Court Opinion

ID: 6868817
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:58:12.306046+00
Date Added: 2024-06-11T16:05:22.182623
License: Public Domain

EVANS, Circuit Judge
(dissenting).
I find myself impelled to dissent on the ground that the record shows the obligation of appellant’s principal was breached. The trustee’s (appellant’s) obligations, which measured the surety’s liabilities, were to (a) obey all court orders, (b) account for moneys of the estate, and (c) perform all official duties as trustee.
It is not possible to construe the measure of liability of a trustee set forth in (c) as being the same as imposed by (a) or (b).
What then were the official duties of the trustee ?
They were obviously not restricted to carrying out the express orders of the court nor were they limited to the affirmative duties specified in the statute and confined to keeping accounts. I can not agree that a trustee in every case meets the requirements of his official duties when he deposits the money by him collected in any bank named as a depository.
In other words, a trustee is one who occupies a fiduciary relation towards the creditors of the bankrupt. His is a position of trust. When the trustee, Howard, arranged with the bank to get a personal loan for a substantial sum and in return agreed to deposit the moneys which belonged to the creditors of the various estates for which he was trustee in the bank that loaned him personally the money, he failed in his plain duty to the creditors. He could not avoid the consequences of that failure if loss resulted through a failure of the bank, by showing that the bank wherein the money was deposited was a bank of deposit.
I can not agree that the personal loan to the trustee is of no moment in this case. It may not be determinative, it is true, but such a loan created a conflict of interest between Howard, the borrower, and Howard, the trustee. It undoubtedly influenced him, as trustee, when it came to keeping the creditors’ money in the bank and also accounts for his not distributing the funds to creditors as promptly as he should have done. At least, any fact finding body might well have so found. Why didn’t Howard distribute the large sums he had on deposit among the creditors to whom they belonged? With creditors sadly in need of the dividends, with the danger of bank failures facing him on all sides, with all of his deposits in one bank, the total amount of which was nearly ten times the amount of the bond which the bank executed, it was most natural for a diligent trustee to distribute the money to those entitled to it as fast as possible. On the other hand, distribution of the cash would have reduced the bank’s deposits, which were already at the vanishing point. It was to the bank’s interest to keep the money on deposit. Howard, as trustee, was the only substantial depositor left. Can reasonable men differ as to the influence and effect of that personal loan on Howard’s action?
In performing the official duties mentioned in the bond, where there are many banks of deposit in the district and banks are closing almost daily, the plain duty, it seems to me, of the trustee was to select the bank which he would have chosen were he depositing his own money. Certainly no lesser degree of responsibility for a trustee may safely be announced. It is quite impossible, upon the record before us, to say that Howard used the same diligence in depositing all the moneys of all the accounts in this one little out-lying bank where deposits had been greatly reduced that he would have used had he been handling his own funds. In fact, it is the conclusion of common sense that as an individual he would not have deposited any part of it there in the first place, and he would not have left it there when the constant crashing of banks directed thoughts of those with funds to the security of their deposits. I cannot believe Howard would have left the money in this bank save for the existence of his own unsecured note to the bank.
Much stress is placed upon the fact that the trustee sought the advice of the then District Judge and from him secured oral *250approval of his action in leaving the creditors’ money on deposit in the Phillip State Bank. Doubtless, protection might have been secured through court action especially if the orders were made on notice to creditors.
It is significant, however, that no claim is made that a written order was entered or that a minute of any oral order was made by the clerk. While a written order was perhaps not necessary, it would have established the fact far more conclusively. As it now stands the jury might well have doubted or disbelieved Howard’s story. The judge, who it is asserted gave his approval, did not testify, and it is not even claimed that in approving Howard’s continued deposit in this bank the District Judge knew of the personal loan of said bank to Howard or that all of the funds of all the estates wherein- Howard acted as trustee were thus deposited. Nor did he know that the total deposits exceeded the bank’s bond nine times.
In a matter of such importance we can hardly accept as conclusive on the question of trustee’s performance of duty the statement of the existence of an ex parte order alleged to have been made by the court, which order was neither reduced to writing nor a minute made of it by the clerk, and which involved nearly a half million dollars and dealt with the performance of an official duty. In the entry of such an order the creditors were interested, and it is not imposing too strict a responsibility on the trustee to hold that a court order should afford him protection only when made on notice to creditors. As a proper protection to-the court, who without it may be easily misrepresented, and also in fairness to the court’s appointee, who is entitled to protection when the future realizations prove false the present expectations, such orders should be in writing and entered only upon notice to parties who have appealed.
Appellant’s statement and argument that the note which he gave to the bank was for moneys borrowed by him in order to permit him to more effectively administer the bankrupts’ estates entrusted to his care and that all other individuals who are regularly appointed trustees in bankruptcy by the District Judges of the Northern District of Illinois borrow money from the banks and give their unsecured notes therefor, with the understanding that the money coming into the trustee’s possession will be deposited in said bank, must be rejected because of lack of factual support. Moreover, if all the other trustees are so obtaining personal credit on the strength of the use (or misuse) of their official position, the present affords a good opportunity to put a stop to the practice by a pronouncement of judicial, unequivocal condemnation thereof.
My conclusion is that the District Court properly submitted to the jury the question of fact arising out of Howard’s alleged breach of official duties for which appellants were liable as surety.