Court Opinion

ID: 3412421
Source: CourtListenerOpinion
Date Created: 2016-07-05 19:30:14.315755+00
Date Added: 2024-06-11T13:42:51.952331
License: Public Domain

The only question here is: Has plaintiff made out a case of conversion? It claims that defendant bank is so liable upon the bare ground that after cashing a draft drawn in its favor upon plaintiff by plaintiff's agent, Goodall, it permitted Goodall to deposit the proceeds in his personal account, thereby becoming a party to misappropriation of trust funds.
There is no whit of proof in the record that defendant bank had actual knowledge that the agent purposed a wrongful application of the money, or any knowledge that would have put it on inquiry, save the bald transaction itself.
Let us re-examine the facts. Plaintiff plead that it had a banking arrangement with defendant whereby the latter was to cash all drafts drawn upon the plaintiff by Goodall for purchases of grain; that Goodall "was not authorized to issue, nor did he at any time issue any draft on this plaintiff, payable to his own order, nor was he at any time authorized to receive or disburse any money belonging to this plaintiff, and that all expenses incurred by him for the use or benefit of this plaintiff, and all compensation due him from time to time were, as said bank well knew, paid by checks issued by plaintiff through other and authorized employees, and not otherwise."
According to the record, whatever banking arrangement was had was originally effected by Goodall himself. He engineered the entire matter and gave all the instructions with regard thereto. Defendant never received as much as a word or a scratch of the pen from plaintiff. Vide the testimony of the defendant's officer, Mockler:
"Q. And you had no instructions or directions from anybody representing the White-Dulany Co. except Mr. Goodall in the handling of that business? A. No, sir."
Again:
"Q. What were you undertaking to do under that arrangement? A. Well, to cash all the White-Dulany drafts that came in over the counter. *Page 103 
"Q. To cash them? A. Yes, sir."
Again:
"Q. And whom would you credit? A. Well, whatever the credit was for."
And again:
"Q. Mr. Goodall made arrangements whereby drafts drawn by him on the White-Dulany Co. in Seattle would be cashed by your bank? A. Yes, sir.
"Q. And under that arrangement you undertook to cash drafts on presentation? A. Yes, sir."
And yet again:
"Q. How did you know what to do with it? A. We just — whatever he told us.
"Q. Well, I say, you followed his instructions in applying the money? A. Yes, sir."
As between plaintiff and defendant, under such conditions, as regards banking arrangements, that Goodall was plaintiff's agent is not debatable. Notwithstanding plaintiff's positive allegations aforementioned, Goodall did pay certain auto expenses, salary and storage charges by drafts drawn by himself on plaintiff, and by plaintiff approved and paid. Under the system employed, Goodall was to report every transaction, and accompany it with a receipt or voucher. These would reach the Seattle office from three to five days before the arrival of the draft drawn by Goodall to cover the transaction. When the drafts complained of reached the Seattle office, they had not been preceded by any such receipt or voucher. Nevertheless, the principal paid them, with never a word of warning to the defendant Craigmont Bank which was handling the proceeds in strict conformity with its only instructions.
This went on for more than a twelve-month. The sum and substance of the trouble is this: Plaintiff trusted Goodall; Goodall betrayed it. The bank trusted Goodall; Goodall deceived it. Which of these innocent parties is to suffer? Plaintiff knew that Goodall was disobeying orders: the bank did not; and, had plaintiff done what it should have done, either refused to pay the unexplained draft and *Page 104 
notify the bank or have had one auditing at least during a period of nearly twenty months, it would not have fallen into the position it now occupies.
But, says the plaintiff, an audit would not have disclosed any peculation. Rather unconvincing logic, when a simple tabulation would have determined what had been paid out and what had been accounted for! On the facts, plaintiff is effectually foreclosed, not only by its own negligence, but by reason of its failure to make out a case.
This court refuses the proposition that the mere switching of trust funds by a fiduciary to his own personal account imposes upon the depository bank any duty whatever. Unless the bank has actual knowledge of the agent's wrongful purpose, or is possessed of knowledge which would put a prudent man on guard, it is not compelled to play the sleuth and engage a staff of detectives to shadow every trustee with whom it does business. Fraud is never to be presumed. Can the naked switching of a trust fund to the fiduciary's personal account arouse justified suspicion? No! Honi soit qui mal 'y pense. (Farmers' Bank ofAlamo, Ga., v. United States F.  G. Co., 28 Fed. (2d) 676.)
If a fiduciary has authority to draw a draft, he has the power to obtain the money for the benefit of his principals; and, unless the bank has knowledge to the contrary, it has the right, from its previous course of business, to presume and believe that he was acting for his principals in having the draft cashed, and that he intended using the money for his principals, and not for himself. No better statement of the rule has appeared than that of Judge Hawkins in his concurring opinion in the case just cited:
"I do not believe it was any of the bank's business, and it did not have to inquire or act in the matter one way or the other, so long as the checks were correctly drawn, for there was no privity between the bank and the beneficiary of the trust."
Our present Fiduciary Act, chap. 217, Laws of 1925, p. 393, sec. 6, expressly declares this very immunity, and while enacted after the transactions complained of, it but *Page 105 
announces the weight of progressive and informed authority theretofore in force elsewhere.
In order to prove its case, it was incumbent for plaintiff to show that defendant received the deposit with actual knowledge that Goodall was committing a breach of his obligation as agent in making such deposit, or with knowledge of such facts that its action in receiving such deposit amounted to bad faith. Plaintiff, however, submitted proof of neither.
It is urged that the judgment of dismissal entered was erroneous; that, instead, defendant bank should have been put to its proof, necessitating regular findings and judgment. This was wholly unnecessary. A jury trial had been waived; and the Court sat as the sole trier of the facts. All the facts were before it, including the positive testimony of the witness, Mockler, as follows:
"Q. Did you have any knowledge prior to May 25, 1925, that Mr. Goodall was misappropriating or misapplying the funds of the White-Dulany Co.? A. No, sir.
"Q. Did you have any suspicion to that effect? A. No, sir."
Upon the showing made, the court having determined that the plaintiff had failed to make its case, it would have been an idle gesture to have required defendant to reiterate under the guise of defense what had already been proved.
Judgment affirmed. Costs to respondent.
Budge, C.J., and Givens and Win. E. Lee, JJ., concur.