AUGUST 26, 2002 VOLUME 10, NUMBER 8
One of the most important rules governing fiduciaries is that they must never commingle the money they manage for others with their own funds. This overriding principle applies to personal representatives of estates (sometimes called executors), conservators of the estates of minors and incapacitated adults, trustees, and agents operating under powers of attorney. Sometimes this powerful rule can cause problems for other individuals or organizations when they deal with fiduciaries—especially banks, who are expected to understand the financial rules.
Ronald Henry Minkin was the executor of his mother’s estate and its sole beneficiary. When he sold her house, he took the $196,000 check representing the net proceeds to Bank of America, where he kept his personal accounts, and deposited the check in an account in his own name. The bank did not question his authority to convert the estate asset to his own name.
Unknown to the bank, however, Mr. Minkin had borrowed money from lender Cochran Investment Co., and had promised to repay the loan from his mother’s estate when it was ready for final distribution. Because the sale proceeds never made it into the estate account, there was nothing left to pay back his debt when it came time to settle the estate.
Cochran sued Mr. Minkin, of course, but he had already spent the money he took from her estate. So the lender also sued Bank of America.
The bank moved to dismiss the lawsuit, arguing that it was not responsible for Mr. Minkin’s misuse of his mother’s estate. In response, Cochran pointed to a provision of the Uniform Commercial Code as it was adopted in California. That law provides that a bank may be liable for allowing an executor to deposit money into his own account if it can be shown that the bank knew that the money did not belong to him or her. Some version of the UCC has been adopted in 48 states, Puerto Rico and the District of Columbia; Arizona’s version is essentially identical to the law as it was adopted in California.
In Mr. Minkin’s case, the proceeds from sale of his mother’s house were in the form of a check made payable to “Ronald Henry Minkin, Executor, Estate of Rose Minkin Sabia, Deceased.” That, ruled the California Court of Appeals, was a pretty clear indication that the bank knew the money did not belong to Mr. Minkin individually.
Bank of America also argued that Cochran should not be permitted to file its lawsuit more than three years after the bank allowed the deposit into the wrong account. The Court of Appeals disagreed, holding that the lawsuit could be filed at any point before three years after Cochran actually learned of the misapplication of money from Mr. Minkin’s mother’s estate. Cochran Investment Co., Inc., v. Bank of America, August 19, 2002.
