Opinion ID: 2359528
Heading Depth: 1
Heading Rank: 1

Heading: The Uniform Fiduciaries Act

Text: The bank argues first that it is completely shielded from all liability for redeeming the certificates, under any theory, because of 7 Pa.S. § 6361 (Purdon's 1984-85 Supp.). This section of the Uniform Fiduciaries Act states: 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. 7 Pa.S. § 6361. The Act, if applicable, would relieve the bank of liability. The court below, however, held that the UFA did not apply to this case. Lower court opinion at 33. The key to determining the applicability of the Act lies in the statute and in the intent of its drafters. The UFA's purpose is: [To] establish uniform and definite rules in place of the diverse and indefinite rules now prevailing as to constructive notice of breaches of fiduciary obligations. In some cases there should be no liability in the absence of actual knowledge or bad faith; in others there should be action at peril. In none of the situations here treated is the standard of due care or negligence made the test. 7A Uniform Laws Annotated 128 (1978). The Supreme Court held in Davis v. Pennsylvania Company for Insurances on Lives and Granting Annuities, 337 Pa. 456, 12 A.2d 66 (1940), that the bank's responsibility in a case such as this is to act honestly: At what point does negligence cease and bad faith begin? The distinction between them is that bad faith or dishonesty, is, unlike negligence, wilful. The mere failure to make inquiry, even though there be suspicious circumstances does not constitute bad faith unless such failure is due to the deliberate desire to evade knowledge because of a belief or fear that inquiry would disclose a vice or defect in the transaction  that is to say when there is an intentional closing of the eyes or stopping of the ears. Id., 337 Pa. at 460, 12 A.2d at 69 (citation omitted). In Davis, the fiduciary was a trustee and the plaintiffs the beneficiaries of a trust. The trustee sold trust property through the bank, had the proceeds credited to the trust account, and then withdrew the proceeds for his own use. The Court refused to hold the bank liable, stating that there were no facts or circumstances which should have made defendant suspicious. Id., 337 Pa. at 461, 12 A.2d at 69. This Court held in Gordon v. Hamilton Savings and Loan Ass'n., 207 Pa.Super. 231, 217 A.2d 843 (1966), that where the administrator of an estate had embezzled savings from an estate account, the bank could not be held liable: The development of our statutory law has been directed toward placing the responsibility for assets held in a fiduciary capacity directly on the fiduciary, where it rightly belongs, and relieving those who deal with fiduciaries from responsibility. Id., 207 Pa.Superior Ct. at 235, 217 A.2d at 845. It is obvious that the Act addresses the concepts of both negligence and bad faith. From the drafters' comments and the interpretation given the Act by our courts, we conclude that the Act applies when the essence of the complaint is that the defendant has paid money to someone who was authorized to receive it, but who later misapplied it. [10] The Act shields banks from liability when they act honestly in fiduciary relationships, but not when they wink at obvious irregularities. This is so that the wheels of commerce may roll easily. If banks had a duty, for their own safety, to divine the purpose of every fiduciary's transaction, expensive and time-consuming exercises in futility would result, since most fiduciary dealings are honest. Additionally, it would seem reasonable to assume that a determined embezzler could falsify the accreditation needed to pass any cursory investigation instituted by a bank. [11] Although the essence of the law firm's complaint is that the bank paid certificates of deposit to an authorized person who later misapplied the funds, its complaints aver that the bank is liable in indemnity or contribution, and that the bank breached its contracts with the law firm. [12] The Uniform Fiduciaries Act was not designed to supersede contract law. The lower court correctly held that in this case, with the causes of action before the court, the UFA did not apply. [13]