June 4th, 2013
Most of the states have adopted the Uniform Fiduciaries Act which protects a bank from liability for a fiduciary’s misconduct when the bank is serving as the depository of fiduciary funds unless the bank has actual knowledge of the fiduciary’s misconduct or the bank’s actions otherwise amount to bad faith. The idea behind the act makes sense – banks must routinely deal with fiduciaries, and, to facilitate commercial transactions, the bank has to be able to trust that the fiduciary is acting properly and not absconding with trust or estate funds.
Unfortunately, it sometimes happens that a fiduciary misappropriates trust or estate assets and, by the time the beneficiaries find out, the money is long gone. So, the beneficiaries often look to the bank as a pocket from which to make them whole. According to a recent federal appellate court opinion, that’s pretty much what happened in Ohio when the executor of an estate and trustee of a trust for the decedent’s widow absconded with over a million dollars from the estate and trust accounts held at a bank.
In Estate of Barney v. PNC Bank, N.A., the United States Court of Appeals for the Sixth Circuit affirmed the district court’s finding that the bank was not liable for the fiduciary’s breach of fiduciary duty. The appellate court posed the question this way: “whether Ohio law permits a principal to hold a bank liable for money that the principal entrusted a fiduciary to deposit at the bank and which the fiduciary then withdrew, without the principal’s permission, and squandered.” The answer is no, and here’s why: (more…)