Court Opinion

ID: 3852025
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:33:19.961718+00
Date Added: 2024-06-11T14:14:37.737145
License: Public Domain

While we are all in accord that the checks herein made payable to the "Estate of Anna Hoffman" are not instruments made payable to bearer under Section 9 of *Page 96 
the Negotiable Instruments Law of 1901, P. L. 194, I am unable to agree with the majority in the conclusion which they have reached. I would affirm the judgment of the court below as a matter of law. I see no valid reason for submitting this case to a jury.
When the lawyer for the estate presented to defendant bank two checks payable to the order of the estate, endorsed by him "Estate of Anna Hoffman, Wm. J. Ballen, attorney", and deposited the checks in his individual account in defendant bank, the latter was placed under an immediate duty to inquire concerning the extent of his authority. Had nothing more than this appeared in the case, all concede that the bank would be liable.
According to the stipulation of counsel, it wassubsequently discovered, and it is so noted in this Court's opinion, that the administratrix of the estate had given the lawyer a letter of attorney, authorizing him "to collect any and all moneys due the said estate, and to endorse any and all checks payable to me as administratrix of the said estate, andto deposit the funds so collected in his attorney's account". (Italics mine.) The record is silent, however, as to whether the letter of attorney, so belatedly found, was in the bank's possession or among the effects of the defaulting lawyer.
The decision in this case depends upon the construction of Section 9 of the Uniform Fiduciaries Act of 1923, P. L. 468, 20 PS, Section 3393, as to what constitutes "actual notice" and "bad faith". This section reads as follows: "If a fiduciary makes a deposit in a bank to his personal credit of checks drawn by him upon an account in his own name as fiduciary; or of checks payable to him as fiduciary; or of checks drawn by him upon an account in the name of his principal, if he is empowered to draw checks thereon; or of checks payable to his principal and indorsed by him, if he is empowered to indorse such checks; or if he otherwise makes a deposit of funds held by him as fiduciary, — the bank receiving *Page 97 
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 thefiduciary is committing a breach of his obligation as fiduciaryin making such deposit or in drawing such check or withknowledge of such facts that its action in receiving thedeposit or paying the check amounts to bad faith." (Italics mine.) As I understand the view of the majority, if the letter of attorney was in the possession of the bank, the contents of the letter of attorney would be regarded as actual notice of the attorney's breach of trust, and would result in the bank's liability to the plaintiff. They decide, however, that if the instrument was discovered in the lawyer's files, a determination that the lawyer did possess authority to endorse would alone be sufficient to relieve the bank from liability. In such circumstance the majority hold that all other parts of the authorization may be disregarded. As I understand it, the issue to be tried by the jury is: in whose possession was the letter of attorney found?
I am of the opinion that there is no sound basis for such a highly technical distinction. Since the possible irregularityin the endorsements appeared upon the checks themselves, it immediately placed the defendant bank under a duty to inquire as to the scope of the lawyer's authority. This the bank did not do. It now seeks refuge in the later discovered letter of attorney — a document which should have been produced in the first instance. The paper reveals upon its face the limitations upon and the extent of the attorney's authority. It discloses that the lawyer was directed, after collection and endorsement of checks, to place the proceeds in his "attorney's account".
It is my view that the lawyer in the instant case, by his manifest violation of instructions clearly appearing *Page 98 
in the instrument of authorization, committed a breach of trust, concerning which the defendant bank had "actual notice"
within the meaning of the statute. The defendant bank also acted in "bad faith" within the meaning of the statute. This is particularly true because the breach of trust was committed in the defendant bank and was, by the deposit in the bank, aided and assisted by the bank employees in entering and recording the deposit. This is a matter of law and not one of fact.
The ninth section of the Uniform Fiduciaries Act has been construed by this court on three occasions: In PennsylvaniaCo., etc. v. Ninth Bank  Trust Co., 306 Pa. 148, a check was given by a trustee to a bank in payment of the trustee's personal debt to the bank. In an opinion by Mr. Justice DREW, in which the bank was held liable, it is stated (P. 153), ". . . it had knowledge of all the facts essential to show a breach of trust". In Union Bank and Trust Co. v. Girard Trust Co.,307 Pa. 488, two officers of the bank were authorized to execute clearing house due bills, which they did. There existed no facts to put the payee bank on inquiry as to a breach of trust (pp. 496-497), and, in an opinion by Mr. Justice LINN, we held that the payee bank incurred no liability. In Davis, Trustee,v. Pennsylvania Co., etc., 337 Pa. 456, we held, in an opinion by Mr. Justice STERN, that a bank was not liable, for receiving, as a deposit in a fiduciary's personal account, a check drawn by the fiduciary on the trust account and payable to his own order. (P. 459) ". . . unless the bank received thedeposit or pays the check with actual knowledge that thefiduciary is committing a breach of his obligation as fiduciaryin making such deposit or in drawing such check, or withknowledge of such facts that its action in receiving thedeposit or paying the check amounts to bad faith."
I agree that these three decisions represent accurate statements of the law, properly applied to the factual situations in each of these cases. The facts in the present case, however, present an entirely different situation. *Page 99 
Here there were endorsements which should have placed any intelligent and careful banker upon notice. The bank well knew, or should have known, that the duties of a lawyer for an estate are limited solely to legal matters and, in the absence of special authority, have nothing to do with the fiscal affairs of the estate. It, therefore, imposed a duty upon the bank to inquire concerning the basis and scope of the lawyer's authority. Had it performed this duty, the power of attorney would have disclosed the extent of the lawyer's authority. With the deposit in the defendant bank it revealed also the commission of the breach of trust in which the bank participated. In its failure to act, and by its participation, the bank should, in my opinion, be held liable under principles analogous to those stated in Pennsylvania Co., etc. v. NinthBank  Trust Co., supra.
I am led by the foregoing situation into an examination of the decisions as to what constitutes actual notice under the statute. The majority assumes that it must always be affirmative proof of the fact itself. On the contrary, notice is regarded in law as actual when the party sought to be affected by it knows of the existence of the particular fact in question, or is conscious of having the means of knowing it. 46 C. J. 539, § 7. The type of notice referred to as "actualnotice" is susceptible of sub-division; it may be either express or implied; that is, it may consist of knowledge actually brought personally home, or it may consist ofknowledge of facts so informing that a reasonably cautiousperson would be led by them to the ultimate fact. (Italics mine.) Id. § 8, see City of Baltimore v. Whittington,78 Md. 231, 235; Rhodes v. Outcalt, 48 Mo. 367, 370; 28 Words and Phrases, page 821.
The endorsements on these negotiable instruments placed the defendant bank upon immediate inquiry as to the authority of the lawyer. The slightest inquiry would have resulted in the production of the letter of attorney. This would have disclosed the extent of the *Page 100 
lawyer's authority, as well as the breach of trust which resulted in the deposit in defendant bank to the lawyer's personal account. This, in my opinion, constitutes actualnotice within the meaning of the statute. In other fields liability has always accrued where a person is put upon inquiry but fails to act: Bradlee  Co. v. Whitney  Kemmerer, 108 Pa. 362; see also McCray v. Clark et al., 82 Pa. 457; Hottensteinv. Lerch, 104 Pa. 454.
Furthermore, I am of the opinion that these facts reveal"bad faith" as defined by the Act. Bad faith, in such circumstances, is stated by Mr. Justice LINN in Union Bank Tr. Co. v. Girard Trust Co., 307 Pa. 488, 498. "When it isdecided that inquiry should have been made, and was not, ataker will be held to have acted in bad faith, if inquiryshould have elicited the officer's misappropriation; a payee isnot excused for not discovering what he could so have learned."
In that case there was held to be no liability because there was nothing to put the payee on inquiry. Much learning has been expended upon the subject as to what constitutes "actual notice" and "bad faith" under the Uniform Fiduciaries Act, all of which affirm the principles above stated: see Brannan'sNegotiable Instrument Law (Sixth Edition) 633; 18 Michigan Law Review 355; 81 University of Pennsylvania Law Review 617; 3 Scott, Trusts, § 324.5, p. 1752, et seq.
As the bank relies upon the written power of attorney, theplace where the instrument was found is immaterial. The effect should be precisely as if it had been presented to the bank at the time of the deposit. Since the bank was delinquent in its duty to secure the production of the power of attorney originally, it certainly should be placed in no better position merely because of the fortuitous circumstance that the letter remained in the lawyer's file. The bank should not be permitted to profit by its own delinquency. Moreover, it is equally clear that the letter cannot be used by the bank to establish the authority of the attorney without regard to the *Page 101 
other provisions appearing in the same instrument. The bank should not be permitted to affirm and disaffirm at the same time. It must accept the burden with the benefits. The instrument must be read as a whole and its interpretation is for the court.
I would hold, as did the court below, that this defendant did have actual notice of the breach of trust, and also acted in bad faith within the meaning of the Uniform Fiduciaries Act. I would, therefore, affirm its judgment.