(dissenting). I dissent from the conclusion of the majority in so far as it, in effect, holds that the appellant bank may not be held to have received any notice of the deposit of trust funds in the personal account of the trustee for the reason that the complicated departmental method of bookkeeping employed by the bank kept the responsible officials from being informed of such transfers. In my opinion this results in one rule of conduct for a large institution and another and much more rigid rule for a small one. It is in the large banks that the danger of large defalcations is the greater and a large banking institution by robot bookkeeping methods should not be allowed to exculpate itself from notice.
I also differ with Mr. Justice Adel as to the date when notice of the diversion of the trust funds must be held to have been brought home to the appellant bank. It is not necessary to recapitulate the facts set forth in the opinion of Justice Adel, except to state for the purpose of clarity that the appellant had actual notice of the terms of the trust instruments and the power of the trustee to act thereunder. It knew that he had no beneficial interest in the trust funds. On September 11, 1930, Kittredge transferred by cheek $5,000 of the trust funds to his own personal account. On that date the defendant must be charged with notice that the trustee was commingling trust funds with his personal funds. Likewise, it must be charged with the knowledge that on November 25, 1930, Kittredge, the trustee, had a balance in his personal account of only $72.33. On November twenty-fifth Kittredge drew a check upon his trust account in the defendant bank for $1,000 and deposited the same to the credit of his personal account. No other deposits were made in the personal account and on November 29, 1930, the defendant bank debited the personal account of Kittredge with the sum of $160.41 interest on a loan of $35,000, which the defendant had made to Kittredge personally, thus taking unto itself a portion of the $1,000 deposit of trust funds. It follows that by this transaction the defendant knowingly participated in the diversion, and its subsequent neglect of duty left the trustee in a position to steal and thus aided in the misappropriation. Under well-established principles the defendant is liable for all subsequent diversions. (Bischoff v. Yorkville Bank, 218 N. Y. 106; Fidelity & Cas. Co. v. Farmers Nat. Bank, 275 id. 194.)
The judgment should be modified accordingly and, as so modified, affirmed, without costs.
Decision-Opinion of Special Teem on Settlement op Judgment.
Lockwood, J.The proposed judgment submitted for settlement has been amended by the court and as so amended signed. Interest has been computed only to May 25, 1939. If plaintiffs prevail, they will be entitled to interest from that date on. Perhaps in the last paragraph of the memorandum decision of May 11, 1939 (171 Mise. 522, 533), the court did not make sufficiently clear its holding as to the claim for $4,080, the amount paid to the barde for redemption of the Newberry bonds. Upon the proof submitted plaintiffs are entitled to impress a trust on the proceeds of the sale of these bonds which were estate property now in the possession of the bank.