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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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FILED PUBLISH United Statt1• Court ot Appeals Tenth Circuit 

UNITED STATES COURT OF APPEALS FEB 1 41989 .• 

TENTH CIRCUIT ROBERT L. HOECKER 

Clerk · 

DAVID K. RICHARDS, ) 

) 

Plaintiff-Appellee, ) 

) 

v. ) No. 85-2665 

) 

PLATTE VALLEY BANK, ) 

) 

Defendant-Appellant, ) 

) 

H. RAY CHRISTMAN and ATTORNEYS' ) 

TITLE GUARANTY FUND, INC., ) 

) 

Defendants. ) 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. No. CIV. 84-Z-1857) 

Steven J. Merker of Davis, Graham & Stubbs, Denver, Colorado, for 

Plaintiff-Appellee. 

Andrew J. Friedrich (Edgar L. Neel with him on the briefs), 

Weller, Friedrich, Hickisch, Hazlitt & Ward, Denver, Colorado, for 

Defendant-Appellant. 

Before SEYMOUR, MCWILLIAMS, and BRORBY, Circuit Judges. 

BRORBY, Circuit Judge. 

Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 1 
Plaintiff Richards brought this action against Platte Valley 

Bank (Bank) for breach of fiduciary duty. Richards sought to 

recover $430,000 he had placed in escrow with Centennial Escrow 

Services, Inc. (Centennial). Marshall, the president of 

Centennial, placed the funds in Centennial's trust ~ccount at 

Platte Valley Bank and then wire transferred the money to himself 

rather than Richards. Richards alleged the Bank had notice of the 

circumstances of Marshall's withdrawal, which would have led a 

reasonable person to inquire whether Marshall was committing a 

breach of trust. The jury returned a verdict for Richards. The 

Bank appeals. For a statement of additional facts, see the 

companion appeal, Richards v. Attorneys' Title Guaranty Fund, 

Inc., F.2d (10th Cir. 1989) (No. 85-2656, filed February 

14, 1989). 

The Bank alleges the court improperly instructed the jury on 

the Bank's liability for breach of a fiduciary duty because it 

applied a standard of "actual notice" of facts, which would lead 

the Bank to inquire whether Marshall was committing a breach of 

trust, rather than "actual knowledge" of the breach of fiduciary 

duty as required by the Uniform Fiduciaries Act, Colo. Rev. Stat. 

§§ 15-1-109 and 15-1-111 (1987 Repl. Vol.). We agree the proper 

standard is actual knowledge and REVERSE and REMAND for dismissal 

of Richards' claim against the Bank. 

I. 

This case was removed from the state courts of Colorado to 

the United States District Court for the District of Colorado 

based on diversity jurisdiction under 28 u.s.c. § 1332 (1966). In. 

diversity cases, the federal court must apply the law of the forum 

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Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 2 
state, in this case, Colorado. Erie R.R. Co. v. Tompkins, 304 

U.S. 64 (1938); Brady v. Hopper, 751 F.2d 329 (10th Cir. 1984). 

The district court instructed the jury on the Bank's 

liability stating: 

In order for the plaintiff, David K. Richards, to 

recover from the defendant Platte Valley Bank on his 

claim that Platte Valley Bank is responsible for the 

theft of the escrow proceeds by Duane Marshall, you must 

find all of the following have been proved by a 

preponderance of the evidence: 

(1) The ~430,000 fund was held by Centennial 

Escrow Services, Inc., as fiduciary for plaintiff, David 

K. Richards; 

(2) At the time Platte Valley Bank wire 

transferred the $430,000 to United Bank of Denver with 

instructions that it be paid to Duane Marshall in cash, 

Platte Valley Bank had actual notice of facts which 

under the circumstances would lead a reasonably 

intelligent and diligent person to inquire whether 

Marshall was committing a breach of trust; and 

(3) Such inquiry when pursued with reasonable 

intelligence and diligence would have given Platte 

Valley Bank knowledge or reason to know that Marshall 

was committing a breach of trust. 

If you find any of these propositions has not been 

proved by a preponderance of the evidence, then your 

verdict must be for the defendant on this claim. 

On the other hand, if you find that all of these 

propositions have been proved by a preponderance of the 

evidence, then your verdict must be for the plaintiff on thi~ claim. 

Emphasis added. 

This instruction is based upon Commercial Sav. Bank v. Baum, 

137 Colo. 538, 327 P.2d 743 (1958) and the Restatement (Second) of 

Trusts§ 297 comment a (1959). 

In Baum, the plaintiff sought to recover from the bank funds 

misappropriated by his agent, Berger. In construing. Baum, both 

Richards and the district court assumed the Colorado Supreme 

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Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 3 
Court's decision was not based on the Uniform Fiduciaries Act, 

relying on the court's statement: 

Counsel for plaintiff states that this case is 

predicated on C.R.S. '53, 57-1-9, being the section of 

our Uniform Fiduciary Act relating to "Deposits in 

personal account of fiduciary." We cannot agree. 

Baum, 327 P.2d at 745. We do not construe this language as 

rejecting the applicability of the Act. Rather, the Colorado 

Supreme Court disagreed with the plaintiff's claim that he had 

proven the bank's liability under the Act. T_he court - then 

analyzed Baum's claim under the bad faith standard of the Act and 

concluded Baum had failed to meet his burden of proof. 

After reviewing the following quotation from Baum, the 

district court relied on the "actual notice" language in 

constructing the instruction given to the jury: 

This was an ordinary business transaction, and under the 

undisputed evidence in this case, nothing occurred to 

put the Bank on actual notice that Berger had, or was 

about to commit a breach of his obligation to Baum. The 

deposit of the Baum check and the drawing of the checks 

against Berger's account presented no unusual 

circumstances, and does not amount to evidence that the 

Bank in receiving the deposit or paying the checks drawn 

by Berger on his account acted in bad faith. The burden 

of proof is on the plaintiff to establish actual 

knowledge and bad £aith. 

Id. at 745 (emphasis added). 

The court's analysis in Baum is consistent with the Uniform 

Fiduciaries Act as applied in Wysowatcky v. Denver-Willys, Inc., 

131 Colo. 266, 281 P.2d 165, 166 (1955). Furthermore, a recent 

case of the Colorado Court of Appeals cites Baum and states the 

proper standard for establishing breach of fiduciary duty is that 

the plaintiff must prove either actual knowledge or bad faith. 

Kaneco Oil & Gas, Ltd. v. University·Nat'l Bank, 732 P.2d 247, 249 

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Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 4 
(Colo. App. 1986). Therefore, the district court's instruction 

based on the "actual notice" language attributed to Baum rather 

than "actual knowledge" was err.or. 

The district court's relianc~ on the Restatement (Second) of 

Trusts § 297 comment a is misplaced. The general rules of law 

relating to trusts only apply to cases not covered by the Uniform 

Fiduciaries Act. Colo. Rev. Stat. § 15-1-113 (Repl. Vol. 1987). 1 

In _light of our conclusion that the Uniform Fiduciaries Act 

provides the legal standard for determining the Bank's liability 

in this case, the district court's reliance on the Restatement 

(Second) of Trusts was error. 

The Bank asserts its liability, if any, is based on sections 

7 and 9 of the Uniform Fiduciaries Act, Colo. Rev. Stat. §§ 15-1-

109 and 15-1-111. 2 This assertion is consistent with 

1 

2 

Section 15-1-113 states: 

Cases not provided for in law. In any case not 

provided for in this part 1, the rules of law and 

equity, including the law merchant and those rules of 

law and equity relating to trusts, agency, negotiable 

instruments, and banking, shall continue to apply. 

Colo. Rev. Stat. § 15-1-109 states: 

D~posit in name of fiduciary. If a deposit is made 

in a bank to the credit of a fiduciary as such, the bank 

is authorized to pay the amount of the deposit or any 

part thereof upon the check of the fiduciary, signed 

with the name in which such deposit is entered, without 

being liable to the principal, unless the bank pays the 

check with actual knowledge that the fiduciary is 

committing a breach of his obligation as fiduciary in 

drawing the check or with knowledge of such facts that 

its action in paying the check amounts to bad faith. 

If, however, such a check is payable to the drawee bank 

and is delivered to it in payment of or as security for 

a personal debt of the fiduciary to it, the bank is 

liable to the principal if the fiduciary in fact commits 

a breach of his obligation as fiduciary in drawing or 

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the 

Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 5 
reasoning in Kaneco, 732 P.2d at 249 (referring to Colo. Rev. 

Stat. § 15-1-109); Baum, 327 P.2d at 745 (referring to Colo. Rev. 

Stat. § ·57-1-9 (1953) recodified as c610. Rev. Stat. § 15-1-111; 

and Wysowatcky, 281 P.2d at 166 (referring to Colo. Stat. Ann. Ch. 

67, § 5 · ( 1935), recod_if ied as Colo. Rev.· Stat. § 15-1-107 ( 1987 

Repl. Vol.)). Any instruction based on§ 15-1-109 or § 15-1-111 

would allow the plaintiff to recover for breach of fiduciary duty 

upon showing either the bank acted "with actual knowledge that the 

fiduciary is committing a breach o·f his· obligation as· a fiduciary 

in making such deposit or in drawing such check or with knowledge 

of such facts that its action in receiving the deposit or paying 

the check amounts to bad faith." See Kaneco, 732 P.2d at 249. 

Actual knowledge or bad faith are separate bases for recovery. 

delivering the check. (Emphasis added.) 

Colo. Rev. Stat. § 15-1-111 states: 

Deposits in personal account of fiduciary. If a 

fiduciary makes a deposit in a bank to his personal 

credit of checks drawn by him upon an account in his own 

name as fiduciary, or of checks payable to him as 

fiduciary, or of checks drawn by him upon an account in 

the name of his principal if he is empowered to draw 

checks on that account, or of checks payable to his 

principal and indorsed by him, if he is empowered- to 

indorse such checks or if he otherwise makes a deposit 

of funds held by him as fiduciary, the bank receiving 

such deposit is not bound to inquire whether the 

fiduciary is committing a breach of his obligation as 

fiduciary by that action; and the bank is authorized to 

pay the amount of the deposit or any part thereof upon 

the personal check of the fiduciary without being liable 

to the principal, unless the bank receives the deposit 

or pays the check with actual knowledge that the 

fiduciary is committing a breach of his obligation as 

fiduciary in making such ·deposit or in drawing su~h 

check or with knowledge of such facts that its action in 

receiving the deposit or paying the check amounts to bad 

faith. (Emphasis added.) 

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Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 6 
Maryland Casualty Co. v. Bank of Charlotte, 340 F.2d 550, 553-55 

(4th Cir. 1965). The district court's instruction should have 

allowed the jury to determine the Bank's liability, if any, on the 

basis of either aqtual knowledge or bad faith. 

Richards argues §§ 15-1-109 and 15-1-111 are not applicable 

because Marshall received the $430,000 by a wire transfer rather 

than by a check. Richards relies on Colby v. Riggs Nat'l Bank, 92 

F.2d 183, 198 (D.C. Cir. 1937), and Stern v. Lucy Webb Hayes Nat'l 

Training School, 381 F. Supp. 1003, 1017 (D. D.C. 1974). In 

Colby, three fiduciaries drew a trust check payable to one of the 

fiduciaries personally. When the check was deposited in the 

personal account of the trustee, it had the effect of paying a 

then existing overdraft in the account. The court refused to 

apply section 6 of the Act to protect the bank from liability, 

because payment of the overdraft did not come strictly within the 

letter and spirit of the Act. The court stated "the [A]ct is not 

concerned with bookkeeping transactions. In this view, not only 

was the payment of the overdraft outside of the language of 

section 6 but also outside its purpose and intent." 92 F.2d at 

198. 

In Stern, a hospital and the financial 

which it dealt allegedly breached their 

institutions with 

fiduciary duty in 

mismanaging the hospital's assets. The financial institutions 

sought to apply the standards of the Uniform Fiduciaries Act to 

their liability for the excessive deposits the institutions held 

for the hospital. The court, relying on Colby, refused to apply 

the Act, stating: 

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Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 7 
That Act, however, applies only to liability for "check 

transaction[s]," and the common law prevails in all 

areas where the Act does not expressly apply. Colby v. 

Riggs Nat.Bank, '67 App.D.C. 259, 92 F.2d 183 (1937). 

The maintenance of excessive deposits does not appear to 

fall within any of the Act's provisions, so th~ 

principals set forth above are controlling. 

381 F. Supp. at 1017. 

Neither case discusses the applicability. of the Uniform 

Fiduciaries Act to wire transfers. The Colby case involved use of 

fiduciary funds to pay an overdraft, and the Stern case involved 

excessive deposits. We do not find these two cases persuasive to 

exclude wire transfers from the application of the Act. The 

court's decision in Colby has been critici~ed. 3 Two of the five 

justices on the panel dissented, stating the refusal to apply the 

Act to the bookkeeping transaction which reduced the account 

overdraft "gives too fine a literalness to the language of the 

Act.'' 92 F.2d at 201. The case's limitation of the Act to "check 

transactions" has only been cited with approval in Stern. On the 

other hand, in Mayo v. Pioneer Bank & Trust Co., 270 F.2d 823 (5th 

Cir. 1959), cert. denied, 362 U.S. 962 (1960), the court rejected 

the limiting language of Colby and found the Act applicable to a 

debit memorandum. Id. at 833-34. See also Norristown-Penn Trust 

Co. v. Middleton, 300 Pa. 522, 150 A. 885 (1930), in which the 

court refused to limit application of the Uniform Fiduciaries Act 

3 Several law review comments question the decision in Colby. 

See, Comment, 51 Harv. L. Rev. 563 (1938), "To make the 

application of the Act to the innocent transferee, whom it seeks 

to protect, depend upon the banking procedure employed by the 

defalcating trustee seems unnecessarily formalistic." Id. at 564. 

Coinment, 34 Ill. L. Rev. 819, 826-28 (1940). "Any distinction 

between an overdraft and other debts is tenuous." Id. at 827. 37 

Mich. L. Rev. 160 (1938); 86 U .. Pa. L. Rev. 322 (1937-38). 

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Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 8 
only to checks and applied the Act to a bank draft. 

We believe wire transfers are analogous to checks for 

application of the Uniform Fiduciaries Act. The transfer of funds 

by cable or telegraph is in law a check. Lourie v. Chase Nat'l 

Bank, 42 N.Y.S.2d 205, 206 (Sup. Ct. 1943). See also Deibrueck & 

Co. v. Manufacturers Hanover Trust Co., 609 F.2d 1047, 1051 (2d 

Cir. 1979) (wire transfers have been treated as analogous to 

checks in determining whether a transfer is irrevocable). But see 

State of Colorado ex rel. St. Banking Bd. v.· First Nat'l Bank, 394 

F. Supp. 979, 985 (D. Colo. 1975), aff'd in part and rev'd in 

part, 540 F.2d 497 (10th Cir. 1976), cert. denied, 429 U.S. 1091 

(1977) (electronic fund transfer is comparable to the wire 

transfer of funds and is not considered payment of a check for 

determination of applicability of branch banking laws). 

as: 

The undisputed testimony in this case defined wire transfers 

[A] nonpaper transmittal of funds from one point to 

another as--just as if [a customer had] written a check. 

[The customer] would call into the bank or leave 

instructions with the bank to send funds; .••. [The 

bank] would take funds out of [the customer's] account 

and transmit it to the institution where [the customer] 

wanted it--the funds to be deposited. 

The Federal Reserve System's regulations for wire transfers 

of funds are contained at 12 C.F.R. §§ 210.25-210.38 (1988). In a 

wire transfer the transferor bank sends a transfer item to its 

Reserve Bank which debits the transferor's account and credits the 

transferee bank's account. 12 C.F.R. § 210.29. The Reserve Bank 

then sends the transfer item to the transferee bank which makes 

th~ amount available to the beneficiary. 12 C.F.R. § 210.30. The 

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Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 9 
·transfer item must be in some form of writing, such as letter, 

telegra~ or magnetic disc. 12 C.F.R. § 210.28. Wire transfers 

are considered irrevocable after transmission. Delbrueck, 609 

F.2d at 1051. 

Thes~ wire transf~r requirements are similar to the 

definition of a check under the Uniform Commercial Code. A check 

is defined as a draft drawn upon a bank and payable on demand, 

signed by the maker or drawer, containing an unconditional promise 

to pay a sum certain in money to the order of the payee. Colo. 

Rev. Stat. § 4-3-104(2)(b) (1973). A wire transfer is a written 

order to pay, drawn upon a bank containing an unconditional 

promise to pay a sum certain in money to the order of the 

beneficiary. The only element missing is the maker's signature. 

We do not consider this element significant for purposes of 

excluding wire transfers from the operation of the Uniform 

Fiduciaries Act. 

Union Bank & Trust Co. v. Girard Trust Co., 307 Pa. 488, 161 

A. 865 (1932), discusses the reasons for the adoption of the 

Uniform Fiduciaries Act: 

The great volume o~ the commercial transactions of the 

country requires the use of .checks, drafts, and similar 

instruments; a large part of them must be drawn or 

negotiated by fiduciaries ~r agents; they must pass 

through banks all over the country. Uniform and 

definite rules were found necessary to take the place of 

diverse and conflicting rules that had grown up 

concerning constructive notice of breach of fiduciary 

obligations in order that commerce might proceed with as 

little hindrance as possible, and, at the same time, 

that loss for breach of such obligation should fall on 

the party directly responsible for the faithless agent 

and not on one who was a mere conduit to transmit the 

fund; this necessity led to the enactment of the Uniform 

Fiduciaries Act. 

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Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 10 
. . 

Id. 161 A. at 870 (emphasis added) (cited with approval in 

Wysowatcky, 281 P.2d at 167). 

Hundreds of thousands of wire transfers occur every day. The 

sender of money on a wire transfer tells .its bank to send 

instructions to the Federal· Reserve System or to a corresponding 

bank to make money or credit available through still another bank. 

Bonded Financial Services, Inc. v. European American Bank, 838 

F.2d 890, 893 (7th Cir. 1988). The frequent use of wire transfers 

and the similarity to check~ qualifies these transactions for 

treatment under the Uniform Fiduciaries .Act. 

The Bank asserts that if the Uniform Fiduciaries Act is not 

the controlling standard for determining its liability, the 

district court improperly instructed the jury on the common law 

standard of liability. Because we have determined the Act is 

applicable, we ·do not address this argument on the common law 

standard. 

II. 

The Bank asserts, in the alternative, that the district court 

should have based its liability instruction on the good faith 

standard of the Uniform Fiduciaries Act, Colo. Rev. Stat. § 15-1-

105 (1987 Repl. Vol.). Section 15-1-105 states: 

Application of payments to fiduciary. A person who 

in good faith pays or transfers to a fiduciary any money 

or other property which the fiduciary as such is 

authorized to receive is not responsible for the proper 

application thereof by the fiduciary; and any right or 

title acquired from the fiduciary in consideration of 

such payment or transfer is not invalid in consequence 

of a misapplication by the fiduciary. 

The district court refused two of the Bank's tendered instructions 

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based on§ 15-1-105. 4 

In order for the Bank to prevail under § 15-1-105 it must 

show it transfered the $430,000 to Marshall in good faith and that 

Marshall was authorized to receive these funds. See Kaneco, 732 

P.2d at 149; Cliborn Drilling Co. v. Wyoming Mineral Corp., 42 

Col?· App. 41, 589 P.2d 78, 80 (1978). The evidence is in dispute 

whether Marshall was authorized to receive the wire transfer. The 

Bank's tendered instructions do not discuss the authorization 

element. We find no error in the district court's refusal of 

these two instructions. 

III. 

The Bank asserts the district court erred in denying its motion for directed verdict because the district court applied the 

wrong legal standard of "actual notice" rather than "actual 

knowledge." The Bank claims it was entitled to a directed verdict 

under the proper standard because Richards failed to prove the 

Bank acted either with bad faith or actual knowledge of Marshall's 

breach of fiduciary duty. The Bank urges us to remand this case 

and direct the district court to dismiss the action against the 

Bank. 

4 

We.agree. 

Refused instruction No. 3 states: 

Unless you find that plaintiff has shown that 

defendant Platte Valley Bank did not act in good faith 

in making the wire transfer of the subject funds, your 

verdict must be for defendant Platte Valley Bank. 

Refused instruction No. 4 states: 

If you find that defendant Platte Valley Bank acted 

in good faith in making the wire transfer of the subject 

funds, your verdict must be for Platte Valley Bank. 

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The propriety of granting or denying a motion for a directed 

verdict is tested both in the trial court and on appeal by the 

same rule. The appellate court must view the evidence and all 

inferences most favorably to the .party against whom the motion is 

made, and ·determine whether the evidence is sufficient to create 

an issue for the jury. Swearngin v. Sears Roebuck & Co., 376 F.2d 

637, 639 (10th Cir. 1967). The trial court may direct a verdict 

only where the evidence and all inferences to be drawn therefrom 

are so clear· that reasonable minds could not differ on the conclusion. Taylor v. Gilmartin, 686 F.2d 1346, 1353-54 (10th Cir. 

1982), cert. denied, 459 U.S. 1147 (1983); accord Guilfoyle v. 

Missouri, Kansas, & Texas R. Co., 812 F.2d 1290, 1292 (10th Cir. 

1987). 

A proper motion for a directed verdict and its denial will 

always preserve for review the question whether under the law 

truly applicable to the case there was an adequate evidentiary 

basis for submission of the case to the jury. Aspen Highlands 

Skiing Corp. v. Aspen Skiing Co., 738 F.2d 1509, 1518 (10th Cir. 

1984), aff'd, 472 U.S. 585 (1985). The Bank moved for directed 

verdict on two occasions urging the district court to adopt the 

"actual knowledge" standard of liability. This preserved the 

Bank's opportunity to challenge the sufficiency of the evidence on 

that issue under the truly controlling law. Therefore we will 

review Richards' evidence to determine whether there was a jury 

issue under the theories of bad faith or actual knowledge. 

We have been unable to find any Colorado cases defining· "bad 

faith" as it is used in the Uniform Fiduciaries Act. The Colorado 

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courts have used the bad faith standard to analyze the facts of 

various cases but have not articulated the elements of that 

standard. See Kaneco, 732 P.2d at 249 (plaintiff did not meet 

burden of showing bad faith on part of the bank); Baum, 327 P.2d 

at 745 (deposit of check presented no unusual circumstances 

amounting to evidence of bad faith); Wysowatcky, 281 P.2d at 166 

(no element of bad faith being involved, plaintiff had the burden 

of showing actual knowledge). Our task is to predict how the 

Colorado Supreme Court would define "bad faith~ in applying the 

provisions of the Uniform Fiduciaries Act. Daitom, Inc. v. 

Pennwalt Corp., 741 F.2d 1569, 1574 (10th Cir. 1984). 

The Uniform Fiduciaries Act does not define "bad faith," but 

it does define "good faith" as a thing done "honestly, whether it 

be done negligently or not." Uniform Fiduciaries Act § 1(2), 7A 

U.L.A. 396 (1985). Most jurisdictions that adopted the Act 

construe "bad faith" as dishonesty, reasoning that it is the 

opposite of "good faith." See~' Colby, 92 F.2d 183. However, 

when the Colorado Legislature adopted the Act, it excluded the 

subsection defining good faith. 1923 Colo. Sess. Laws 173-78. We 

have been unable to ascertain the legislature's intent in omitting 

this subsection. 

Because Colorado's version of the Uniform Fiduciaries Act 

does not define either good or bad faith, the Act provides that we 

may look to other commercial laws for a definition. See Colo. 

Rev. Stat. § 15-1-113.5 The Uniform Commercial Code defines "good 

faith" as honesty in fact in the conduct or transaction concerned. 

5 See supra note l. 

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Colo. Rev. Stat. § 4-1-201(19) (1973). Good faith is determined 

under a subjective standard without considering the party's 

negligence. Money Mart Check Cashing Center, Inc. v. Epicycle 

Corp., 667 P.2d 1372, 1373 (Colo. 1983); accord Peregrine Homes, 

Inc. v. Jefferson Bank & Trust, 713 P.2d 1342, 1343 (Colo. App. 

1985). The term 

dishonest conduct. 

"bad faith" requires showing some indi6ia of 

The mere failure to make inquiry, even though 

there are suspicious circumstances, does not constitute bad faith, 

Union Bank & Trust, 161 A. at 869, unless the facts and 

circumstances are so cogent and obvious that to remain passive 

would amount to deliberate desire to evade knowledge because of a 

belief or fear that inquiry would disclose a defect in the 

transaction. Edwards v. Northwestern Bank, 39 N.C. App. 261, 250 

S.E.2d 651, 657 (1979) (quoting Davis v. Pennsylvania Co., 337 Pa. 

456, 460, 12 A.2d 66, 69 (1940)). 

Viewing the evidence in a light most favorable to Richards, 

prior to wire transferring the money the Bank knew the following 

facts. Centennial's trust account into which the check was 

deposited usually held funds belonging to other persons. The face 

of the check which was deposited indicated it was being paid to 

Centennial "pursuant to the terms of the escrow agreement." 

Marshall told the Vice President of the Bank that the funds 

were from the sale of a Vail condominium by Mexican nationals; 

however, the check deposit slip refers to 11 7-ll's" not 

condominiums. Also the check refers to Snyder, which is not a 

Hispanic name. The Vice President also knew· Marshall and his wife 

separated in May 1982; that Marshall left his job in October 1982; 

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and that Marshall's outstanding personal loan of $15,000 was still 

unreduced from 1979. After depositing the check, Marshall 

demanded the full $430,000 in cash. Marshall stated the Mexican 

nationals who sold the condominium wanted cash so that they could 

convert the proceeds to pesos at a higher illegal exchange rate; 

but Marshall did not have the money transferred to these 

individuals but rather to himself. Marshall had never made a cash 

demand higher than $100,000. A demand for cash of $430,000 ig 

unusual. The Vice President called Intrawest Bank of Denver, the 

maker of the check, to determine if there were sufficient funds to 

pay the check, but he did not inquire who Snyder was or what were 

the terms of the escrow agreement. 

Considering the evidence presented by Richards in a light 

most favorable to him, we find it insufficient to create an issue 

of bad faith for the jury. We found no evidence that the Bank 

acted dishonestly. While the circumstances of this wire transfer 

are such that the bank's failure to inquire further could 

constitute negligence and may be suspicious, they were not so 

cogent or obvious that the Bank's failure to inquire about the 

terms of the escrow agreement amounts to a deliberate evasion of 

knowledge because the Bank feared the transaction was defective. 

The purpose of the Uniform Fiduciaries Act was aptly stated 

in Union Bank & Trust: 

Uniform and defin~te rules were found necessary to take 

the place of diverse and conflicting rules that had 

grown up concerning constructive notice of breach of 

fiduciary obligations - in order that commerce might 

proceed with as little hindrance as possible. 

Id., 161 A. at 870 (cited with approval in Wysowatcky, 281 P.2d at 

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Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 16 
167). To require the Bank to inquire of the circumstances of 

every trust transaction where "suspicious circumstancesi• exist 

would bring the wheels of commerce to a halt. Banks would be 

~eluctant to allow trus~ accounts. The purposes of the Uniform 

Fiduciaries Act, both nationally and as adopted by Colorado, would 

be thwarted. Liability for failure to ·inquire will only be 

imposed where the Bank has engaged in deliberate evasion of the 

knowledge of a defective fiduciary transaction. 

We have also found no evidence that the Bank had actual 

knowledge that Marshall was going to misappropriate the funds. 

The district court erred in failing to direct a verdict for the 

Bank at the close of Richards' case. The district court's 

judgment is REVERSED and REMANDED for entry of judgment dismissing 

Richards' claims against the Bank. 

-17-

Appellate Case: 85-2665 Document: 01019598698 Date Filed: 02/14/1989 Page: 17