nat. Bank v. Claxton, 97 Tex. 569, 80 S. W. 604, 65 L. R. A. 820, 104 Am. St. Rep. 885; Gate City Bldg. & Loan Ass'n v. Bank, 126 Mo. 82, 28 S. W. 633, 27 L. R. A. 401, 47 Am. St. Rep. 633; Safe-Deposit & Trust Co. v. Bank, 194 Pa. 334, 44 A. 1064; Hood v. Kensington Nat. Bank, 230 Pa. 508, 79 A. 714; United States Fid. & Guar. Co. v. Bank, 77 W. Va. 665, 88 S. E. 109.
We all agree that one who knowingly assists a fiduciary in a breach of duty assumes a liability. It is true that the bank aided Henderson in collecting the proceeds of the checks. The vital question is whether the form of the checks should be construed, in connection with the deposit thereof to the fiduciary's personal account, as imparting to the bank notice of his wrongdoing essential to liability on the part of the bank. This is an open question with us. The authorities disagree. The question must be determined in relation to the general security and the public welfare. Banks are in effect fiscal agents of the government. They are essential to the business interests of our state. They operate under government supervision. The public has a keen interest in their successful operation and in their facilities for public service. They aim to afford the public a place for the safe-keeping of one's money. While regulation must be and is strict and exacting, unreasonable and unjust rules inconsistent with the efficient and safe conduct of the bank are not to be imposed. Having this in mind, we believe that reason and principle lead to the adoption of the rule of nonliability.
The trustee may deposit fiduciary funds in his personal account without subjecting himself to liability, Cornet v. Cornet, 269 Mo. 298, 190 S. W. 333; Sagone v. Mackey, 225 N. Y. 594, 122 N. E. 621; which comes only when the funds are lost, Matter of Estate of Arguello, 97 Cal. 196, 31 P. 937, and see 45 L. R. A. (N. S.) 1, 12 note. The bank ought not be held responsible for the money being checked out for illegal purposes, unless it knows or in some special transaction has good reason to believe that a misappropriation of the money is being made. State ex rel. Davis v. Farmers' & Merchants' Bank, 112 Neb. 840, 201 N. W. 897. Under some circumstances, when accompanied by the intention such depositing may be a conversion. But such depositing of the funds alone or for right purposes may be innocent and consistent with honesty and just dealing. Presumably the depositor so acts. In such a situation the bank should not be required to attribute an unlawful intention to him. United States Fidelity, etc., Co. v. First Nat. Bank, 18 Cal. App. 437, 440, 123 P. 352, 353; Goodwin v. American Nat....
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