The HONORABLE PAUL A. MAGNUSON, Chief Judge, United States

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District Court for the District of Minnesota, sitting by designation.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 96-2357

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In re: Broadview Lumber Co., Inc., *

*

Debtor, *

---------------------------------------- *

*

Thomas J. O’Neal, Trustee, *

*

Plaintiff-Appellant, *

* Appeal from the United

States

v. * District Court for the 

* Western District of

Missouri.

Southwest Missouri Bank of *

Carthage; Mercantile Bank of *

Joplin; Richard Mansfield; *

Jenny Mansfield, *

*

Defendants-Appellees. *

___________

 Submitted: March 10, 1997

 Filed: July 8, 1997

___________

Before McMILLIAN and HANSEN, Circuit Judges, and

MAGNUSON, District Judge. 1
The Honorable Joseph E. Stevens, Jr., United States District Judge for the

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Western District of Missouri.

The Honorable Arthur B. Federman, United States Bankruptcy Judge for the

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Western District of Missouri.

While Richard Mansfield and his wife Jenny are appellees in this case, their

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failure to file briefs on appeal waived any arguments on their behalf.

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HANSEN, Circuit Judge.

Thomas J. O’Neal (Trustee), as Chapter 7 trustee for

the bankruptcy estate of Broadview Lumber Company, Inc.

(Broadview), appeals the district court’s decision

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affirming certain rulings of the bankruptcy court in

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favor of Southwest Missouri Bank of Carthage, Missouri

(SMB) and Mercantile Bank of Joplin (Mercantile), in the

Trustee’s adversary proceeding based on transactions

undertaken by Broadview’s former president, Richard

Mansfield (Mansfield). At issue in this appeal is

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whether the district court erred in affirming the

bankruptcy court’s ruling in favor of Mercantile on the

Trustee’s claims for conversion and postpetition

transfer, and whether the district court erred in

affirming the bankruptcy court’s findings in favor of SMB

and Mercantile on the Trustee’s claims for an equitable

lien or constructive trust. We affirm.

I.

This case involves a complicated series of

transactions undertaken by Mansfield to transfer

Broadview's corporate assets to his personal accounts;

only one of these transactions is involved here. The
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facts as relevant to this appeal are as follows.

Broadview--a wholesale lumber brokerage firm --was

established in 1905. In 1990, Mansfield enjoyed a

position as president and fifty-percent stockholder.

Broadview’s 
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corporate checking account was maintained at SMB, and its

financing was provided by Fidelcorp, which advanced funds

against Broadview’s accounts receivable. Fidelcorp was

acquired by CIT Group (CIT) sometime before January 1,

1991; CIT refused to advance further funds beginning

January 2, 1991, and Broadview was left without funds to

support over $400,000 in checks previously written. As

a result, Broadview was forced to cease operations almost

immediately. 

Between January and May 1991, Mansfield liquidated

inventory and collected accounts receivable sufficient to

pay money due to CIT. Mansfield overpaid the debt to CIT

by $17,303.37, and that amount was refunded to Broadview

by check. An involuntary bankruptcy petition was filed

against Broadview on November 12, 1991. On November 25,

1991, Mansfield purchased a cashier’s check from SMB in

the amount of $19,303.37 payable to “Broadview Lumber,”

with the $17,303.37 check from CIT and $2,000 drawn on

Broadview’s account at SMB.

Mansfield and his wife maintained a personal account

at Mercantile. On January 21, 1992, Mansfield endorsed

the $19,202.27 cashier’s check “Broadview Lumber Co.,

Inc., Richard Mansfield, President,” and presented the

check to Mercantile for deposit in this personal account;

the accompanying deposit slip described the account as

“Richard T. or Jenny P. Mansfield Construction Account.”

Funds from that account--which included other corporate

funds transferred into it by Mansfield--were used for

construction of the Mansfields’ home in Carthage,

Missouri. Mercantile, who had previously agreed to loan

the Mansfields $180,000 for the construction, extended
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permanent financing for the repayment of the loan in

April 1992. Mercantile holds a deed of trust to the

Mansfields’ property securing the repayment of the loan.

The Trustee filed this adversary proceeding against SMB, Mercantile,

and the Mansfields under 28 U.S.C. § 157(b)(2)(E) and (F) to recover funds

inappropriately transferred out of Broadview’s account. The Trustee

asserted, inter alia, that Mercantile had knowledge that Mansfield acted

in breach of his fiduciary duty, 
SMB filed the original notice of appeal in this court; the Trustee filed a notice 5

of appeal as well. SMB and the Trustee thereafter reached a compromise settlement

of the claims raised in SMB’s appeal. The settlement was approved by the bankruptcy

court and we granted SMB’s motion to dismiss its appeal. SMB has notified this court

that it intends no further action on appeal but has adopted those portions of

Mercantile’s brief which address issues of constructive trust and equitable lien.

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violating Missouri’s Uniform Fiduciaries Law (UFL), and that Mercantile

took the $19,303.37 check subject to all claims that might exist and not

as a holder in due course under the Uniform Commercial Code (UCC). The

Trustee alleged Mercantile became liable in conversion by crediting the

check’s proceeds to the Mansfields’ personal account. The Trustee sought

judgment against Mercantile in the amount of $19,303.37 and a constructive

trust or equitable lien upon the Mansfields’ Carthage property for funds

converted by Mansfield and used for construction of the Mansfields’ home.

The Trustee raised a number of allegations against SMB as well.5

Following a one-day trial, the bankruptcy court entered a money

judgment against the Mansfields. The bankruptcy court found in

Mercantile’s favor on the conversion claims against it, concluding that

Mercantile did not have actual knowledge that Mansfield breached his

fiduciary duty or that it knew of such facts that the failure to inquire

constituted bad faith. The bankruptcy court noted that even though the

teller was negligent in allowing the deposit and Mercantile’s vice

president knew Broadview had closed its doors, these facts did not “add up

to knowledge” that Mansfield was breaching his fiduciary duty; nor were the

facts sufficient to put Mercantile on notice that such a breach might be

taking place. (Appellant’s Adden. at 26.) Because the Trustee did not

meet his burden of establishing that Mercantile had actual knowledge or

acted in bad faith, the bankruptcy court concluded the Trustee could not

recover against Mercantile for conversion. 

As to the request for a constructive trust or an equitable lien, the

bankruptcy court noted that such remedies are available only when there is

no adequate remedy at 
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law. In this case, because the bankruptcy court granted the Trustee

judgment against the Mansfields (which exceeded the amount of Broadview’s

property that the Trustee had shown was used for the Mansfields’ home), the

bankruptcy court concluded the Trustee’s remedy at law was adequate.

Further, the Trustee failed to establish that the Mansfields were

insolvent. The district court affirmed the bankruptcy court’s decision for

the reasons expressed by the bankruptcy court. 

The Trustee timely appeals, asserting that because Mercantile

stipulated that it had notice of Mansfield’s fiduciary status, and because

Mansfield--identified by his endorsement as the president of Broadview--

deposited the corporation’s check in his personal account, Mercantile did

not become a holder in due course. The Trustee further argues that

Mercantile acted in bad faith contrary to the UFL (Mo. Ann. Stat. § 456.310

(West 1992)), and that even though he need not show an inadequate remedy

at law for equitable relief, such remedy is inadequate.

Mercantile, on the other hand, asserts that the teller was unable to

determine whether the instrument payable to “Broadview Lumber” was payable

to a corporation; that the Trustee failed to establish that the teller had

actual knowledge of Mansfield’s breach of fiduciary duty; and that the

Trustee’s remedy is adequate, thus barring equitable relief.

II.

This court reviews the bankruptcy court’s factual findings for clear

error and its legal conclusions de novo. See First Nat’l Bank of Olathe

v. Pontow, 111 F.3d 604, 609 (8th Cir. 1997). State law controls issues

concerning the nature and extent of a debtor’s interest in property.

See Natkin & Co. v. Myers (In re Rine & Rine Auctioneers, Inc.), 74 F.3d

848, 851 (8th Cir. 1996). As all the events herein occurred in the state

of Missouri, we apply Missouri law and review de novo the lower court’s

determinations of state law. See Nangle v. Lauer (In re Lauer) , 98 F.3d

378, 382 (8th 
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Cir. 1996) (citing Salve Regina College v. Russell, 499 U.S. 225, 231

(1991)).

III.

A. Uniform Fiduciaries Law

The applicable UFL provision states in relevant part: 

 If a fiduciary makes a deposit in a bank to his personal

credit of checks . . . payable to his principal and endorsed by

him, if he is empowered to endorse 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 thereby a breach of his obligation

as fiduciary; 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

such check, or with knowledge of such facts that its action in

receiving the deposit or paying the check amounts to bad faith.

Mo. Ann. Stat. § 456.310 (West 1992). The UFL relieves banks like

Mercantile from the common law duty of inquiring into the propriety of such

transactions conducted by fiduciaries. See Lauer, 98 F.3d at 383. To

establish a claim under the UFL, the Trustee must establish that Mansfield

was a fiduciary, that Mansfield breached his fiduciary duty, and that

Mercantile had either actual knowledge of the breach or sufficient facts

such that its conduct amounted to bad faith. See id. at 386.

Actual knowledge for purposes of the UFL requires a present awareness

that a fiduciary is breaching his duty for personal gain. See Trenton

Trust Co. v. Western Sur. Co., 599 S.W.2d 481, 491 (Mo. 1980) (en banc);

Southern Agency Co. v. Hampton Bank of St. Louis, 452

S.W.2d 100, 105 (Mo. 1970). “Bad faith” requires 
While the Trustee points out that Mansfield did not have the authority to

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endorse the check in his personal capacity, we note that “[i]t is not necessary, under

the Uniform Fiduciaries Act, that the fiduciary have express authority to indorse only

for a particular purpose. If he has the power to indorse for any purpose, and if the

limitations on that power have not been communicated to the indorsee bank, then actual

notice of misappropriation or conduct amounting to bad faith on the part of the bank

must be shown in order for the principal to recover.” See Southern Agency Co., 452

S.W.2d at 105. 

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something more than mere negligence and can be found where the person

accepting a negotiable instrument disregards circumstances that are

suggestive of a breach and are sufficiently obvious such that it is in bad

faith to remain passive. See Trenton Trust Co., 599 S.W.2d at 492; General

Ins. Co. v. Commerce Bank of St. Charles, 505 S.W.2d 454, 458 (Mo. Ct. App.

1974) (“The facts and circumstances must be so cogent and obvious that to

remain passive would amount to a deliberate desire to evade knowledge

because of a belief or fear that inquiry would disclose a defect in the

transaction.”). Absent proof of these factors, the bank is allowed to

presume that the fiduciary is acting within his capacity as a fiduciary.

The bankruptcy court concluded, and we agree, that the Trustee failed

to establish that Mercantile acted with “actual knowledge” or in bad faith,

as no evidence was produced to establish the teller had any knowledge that

Mansfield was breaching his fiduciary duty. Compare Trenton Trust, 599

S.W.2d at 484-86 (guardian allowed to use insurance checks made payable to

her as guardian for her children to purchase certificates of deposit which

did not reflect fiduciary relationship; bank officer who allowed her to

cash checks was on first name basis with fiduciary, had been told about her

fiduciary status, and had supervised fiduciary’s endorsement of checks to

match payee, even looking specifically to see if the payee and endorsements

matched; bank was liable under UFL, as officer had actual knowledge of the

fiduciary’s breach), with Southern Agency, 452 S.W.2d at 102-04 (corporate

president deposited checks payable to corporation into account of different

corporation in which he was the principal shareholder; president then used

funds to purchase cashier’s checks; bank did not act with actual knowledge

or bad faith, as there was no evidence or testimony to show any 

of bank’s employees actually knew president was breaching his fiduciary

obligations).6
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B. Holder in Due Course

Likewise, we conclude Mercantile took the check as a holder in due

course without knowledge of Mansfield’s fiduciary status and breach of

fiduciary duty. Under Missouri law in effect at the time of the

transaction--a “purchaser [of a negotiable instrument] has

notice of a claim against the instrument when he has

knowledge that a fiduciary has negotiated the instrument

in payment of or as security for his own debt or in any

transaction for his own benefit or otherwise in breach of

duty,” Mo. Ann. Stat. § 400.3-304(2) (West 1965). A

purchaser who takes with such knowledge does not take as a holder in due

course. See Mo. Ann. Stat. § 400.3-302(1)(c) (West 1965). Section 400.3-

304(2) followed the policy of the Uniform Fiduciaries Act, and the UCC

Comment following § 400.3-304 makes it clear that:

mere notice of the existence of the fiduciary relation is not

enough in itself to prevent the holder from taking in due

course, and he is free to take the instrument on the assumption

that the fiduciary is acting properly. The purchaser may pay

cash into the hands of the fiduciary without notice of any

breach of the obligation.

Mo. Ann. Stat. § 400.3-304, UCC comment 5 (West 1965); McKee Constr. Co.

v. Stanley Plumbing & Heating Co., 828 S.W.2d 700, 703 (Mo. Ct. App. 1992)

(where code is adopted by state, accompanying comments “are given great

weight”); Boatmen’s Nat’l Bank of Carthage v. Eidson, 796 S.W.2d 920, 923

(Mo. Ct. App. 1990) (official UCC comments, while not having the force of

statutory language, are nonetheless permissible and persuasive in

determining legislative intent).
The transaction in this case occurred in January 1992, and the new UCC

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provision was not approved until July 8, 1992.

Section 400.3-307(b)(2) (West 1994 & Supp. 1997) states: 8

In the case of an instrument payable to the represented person or the

fiduciary as such, the taker has notice of the breach of fiduciary duty if the

instrument is (i) taken in payment of or as security for a debt known by

the taker to be the personal debt of the fiduciary, or (ii) taken in a

transaction known by the taker to be for the personal benefit of the

fiduciary.

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Testimony before the bankruptcy court reflects that while the

Mansfields’ loan officer at Mercantile knew of Mansfield’s status as

officer of Broadview and Broadview’s impending bankruptcy, the teller who

conducted the transaction was unaware of both these facts. The teller

testified that she did not know Mansfield, and she was unable to identify

him in the courtroom; she further testified that there was no way to tell

whether the check was payable to a corporation, and that she assumed the

check may have been payable to a “d/b/a type of account.” These facts are

insufficient to demonstrate actual knowledge that Mansfield was depositing

corporate funds for his personal benefit and are thus insufficient to put

Mercantile on notice of the Trustee’s claim to the funds.

To the extent the Trustee relies on what he believes to be the

current UCC provision, such reliance is misplaced. The Trustee sets forth

in his brief the UCC provision enacted in Missouri in 1992--after the

transaction at issue here7--which stated that a taker has notice

of a breach of fiduciary duty where an instrument payable

to a represented person (which includes a corporation) is

“deposited to an account other than an account of the

fiduciary, as such, or an account of the represented

person.” See Mo. Ann. Stat. § 400.3-307(a) & (b)(2) (iii) (West

1994). The Missouri Legislature amended that provision in 1994, however,

to delete the language on which the Trustee relies. See Mo. Ann. Stat. §

400.3-307(b)(2) (West 1994 & Supp. 1997). We also 8
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note that both the current and superseded versions of section 400.3-307

apply only when the bank has “knowledge” of the presenter’s fiduciary

status; “knowledge of the [bank] is determined by the knowledge of the

‘individual conducting that transaction,’ i.e., the clerk who receives and

processes the instrument.” Mo. Ann. Stat. § 400.3-307, UCC comment 2 (West

1994). “Notice which does not amount to knowledge is not enough to cause

section 3-307 to apply.” Id. The bank clerk’s mere notice of

Mansfield’s status as a corporate officer does not amount to “knowledge”

that Mansfield owed “a fiduciary duty with respect to [the] instrument,”

Mo. Ann. Stat. § 400.3-307, within the meaning of Missouri’s Uniform

Commercial Code.

C. Constructive Trust or Equitable Lien

“A constructive trust is a method by which a court exercises its

equitable powers to remedy a situation where a party has been wrongfully

deprived of some right, title, benefit or interest in property as a result

of fraud or in violation of confidence or faith reposed in another.” Fix

v. Fix, 847 S.W.2d 762, 765 (Mo. 1993) (en banc) (internal quotations

omitted). The purpose of a “constructive trust is to restore to the

rightful owner the property wrongfully withheld by the defendant.” Id.

Under Missouri law, an equitable lien is applicable only where there is an

inadequate remedy at law and “justice would suffer without the equitable

remedy.” Jorritsma v. Tymac Controls Corp., 864 F.2d 597, 599 (8th Cir.

1988). “Generally, equity will not intercede if there is an adequate

remedy at law.” Hammons v. Ehney, 924 S.W.2d 843, 847 (Mo. 1996) (en

banc). See Newmark v. Vogelgesang, 915 S.W.2d 337, 339 (Mo. Ct. App. 1996)

(“Equitable relief is discretionary, extraordinary, and should not be

applied when an adequate legal remedy exists.” (internal quotations

omitted)). 

As the Trustee was awarded a money judgment against the Mansfields,

and there is no evidence that the Mansfields are insolvent, we conclude

that the bankruptcy court correctly declined to impose a constructive trust

or an equitable lien. 
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IV.

Accordingly, we affirm the judgment of the district court.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.