Source: https://www.legalcrystal.com/case/96760/united-states-ex-rel-willoughby-vs-howard
Timestamp: 2017-12-13 23:00:44
Document Index: 66678011

Matched Legal Cases: ['§ 101', '§ 101', '§ 101', '§ 75', '§ 476', '§ 391']

United States Ex Rel Willoughby Vs Howard - Citation 96760 - Court Judgment | LegalCrystal
United States Ex Rel. Willoughby Vs. Howard - Court Judgment
LegalCrystal Citation legalcrystal.com/96760
Case Number 302 U.S. 445
Appellant United States Ex Rel. Willoughby
.....depositories, he deposited funds of the estates totaling more than eight time the penalty of the bank's depository bond. he continued to maintain the funds there, although he knew of several heavy runs on the bank, and that its deposits and resources were dwindling. the bank closed its doors, and subsequently actions were brought on the bonds given by h. held: (1) the exercise of ordinary care in making and maintaining deposits, even though made in a designated depository, was part of h's official duties, and he and his surety are liable on the bonds if he failed in this respect. p. 302 u. s. 454 . (2) the evidence on the issue as to whether h had failed in the faithful performance of his official duties was ample -- particularly in view of the personal loans to.....
United States ex rel. Willoughby v. Howard - 302 U.S. 445 (1938)
U.S. Supreme Court United States ex rel. Willoughby v. Howard, 302 U.S. 445 (1938)
1. By the common law, it is the duty of a trustee or receiver, unless relieved by agreement, statute, or order of court, to exercise reasonable care in the custody of the fiduciary estate. P. 302 U. S. 450 .
2. In respect of the care of the funds of the bankrupt estates here involved, the duty of the trustee or receiver was not limited, by any agreement, statute, or order of court, to depositing them in one of the depositories designated by the court under U.S.C. Title 11, § 101. Pp. 302 U. S. 450 -452.
3. Although designation by the court of depositories for funds of bankrupt estates limits the discretion of the depositing officer and may render him absolutely liable for the loss of funds placed elsewhere, it does not relieve him of the duty of exercising care and prudence within the field left to his discretion. Pp. 302 U. S. 451 -452.
4. The mere imposition of statutory duties does not remove liability for breach of existing common law duties. P. 302 U. S. 452 .
5. The contention that the Bankruptcy Act established a depository system -- analogous to the depository system established by Congress for the deposit of Treasury funds -- which relieved trustees and receivers wholly of the duty of exercising care as to the condition or stability of a depository cannot be sustained. P. 302 U. S. 453 .
(1) The exercise of ordinary care in making and maintaining deposits, even though made in a designated depository, was part of H's official duties, and he and his surety are liable on the bonds if he failed in this respect. P. 302 U. S. 454 .
(2) The evidence on the issue as to whether H had failed in the faithful performance of his official duties was ample -- particularly in view of the personal loans to him -- to justify submitting the question to the jury. P. 302 U. S. 454 .
The question for decision is whether a trustee (or receiver) in bankruptcy and the surety on his official bond can be held liable for the loss resulting from the insolvency of the bank in which the estate's funds were deposited if it was one of the depositories designated by the court under U.S.C. Title 11, § 101.
The obligors bound themselves to pay any loss resulting to the estate from failure by Howard (a) to obey and order of the court, (b) truly and faithfully to account for all moneys, (c) faithfully to perform his official duties as trustee. [ Footnote 1 ] It is agreed that the condition of the bonds given as receiver was, in effect, the same.
Howard resigned as trustee or receiver of each estate. Chester A. Willoughby, who succeeded him, brought in that court, pursuant to leave, three actions in the name of the United States against Howard and the Casualty
The following, among other facts, appeared: about 20 Chicago banks had been designated by the court as depositories of bankruptcy funds in that district. Howard, who had for years served as trustee and receiver of bankrupt estates, had, prior to August, 1930, deposited the funds of the estates either in the Central Trust Company of Illinois or the Foreman State National Bank of Chicago. In July, he was solicited to transfer his bankruptcy deposits to the Phillip Bank, a small institution. He agreed to do so if the Phillip Bank should become a depository, would make him unsecured personal loans sufficient to discharge his existing personal indebtedness to the Central Trust Company and the Foreman State National Bank, and would give him thereafter like accommodation. The Phillip Bank loaned him $11,000; Howard paid his indebtedness to the other banks and, on August 20, the Phillip Bank qualified as a depository, giving a bond in the sum of $50,000. Within the next
First. That the obligors in the bonds are liable only for breach by Howard of an official duty may be assumed.
By the common law, [ Footnote 2 ] every trustee or receiver of an estate has the duty of exercising reasonable care in the custody of the fiduciary estate unless relieved of such duty by agreement, statute, or order of court. Obviously, Howard was not relieved of the duty by any agreement. The question for decision is whether, under the Bankruptcy Act [ Footnote 3 ] or any order of the court, this duty in respect to the care of funds was limited to depositing them in one of the depositories designated by the court under U.S.C. Title 11, § 101, so that Howard was relieved of all duty to exercise care in selecting the depository and maintaining funds therein.
Second. No statute relieved Howard of the common law duty to exercise care in the custody of the funds.
"Sect. 47 (U.S.C. Title 11, § 75). Duties of Trustees. "
Obviously the Act does not, in terms, relieve the trustee of the common law duty to exercise care in the custody of funds. The designation of banks of deposit proper for bankruptcy funds, like the listing of legal investments
for trustees and guardians, limits the discretion which can be exercised by the depositing officer and may render him absolutely liable for the loss of funds placed in a nondesignated depository. But the fact that the freedom of choice of the fiduciary is limited by statute does not relieve him of the duty of exercising care and prudence within the field left to his discretion. As he may not shut his eyes to the fact that a so-called legal investment is no longer sound, he may not disregard the fact that a depository proper when designated is no longer safe. [ Footnote 4 ] The mere imposition of statutory duties does not remove liability for breach of existing common law duties. Compare Bowerman v. Hamner, 250 U. S. 504 , 250 U. S. 510 -511; Yates v. Jones National Bank, 206 U. S. 158 , 206 U. S. 178 ; Mechanics Universal Joint Co. v. Culhane, 299 U. S. 51 , 299 U. S. 57 .
Third. No order of the court limited the common law duty of Howard to exercise care in the custody of estate funds. The Phillip Bank was designated as a depository on its own application. No order directed Howard to deposit funds in the Phillip Bank, and no order specifically authorized him to do so. Being free to select any one or more of the designated depositories, Howard was, in respect thereto, under the common law obligation to exercise care in the performance of his functions as a fiduciary. While he was making deposits in the Phillip Bank, there were about 20 others in the Chicago area which were designated depositories, so he had a wide range from which to choose. By designating the Phillip Bank as a depository, the court may have justified Howard in assuming that, on August 20, 1930, it was a trustworthy
place of deposit for bankruptcy funds to the extent of $50,000. But, throughout the period of deposit, the legal duty to exercise care remained. If at any time he discovered facts tending to show that the place of deposit was no longer safe, it was his duty to bring the facts to the attention of the court. [ Footnote 5 ] And at no time was Howard justified in maintaining a deposit not entirely secured by the depository bond if he had reasonable cause to doubt the stability of the bank.
Fourth. The contention that the Bankruptcy Act established a depository system which relieved trustees and receivers wholly of the duty of exercising care as to the condition or stability of a depository rests upon false analogy. For federal public funds, Congress has provided a depository system by which the moneys, as soon as deposited, are in effect in the Treasury of the United States. 31 U.S.C. §§ 476-478, 495; 12 U.S.C. §§ 391-392. Under that system, an officer who has duly made the deposits is relieved of all responsibility for the stability of the depository. Similar provision has been made in many states for the deposit of public funds of the state or municipality. [ Footnote 6 ] But the funds of bankruptcy estates are private funds, see Texas & Pacific Ry. v. Pottorff, 291 U. S. 245 , 291 U. S. 257 , note 11, and the provisions in the
Receiver in Bankruptcy: In re Curtis, 76 F.2d 751, 753; In re C. M. Piece Dyeing Co., 89 F.2d 37, 40; Hartford Accid. & Indem. Co. v. Crow, 83 F.2d 386, 388. Trustee in Bankruptcy: In re Reinboth, 157 F. 672, 674; Carson, Pirie, Scott & Co. v. Turner, 61 F.2d 693, 694; In re Kuhn Bros., 234 F. 277, 281; In re Newcomb, 32 F. 826; In re B. A. Montgomery & Son, 17 F.2d 404, 406; compare Delaware v. Irving Trust Co., 92 F.2d 17, 19; In re Kane, 161 F. 633, 639. Equity Receiver: Gutterson & Gould v. Lebanon Iron & Steel Co., 151 F. 72; Hitner v. Diamond State Steel Co., 207 F. 616, 622. Trustee: Barney v. Saunders, 16 How. 535, 57 U. S. 545 -546; United States Nat. Bank & Trust Co. v. Sullivan, 69 F.2d 412, 415, 416; Fidelity & Deposit Co. v. Redfield, 7 F.2d 800, 802; Johns v. Herbert, 2 App.D.C. 485, 497; Caldwell v. Hicks, 15 F.Supp. 46, 52; compare Strauss v. United States Fid. & Guar. Co., 63 F.2d 174, 176, 177; American Bonding Co. v. Richardson, 214 F. 897, 901; Thompson v. Hays, 11 F.2d 244, 247. Executor: See Taylor v. Benham, 5 How. 233, 46 U. S. 275 ; Glasgow v. Lipse, 117 U. S. 327 , 117 U. S. 333 -334; Moore v. Moore, 47 App.D.C. 18; 47 App.D.C. 23, 27. Guardian: Lamar v. Micou, 112 U. S. 452 , 112 U. S. 465 ; Corcoran v. Kostrometinoff, 164 F. 685, 687, 688.