Opinion ID: 1631481
Heading Depth: 1
Heading Rank: 1

Heading: creation of personal certificates from fiduciary funds

Text: The trial court concluded that respondent Hook's placement of the funds held by her in a fiduciary capacity in certificates of deposit in her name as an individual in joint tenancy with minors constitutes a breach of her fiduciary duty and that the transaction constitutes an unauthorized contract prohibited by Section 475.135, RSMo. [1978]. The court found that the bank actively participated in the fraud practiced on the minor wards on January 13, 1975. Appellant argues that this conclusion is incorrect as a matter of law, pointing out that § 475.190.1(10), RSMo 1978, expressly permits a guardian to invest the money of the ward . . . [in] [s]avings accounts and time deposits, including time certificates of deposit in banking institutions. The investment of wards' funds in their curator's personal name was held to constitute a breach of trust in Park Bank v. Yerington, 275 S.W. 970 (Mo.App.1925). In Yerington, the defendant deposited $5,000 of his wards' money in plaintiff bank, and took certificates of deposit in his name as guardian. The defendant afterwards directed the bank to buy government bonds to be registered in his individual name. The bank procured coupon bonds in the defendant's name as guardian, but it became insolvent before it received the registered bonds. A special deputy commissioner of finance took charge of liquidating the bank's assets. The commissioner tendered the registered bonds to the defendant, but refused to accept the certificates of deposit which the defendant held as guardian in payment for the bonds. The commissioner argued he had no legal right to accept the moneys of said trust estate in payment for bonds registered in the name of and the property of defendant, and sought a judgment for $5,000 against the defendant. Id. at 971. The court of appeals reversed a judgment for the plaintiff bank and remanded the case with directions to the trial court to order the bonds delivered to the defendant on the condition that he register them in his name as guardian. The court stated: We think there is no question but that defendant should not have had these bonds registered in his own name, and, however honest his intention might have been, he was guilty of a breach of trust. Id. at 972. The court continued: Defendant has been guilty of a breach of trust in which the bank participated. It is held that, where one buys trust property with notice of a violation of the trust, he takes title subject to the trust. [Citation omitted.] It is only when one pays money or property to a trustee in good faith that he is exonerated from seeing that the money or property is properly applied. [Citations omitted.] Id. The court considered the effect of § 414, RSMo 1919, which was a predecessor of § 475.190, RSMo 1978, and which authorized guardians to loan the money of their wards at the highest available legal rate of interest. The court observed that § 414, RSMo 1919, empowered [the defendant] to purchase the coupon bonds . . ., but not to have them exchanged for bonds registered in his own name. Id. The court found that there was no theory on which the bank could withhold the bonds from the wards' estate, but fashioned its order to avoid turning them over to the guardian unconditionally, stating that it should not lend its aid to defendant by making it possible for him to further violate his trust by using these bonds as his own. Id. The order was well grounded on the principle that a guardian may not, without breaching her trust, do any act to the detriment of her wards. See In re Farmers' Exchange Bank of Gallatin, 327 Mo. 640, 37 S.W.2d 936, 942 (1931); Hennies v. Keithley, 213 Mo.App. 529, 533, 255 S.W. 940, 941-42 (1923). A guardian is a creature of statute, and has only those powers that are prescribed by statute. Scott v. Royston, 223 Mo. 568, 123 S.W. 454, 466 (1909); State ex rel. Emmons v. Hollenbeck, 394 S.W.2d 82, 90 n. 9 (Mo.App.1965); Western Casualty & Surety Co. v. First State Bank, 390 S.W.2d 913, 919 (Mo.App.1965); In re Cordes' Estate, 116 S.W.2d 207, 209 (Mo. App.1938). Section 475.190.1(10), RSMo 1978, empowers a guardian to invest her ward's money in time certificates of deposit, but it does not authorize a guardian to make such an investment in the guardian's personal name. It follows that, when Mrs. Hook negotiated her wards' insurance checks and created joint certificates of deposit naming herself personally as one of the payees, she breached her fiduciary obligations to her wards. Park Bank v. Yerington, 275 S.W. 970, 972 (Mo.App.1925). It is undisputed that the bank, acting through its agent Charles Patterson, had knowledge of, and actively participated in, Mrs. Hook's deposit of the insurance checks, made out to her as guardian, in certificates of deposit and savings accounts titled in her name personally, jointly with her wards. Nor can the authority to deposit fiduciary funds in the personal name of the fiduciary be found in § 456.310, RSMo 1978. That statute in fact contemplates that a fiduciary may be committing a breach of his obligation as fiduciary in making such deposit. [1] It is unnecessary to determine in this case whether appellant is entitled to retain the insurance proceeds deposited on January 13, 1975. Consequently, we do not decide that question and do not examine the knowledge and good faith of appellant in creating the joint, personally titled certificates in January of 1975. [2] At issue in this case is whether the bank was entitled, in virtue of security agreements and pledge agreements formed in October and November of 1975, to retain the certificates of deposit created earlier. Determination of this question depends on the provisions of the Uniform Fiduciaries Act at the time certificates of deposit were accepted to secure personal debts of respondent Hook.