Court Opinion

ID: 7843462
Source: CourtListenerOpinion
Date Created: 2022-09-08 17:05:41.258402+00
Date Added: 2024-06-11T16:20:36.001085
License: Public Domain

Berdon, J.,
dissenting. The majority today holds that a bank is not liable to the beneficiary of a trust when the trustee draws from a trust account maintained at the bank, funds to pay the trustee’s personal indebtedness owed to that bank. The defendant Union Trust Company, the depository and creditor bank, concedes that if the defalcating trustee did this by drawing a trust check on the bank to pay his personal indebtedness, it would be liable. Its only claim is that because the funds were electronically transferred within the bank—that is, the bank used a debit/credit memo to transfer the funds from the trust account to the bank itself to pay the trustee’s personal indebtedness—no one person was put on notice that the funds were trust funds.
Recognizing that the defendant’s argument is tenuous, the majority rejects the defendant’s concession that it would be liable if the indebtedness had been paid by a trustee check. Instead, the court relies on Titcomb v. Richter, 89 Conn. 226, 93 A. 526 (1915), to support *793the position that the bank was not placed on notice because the account was merely labeled as a trust account and not a trust account for a specific beneficiary.
Nevertheless, Titcomb is distinguishable. Titcomb involved a brokerage trustee account in the name of “Charles E. Morris, Trustee.” The trustee, without authority of the beneficiary, breached his fiduciary duty by investing in speculative securities which resulted in a loss of $25,000. The plaintiff in Titcomb sought to hold the brokerage firm liable for the loss to the trust property. By contrast, in the present case the plaintiff merely seeks to hold the bank liable to the extent that it actually benefited from the defalcation of the trustee.
As a matter of law, to the extent that the bank benefited from the trustee’s breach of fiduciary duty, it was put on notice that the funds used to pay the personal debt of the trustee were trust funds. “Where the bank seeks to apply the funds deposited to an indebtedness of the depositor individually to it, it is chargeable with notice that this would involve a breach of trust, although it would not be chargeable with such notice where it had no personal interest in the transaction but was acting merely as a depository.” 4 A. Scott & W. Fratcher, Trusts (4th Ed. 1989) § 324.4, pp. 265-66. “The inference . . . is that the fiduciary is misapplying the funds when he uses them to discharge his personal indebtedness, and the bank is chargeable with notice that he is doing so. It is not proper for the bank to accept in payment of an individual indebtedness a check drawn by the debtor on his account as fiduciary in the same bank or in another bank, or a check payable to him as fiduciary and indorsed by him to the bank.” Id., 268. Indeed, the “weight of authority in the United States . . . is . . . that the bank is liable to the extent that the trust funds so deposited in the trustee’s personal account are used in paying the deposi*794tor’s debt to the bank.”1 Id., 269. In 1994, there should be no difference that is legally relevant between drawing a check on the bank to pay an indebtedness to that bank and using an internal electronic transfer to accomplish the same result.2
The distinction drawn by Scott and Fratcher’s treatise between transactions that benefit the bank and transactions that result in money irretrievably leaving the bank is sound. In Titcomb, the improperly invested trust funds were lost forever, so that if the brokerage firm had been held liable, it would have suffered a $25,000 loss despite an arguable lack of notice that there was any impropriety. By contrast, in the present case, to deny the bank the benefit obtained would merely return the bank to the status quo prior to the trustee’s breach of his fiduciary duty; that is, the bank would have the same claim against the trustee individually for an outstanding loan that it had prior to his breach of fiduciary duty.
I would hold that the defendant was liable for its participation in the breach of trust to the extent that it benefited from the breach. Accordingly, I respectfully dissent.

 Even several of the cases the majority recites from other jurisdictions do not support its claim that an account in the name of a fiduciary clearly labeled as a fiduciary account, but without reference to the name of the beneficiary, does not put the bank on notice. See, e.g., United States Fidelity & Guarantee Co. v. Adoue & Lobit, 104 Tex. 379, 137 S.W. 648 (1911) (A.J. Compton, Guardian); Commercial State Bank v. Algeo, 331 S.W.2d 84 (Tex. App. 1959) (account in name of “Hall Walker, Trustee”); Brovan v. Kyle, 166 Wis. 347, 165 N.W. 382 (1917) (Carroll Lucas, Guardian).

 It is obvious that the majority is uncomfortable with its holding, which is predicated on Titcomb v. Richter, supra, 89 Conn. 226, but their opinion states that this court has “not been asked to overrule” Titcomb. The defendant, however, does not claim it relied on Titcomb to its detriment. Accordingly, to the extent that the holdings or dicta of Titcomb are inconsistent with the more persuasive view articulated by Scott and Fratcher in § 324.4 of their treatise, I would overrule it.