Court Opinion

ID: 3502679
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:09:32.127784+00
Date Added: 2024-06-11T14:16:07.222529
License: Public Domain

Careful consideration of both the factual and legal aspects of this appeal convinces me that the judgment of the trial court should be reversed. For that reason I am in disagreement with the opinions for affirmance written by Mr. Justice WIEST and Chief Justice BOYLES.
The facts involved are sufficiently noted in my Brothers' opinions. But attention should be directed to the following salient, and I think controlling, aspects of the case.
The county had no account in the defendant bank. The only account Gibb, the county clerk, had in defendant bank was his own personal account which was opened June 2, 1937. Thereafter and prior to December 28, 1937, he deposited in that account both his personal funds and six checks totaling $5,546.28 which were for county funds. Gibb by his personal checks drawn on this account turned over money from time to time to the county totaling $4,401.56. But to the extent of approximately $1,150 he appropriated from this bank account county funds for his personal use, There is no testimony tending *Page 55 
to show either at the time Gibb made the deposits in or withdrawals from this account that the defendant bank had actual or constructive notice of Gibb's attempt to misappropriate any of the county funds; or that the bank benefited by Gibb's use of these funds. There was no designated depository or designated manner of making deposits of these county funds. And, as pointed out in the opinion of Chief Justice BOYLES, there was no statutory provision applicable to deposits of public funds by county clerks.
I do not agree with the statement of Mr. Justice WIEST that (because of the inapplicable statutory provisions cited by him): "Under such statutes the deposit of the checks by the county clerk and direction of entry of credit therefor in his personal drawing account was unlawful." Nor do I agree with the following from Mr. Justice WIEST'S opinion: "here we have a public officer with his rights and duties specifically regulated by statute, with no trustee, fiduciary, or cestui que trust involved." As just above noted the phase of the discharge of the county clerk's duties in the particular here involved is not "regulated by statute;" and any application of the reference to "trustee" or "fiduciary" is clearly erroneous if it is meant thereby to infer that in his receipt or possession of county funds the county clerk was not acting in a trust or fiduciary capacity. Nothing is more firmly embodied in our law than the truism that: "A public office is a public trust."
A county clerk is as much a trustee of county funds which come into his custody as is the secretary-treasurer of a private corporation a trustee of corporate funds which come into his hands. This being so, the law of this case is controlled by our recent decision in Columbia Land Co. v. Empson, *Page 56 305 Mich. 220, which case in principle is on all fours with the instant case and wherein (quoting syllabi) it is said:
"The mere fact that a corporate officer who is fully authorized to receive money, indorse checks in the name of the corporation, deposit funds in the bank, pay out money for the corporation and handle its finances, deposits corporate checks in his personal account is not sufficient to charge the bank with notice that he intends to misappropriate corporate funds and the bank is not liable for the misappropriation of the corporate funds in the absence of any statute declaring such liability."
"Although a bank knows that the funds deposited with it are trust funds and the deposit is made in the name of the trustee personally, the bank is not bound to make inquiry whether the trustee is committing a breach of trust in making the deposit and although the deposit is made in breach of trust, the bank in receiving the deposit is not liable for participation in the breach of trust, in the absence of further circumstances known to the bank indicating the trustee is committing a breach of trust."
To hold defendant bank liable under the facts of this case not only would be in conflict with our holding in the Columbia LandCompany Case, supra, but it would contravene the law which, it has been said, constitutes the great weight of authority.
"The weight of authority is also to the effect that a bank is not charged with notice of misappropriation by an agent or fiduciary merely because the latter deposited to his individual account a check or note payable to or indorsed by him in his fiduciary capacity." 7 Am. Jur. p. 376.
"The better reasoned cases hold that, in the absence of a statute making it so, the drawing of a *Page 57 
check in due form upon a trust fund and the depositing of it in the same bank to the personal credit of the trustee is neither a conversion or a misappropriation of the fund nor notice to the bank of any such purpose." Maryland Casualty Co. v. CityNational Bank, 29 F.2d 662 (C.C.A.), a decision of the circuit court of appeals and certiorari was denied by the Federal supreme court. 279 U.S. 847 (49 Sup. Ct. 345, 73 L.Ed. 991).
"In the absence of statutory prohibition, a fiduciary may legally deposit trust funds in a bank to his individual account and credit, and the bank's knowledge of the nature of the funds deposited does not affect the character of the act. * * * The fact that the bank permits a fiduciary to deposit known trust funds to his individual account does not of itself impose liability on the bank for conversion nor constitute a participation by the bank in a subsequent misappropriation of the funds by the fiduciary." 9 C.J.S. p. 610.
In support of the above-quoted context numerous cases are cited including the Federal decision just above quoted and decisions from New York, Kentucky, South Carolina, Texas, Washington and Idaho. The supreme court of Oregon has held that a bank, acting in good faith, by crediting trust funds, knowing them to be such, to a fiduciary's personal account, will not thereby be rendered liable if the fiduciary subsequently appropriates such funds. SeeNew Amsterdam Casualty Co. v. Robertson, 129 Or. 663
(278 P. 963, 64 A.L.R. 1396). To the same effect see, also, Helena
v. First National Bank of Helena, 173 Ark. 197 (292 S.W. 140); and Quanah, A.  P.R. Co. v. Wichita State Bank  Trust Co.,127 Tex. 407 (93 S.W. [2d] 701, 106 A.L.R. 821). In the A.L.R. note to the Texas case the following is said: *Page 58 
"The rule stated in the earlier annotations, to the effect that, while the deposit by an agent, or fiduciary, of paper drawn by him in his representative capacity, for credit to his individual account, may, along with other circumstances, be sufficient to charge the depository bank with notice of misappropriation by the agent or fiduciary, such deposit, without additional circumstances, will not constitute such notice, is supported by the following later cases," citing numerous cases from courts of last resort.
It would seem that an accurate statement of the applicable rule is as follows: "A bank knowingly participating in misappropriation of public funds by a public official may be held responsible therefor, although where such participation is notshown the bank will not be liable." 9 C.J.S. "Banks and Banking," p. 611.
Incident to the statement that it is not the business or duty of a bank to administer or supervise the administration of trust funds, it has been appropriately and rather forcibly pointed out: "Any other rule would throw upon a bank the duty of inquiring as to the appropriation made of every fund deposited by a trustee or other like fiduciary; and the imposition of any such a duty would practically put an end to the banking business, because no bank could possibly conduct business, if, without fault on its part, it were held accountable for the misconduct or malversations of its depositors who occupy some fiduciary relation to the fund placed by them with the bank." 7 Am. Jur. "Banks," p. 375.
It is too obvious for argument that except the rule announced in the above-cited authorities is followed, a bank accepting a deposit under the circumstances of the instant case would be compelled to do one of two things. It would be compelled to accept and *Page 59 
administer the deposit at its peril or to act as a "supersnooper" by way of investigating each transaction related to such an account. The banking business of the country should not be hampered or penalized by the adoption of so harsh a rule. In substance we so held in our recent decision in the Columbia LandCompany Case, supra, quoting from the syllabus:
"A bank's knowledge that moneys deposited with it have been acquired by a depositor in a fiduciary capacity does not impose on it the duty, or give it the right, to institute an inquiry into the conduct of its customer in order to protect those for whom he may hold the fund, but between whom and the bank there is no privity, as the bank has a right to presume that the fiduciary will apply the funds to their proper purposes under the trust."
The above holding is in full accord with the Restatement of the Law on Trusts wherein it is said:
"Although the bank knows that the funds deposited are trust funds, and the deposit is made in the name of the trustee personally, the bank is not bound to make inquiry whether the trustee is committing a breach of trust in making the deposit; and although the deposit is made in breach of trust, the bank in receiving the deposit is not liable for participation in the breach of trust, in the absence of further circumstances known to the bank indicating that the trustee is committing a breach of trust." 2 Restatement, Trusts, chap. 9, § 324, p. 966.
In addition to like items hereinbefore noted there was a check drawn on another Ann Arbor bank for $93.82, dated June 1, 1937, payable "to the order of Emmett Gibb, Co. Clerk." This check was indorsed "Emmett M. Gibb, County Clerk"; and defendant bank cashed it for Gibb. This transaction was *Page 60 
clearly according to the exact terms of the check in the regular course of banking. No circumstance attended the cashing of this check which could be held to be actual or constructive notice to the defendant bank that Gibb would appropriate the money to his own use in violation of his fiduciary duty; and defendant bank is not liable for Gibb's misappropriation of the money rightfully paid to him on this check.
The only ground or theory on which plaintiff asserts a right of recovery is stated in its declaration as follows: "That by reason of the defendant bank's failure to refuse to credit to the personal account the funds drawn to Emmett M. Gibb in a fiduciary capacity, a defalcation on the part of Emmett M. Gibb of county funds was permitted to the loss of this plaintiff." Under such an allegation and in the absence of proof of any other fact or circumstance which would charge the defendant bank with either actual or constructive notice of Gibb's defalcation, we conclude, in accord with the above-noted authorities, that plaintiff cannot recover. In holding otherwise the trial judge, who heard this case without a jury, was in error. The judgment entered in the circuit court should be reversed.
STARR and BUTZEL, JJ., concurred with NORTH, J. *Page 61