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ROBINSON PROTECTIVE ALARM COMPANY v. BOLGER & PICKER (10/03/86)

decided: October 3, 1986.

ROBINSON PROTECTIVE ALARM COMPANY
v.
BOLGER & PICKER, APPELLEE, V. RICHARD ROBINSON AND CONTINENTAL BANK, APPELLANTS. APPEAL OF CONTINENTAL BANK



Appeal from the Order of the Superior Court, at No. 1040 Philadelphia, 1983, dated January 9, 1985, Affirming the Order of the Court of Common Pleas of Philadelphia County at No. 196 February Term, 1979 dated April 6, 1983. Nix, C.j., and Larsen, Flaherty, McDermott, Hutchinson, Zappala and Papadakos, JJ. Hutchinson, J., files a concurring opinion in which Zappala, J., joins. Papadakos, J., files a concurring opinion in which Hutchinson, J., joins.

Author: Nix

[ 512 Pa. Page 118]

OPINION

The pivotal question raised in this appeal is the applicability of section 2 of the Uniform Fiduciaries Act ("UFA"), Act of May 31, 1923, P.L. 468, 7 P.S. § 6361, in a suit for indemnity and/or contribution sounding in assumpsit

[ 512 Pa. Page 119]

    against a bank for the subsequent misapplication of funds surrendered to a fiduciary who was entitled to receive said funds. For the reasons that follow we conclude that section 2 was applicable and relieved appellant of liability for the subsequent misconduct of the fiduciary.

In January of 1973, the law firm of Bolger & Picker ("B & P") opened an escrow account in its name on behalf of a client, Robinson Protective Alarm Company, at the Continental Bank ("Continental").*fn1 Three partners of the law firm, including attorney Richard Robinson ("Robinson"),*fn2 executed the signature card for the account. Although any one of the three signatory partners was authorized to make deposits in and withdrawals from the escrow account, Robinson became the sole manager of the account. Continental was not a party to the escrow agreement B & P had entered into with its client, and was not aware of its terms.*fn3

From the inception of the escrow arrangement through March, 1978, Robinson made deposits and maintained the bank account, which was kept in the form of a passbook savings account and in non-negotiable certificates of deposit, with no known irregularities. Beginning in April, 1978, however, Robinson engaged in a series of transactions which led to the embezzlement of Three Hundred Forty-six Thousand, Two Hundred Forty-seven Dollars and Seventy-five Cents ($346,247.75) of the escrow funds. The embezzlement was carried out in three separate operations. First, on April 5, 1978, Robinson redeemed a certificate of deposit and placed the proceeds in the escrow passbook account.

[ 512 Pa. Page 120]

The next day, he directed Continental to draw a check against that savings account for the sum of One Hundred Thousand Dollars ($100,000.00) payable to the order of "BEDCO," an acronym for the investment firm of Blythe, Eastman, Dillon and Company (Hereinafter referred to as "BEDCO"). A treasurer's check was prepared as directed, and delivered to Robinson. Second, on May 4, 1978, Robinson redeemed another certificate of deposit. He directed that the proceeds of the second certificate be delivered to him in the form of a check payable to BEDCO. Continental followed Robinson's instruction and delivered to him a check in the sum of One Hundred Forty Thousand Dollars ($140,000.00), payable as requested. Third, on January 2, 1979, a third certificate was redeemed; and a check for the proceeds in the amount of One Hundred Six Thousand, Two Hundred Forty-seven Dollars and Seventy-five Cents ($106,247.75), payable to B & P as escrow agents, was delivered to Robinson pursuant to his instruction. In each of these three transactions the certificate was redeemed and the proceeds disbursed without the signature of any of the B & P partners, but rather solely upon the oral instructions of Robinson. The proceeds from those certificates of deposit, totaling Three Hundred Forty-six Thousand, Two Hundred Forty-seven Dollars and Seventy-five Cents ($346,247.75), were subsequently embezzled by Robinson and applied to his own use.

Initially, Robinson Protective Alarm Company sued B & P for the embezzled funds. After the loss was paid by B & P's insurer, the law firm commenced an action in assumpsit against Continental for indemnity and/or contribution. Continental joined Richard Robinson, who had also been sued by B & P, and cross-claimed against B & P for the costs of litigation.*fn4

The Court of Common Pleas of Philadelphia County initially entered an opinion and verdict in favor of B & P

[ 512 Pa. Page 121]

    and against Continental for the loss of the escrow funds, because of the manner in which the bank redeemed all three certificates. In this regard, the trial court reasoned that Continental, by not obtaining endorsements prior to redeeming the certificates, had violated the redemption provisions set forth on the certificates,*fn5 and had thereby committed a breach of contract. This contract theory, as such, was the basis for the trial court's initial decision.*fn6

After the filing of exceptions by Continental, the trial court modified its decision as to the scope of the bank's liability. The trial court concluded that, with regard to the first and third certificates of deposit, the procedure followed by Continental in redeeming them satisfied "reasonable commercial standards" within the meaning of 13 Pa.C.S. § 3419(c),*fn7 and therefore the bank had no liability for

[ 512 Pa. Page 122]

    those transactions. However, according to the trial court's final decision, Continental did not pursue "reasonable commercial standards" when it redeemed the second certificate; and, as to that instrument, the determination of liability under the contract theory -- in the ...


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