661 N.Y.S.2d 635 | N.Y. App. Div. | 1997
OPINION OF THE COURT
Plaintiff Home Savings Bank of America, FSB (hereinafter
In this action, commenced in January 1995, plaintiff Home Savings alleges, inter alia, that NatWest ought to be held liable for Amoros’ misappropriation of the funds Home Savings entrusted to AF&W. In this connection, Home Savings maintains in its eighth cause of action that NatWest was negligent in its monitoring of the AF&W mortgage trust account and other NatWest accounts used by Amoros to accomplish the above-detailed misappropriation, and that had NatWest timely taken appropriate cognizance of the various circumstances indicative of an ongoing, unauthorized diversion of entrusted funds, the complained-of misappropriation would have been earlier detected and, at least to that extent, avoided.
Ordinarily, of course, a depositary bank has no duty to monitor fiduciary accounts maintained at its branches to safeguard the funds in those accounts from fiduciary misappropriation. Indeed, ”[i]n general, a bank may assume that a
Notwithstanding the aforecited rule, a depositary bank may still be held answerable for the loss of funds misappropriated from a fiduciary account if the bank, with knowledge of the fiduciary’s diversion of trust funds, accepts such funds in payment of a personal obligation owed by the fiduciary to the bank (Grace v Corn Exch. Bank Trust Co., 287 NY 94, 102-103, rearg denied 287 NY 746) or the bank otherwise has actual knowledge or notice that a diversion is to occur or is ongoing (see, Matter of Knox, supra, at 438). Facts sufficient to cause a reasonably prudent person to suspect that trust funds are being misappropriated will trigger a duty of inquiry on the part of a depositary bank (see, Newton v Scott, 254 App Div 140; Board of Mgrs. of Cont. Towers Condominium v Crestmont Mgt. Corp., 186 AD2d 49), and a bank’s failure to conduct a reasonable inquiry when the obligation to do so arises will result in the bank being charged with such knowledge as inquiry would have disclosed (supra).
While the record in its present state does not establish that NatWest benefited from Amoros’ misappropriation, the possibility that trust funds were used to satisfy some personal obligation of Amoros to NatWest is one that cannot yet be discounted. We note that the documentation before us includes at least two checks drawn by Amoros on the Trade Funding account payable to NatWest. These checks, both of which bear what appears to be an identical loan number in the lower left-hand corner, are sufficient to raise an issue as to whether Nat-West received mortgage trust funds in satisfaction of a personal Amoros debt. Additionally, the record discloses that $100,000 from the Trade Funding account was funnelled into the personal money market and checking accounts of Scott and
It is important to underscore at this juncture that the mere transfer of trust funds between accounts at the depositary bank and/or disbursement of funds by authorized signatories of accounts at the depositary bank, are not, without more, sufficient grounds for bank liability (see, Grace v Corn Exch. Bank Trust Co., supra, at 103; see also, Newton v Scott, supra, at 142). There must in addition be some other circumstance implicating the bank as a participant in the diversion (i.e., acceptance of the funds in payment of a personal obligation as discussed supra), or indicative of the bank’s neglectful countenance of an evidently intended or ongoing misappropriation. The former theory of liability and its continued viability in the present context has already been addressed. As to the latter, it too must be viewed as still viable.
There is, at the very least, a factual issue as to whether the chronic and extremely serious insufficiency of funds in the mortgage trust account in early October 1994, combined with
The record indicates that, on December 7, 1994, NatWest dishonored 11 AF&W mortgage trust account checks totaling some $766,102, citing as its reason for so doing the absence of sufficient funds. It is undisputed that no report of dishonor was made respecting any of these checks. Although we are not of
In this latter regard, there can be little doubt in light of the results of the December 1994 audit or the bank’s own internal investigation performed in January 1995, that a reasonable investigation by the bank initiated at an earlier date would have uncovered Amoros’ embezzlement. The only real issue with respect to plaintiffs negligence theory would appear to be whether the bank was in fact placed on at least inquiry notice of the embezzlement and, if it was, whether the duty to inquire was triggered at a time when the embezzlement could have been averted, at least partially.
Accordingly, the order of the Supreme Court, New York County (Stuart Cohen, J.), entered January 18, 1996, which granted defendant National Westminster Bank USA’s motion for summary judgment dismissing the complaint against it, should be reversed, on the law, with costs, the motion denied, the complaint reinstated and the matter remanded for further proceedings.
Motion seeking leave to enlarge record granted.
Nardeili, Williams and Andrias, JJ., concur.
Order, Supreme Court, New York County, entered January 18, 1996, reversed, on the law, with costs, the motion for summary judgment the complaint against National Westminster Bank denied, the complaint reinstated and the matter remanded for further proceedings. Motion seeking leave to enlarge record granted.