## Facts

- A minor, Chad Stephen Alcombrack, was entitled to life-insurance proceeds from his grandfather’s policy.
- The insurer issued a check for $30,588.39 payable to “Charles Alcombrack, Guardian of the Estate of Chad Stephen Alcombrack a Minor.”
- The endorsement signed by Charles identified him as “Guardian of the Estate of Chad Stephen Alcombrack, a minor” and characterized the check as settlement proceeds.
- The guardianship attorney instructed Charles to open guardianship savings and checking accounts at Olympic Bank using letters of guardianship.
- Charles went to Olympic Bank without letters of guardianship, opened personal checking and savings accounts, and deposited the check into those personal accounts.
- That same day, the attorney contacted a bank trust officer about guardianship account fees; the officer later sent correspondence specifically referencing the “Estate of Chad Alcombrack.”
- Charles and his wife used most of the deposited funds for personal purposes, including cash withdrawals and transfers, payment of Charles’s unsecured personal loan at the bank, and bank setoffs against Charles’s personal debts.
- Only $320.60 remained from the original proceeds.
- A successor guardian, J. David Smith, sued Olympic Bank to recover misapplied guardianship funds.
- The trial court granted summary judgment for the bank on holder-in-due-course grounds; the intermediate appellate court reversed; the state supreme court granted review.

## Issues

1. Whether a bank is a holder in due course under the UCC when it accepts a check payable to a guardian in that fiduciary capacity for deposit into the guardian’s personal accounts.
2. Whether the bank had notice of a breach of fiduciary duty, defeating holder-in-due-course status and subjecting the bank to the estate’s claim to the proceeds.

## Decision

- The court held Olympic Bank was not a holder in due course.
- The check’s payee designation and endorsement showed the funds were held in a fiduciary capacity for a minor’s estate.
- Permitting deposit of that check into the guardian’s personal accounts constituted notice that the guardian was breaching fiduciary duties.
- The bank’s knowledge was reinforced by the attorney’s contact and the bank’s correspondence referencing the minor’s estate.
- The court affirmed reversal of summary judgment for the bank and remanded for further proceedings.

## Legal Principles

- Holder-in-due-course status requires taking an instrument for value, in good faith, and without notice of claims, defenses, or fiduciary breach.
- When a bank allows a check payable to a guardian (in that capacity) to be deposited into the guardian’s personal account rather than an appropriate fiduciary account, the bank has notice of a likely fiduciary breach and cannot qualify as a holder in due course.
- Notice may arise from the instrument’s face (fiduciary designation) and surrounding circumstances, including how the proceeds are deposited and used.
- A bank’s application of fiduciary-labeled funds to satisfy the fiduciary’s personal obligations supports a finding of notice and lack of good faith.

## Conclusion

Because Olympic Bank accepted a fiduciary-designated check for deposit into the guardian’s personal accounts and then permitted use of the proceeds for the guardian’s personal obligations, the bank was charged with notice of fiduciary breach and was not a holder in due course; the case was remanded for further proceedings consistent with that holding.


Smith v. Olympic Bank, 693 P.2d 92 (Wash. 1985)