Greenfield Savings Bank v. Abercrombie

• Decision Date: 01 March 1912
• Citation: 211 Mass. 252,97 N.E. 897
• Parties: GREENFIELD SAVINGS BANK v. ABERCROMBIE et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

211 Mass. 252

97 N.E. 897

GREENFIELD SAVINGS BANK v. ABERCROMBIE et al.

Supreme Judicial Court of Massachusetts, Franklin.

March 1, 1912

COUNSEL

C. F Choate, Jr. F. H. Nash, and T. W. Streeter, for plaintiff.

W. H Brooks and B. B. Jones, for defendants.

OPINION

SHELDON J.

This bill is brought in the name of the plaintiff by the Bank Commissioner, who, it is averred, has taken possession of the business and property of the plaintiff under the provisions of St. 1910, c. 399, and is now administering its affairs. The defendants were five of the seventeen members of the plaintiff's board of trustees, constituted its investment committee, and two of them were respectively its president and vice president. The bill alleges that the defendants in violation of their duties have committed many acts of misconduct specifically set out in the bill, and seeks to hold them personally liable for large losses on certain specified loans of the bank's money alleged to have been made by them on certain described parcels of real estate. It is averred that in making these loans the defendants violated the statutes then in force (St. 1894, c. 317, §§ 21, 24) and also the bylaws of the plaintiff; and the particulars of such violations are set out in detail. It is charged that these investments were mae contrary to law and in excess of the authority of the defendants, and that they resulted in the loss to the bank of large sums of money. The details as to the making of each one of these investments and as to the subsequent dealings of the defendants therewith are stated in the bill, and the alleged wrongful acts of the defendants and the losses resulting therefrom are fully set out. According to the averments, each of these loans was largely in excess of the value of the security taken, 'as the defendants well knew, or by the exercise of a reasonable degree of care and prudence might have known'; most of them were made without any report or certificate of two members of the board of investment (St. 1894, c. 317, § 21, cl. 1); in many instances no written applications for the loans were made and recorded, as required by section 24 of the same act; and in some instances money was lent on second mortgages. It is alleged also that the rules (which are specified in the bill) adopted by the board of trustees were not complied with in the respects specified in the bill. It is alleged that these loans were made to or for one Rich and one Dowlin for the purpose of assisting them in certain real estate transactions in which the defendants had an interest. Further manipulations of some of these properties are averred to have been made by the defendants by causing deeds of them to be given and by making foreclosures followed by other deeds, resulting in the defendants' taking for the bank new and larger mortgages upon the same properties which had been found to be insufficient security for the original and smaller loans.

Each of the defendants has demurred to the bill on many different grounds. It scarcely seems necessary to discuss these separately. It will be enough to consider the objections which have been stated in the elaborate argument made for the defendants.

They contend in the first place that the members of the investment committee of a savings bank, acting in good faith, are not liable for losses resulting from errors of judgment attributable to mere negligence in making loans within the scope of their authority. They say that the averments of the bill are not sufficient to show that they acted unlawfully by taking loans to an excessive amount upon property of insufficient value. Those averments are in substance that the loans were largely in excess of the statutory limit, 'as the defendants well knew, or by the exercise of a reasonable degree of care and prudence might have known.' It follows of course from the recognized rules of equity pleading that such an averment in the alternative does not charge actual knowledge, but simply that the defendants by the exercise of reasonable care and prudence ought to have known the fact. This they say is not sufficient; and they rely upon a large number of familar decisions in which it has been held that the directors or managers of a business corporation conducted for profit are not to be made responsible for losses due to a mere error of judgment, where there has been an honest exercise of judgment. It is not necessary to refer to these cases in detail. They are almost without exception statements or illustrations of the rule laid down in Lyman v. Bonney, 118 Mass. 222, and Overend & Gurney Co. v. Gibb, L. R. 5 H. L. 480. But these and similar decisions are not applicable to the case of a savings bank under the laws of this commonwealth. As was said in Gilson v. Cambridge Savings Bank, 180 Mass. 444, 446, 62 N.E. 728, we have an 'elaborate statutory system for the government and regulation of savings banks, which is intended to protect the interest of depositors.' As to these depositors, for the encouragement of thrift by the allowance of interest upon small savings, they approximate somewhat to the character of charitable institutions. They are designed to help the poorer members of the community to help themselves by giving them an opportunity to make their small savings productive, and thus to confer upon them a greater and more lasting benefit than in many cases can be derived from mere eleemosynary assistance. Accordingly definite and rigid provisions have been made by our statutes for the administration of savings banks. Not to go outside the time here in question, see St. 1894, c. 137, § 13, et seq. It is not without significance that in this statute, as in former and subsequent ones, the governing board of officers is given the name of trustees. Careful provisions are prescribed also for the investment of the deposits that may be received; and it is manifest upon the most cursory reading that the dominant purpose of the Legislature has been to provide in this way for the safety of the money intrusted to savings banks and to hold the officers intrusted therewith to a strict accountability. As was said in Lewis v. Lynn Institution for Savings, 148 Mass. 235, 243, 19 N.E. 365, 367 (1 L. R. A. 785, 12 Am. St. Rep. 535), 'the fundamental idea has never been departed from, that all the funds and investments of a savings bank are held exclusively for the benefit and security of the depositors. This idea was, and still is, the corner stone of the whole system. * * * To others, to third persons, the corporation can incur liabilities, in contract or in tort, for which the funds in its hands will be responsible. But to the depositors themselves, the undertaking of the corporation is that it will receive and combine the deposits, and manage and use them to the best practical advantage, according to the judgment of the trustees, and give to the depositors in just proportion among themselves the result of such management.' In other words, the savings bank and its managing officers or trustees are held to the same duty as ordinary trustees of a direct trust. See Newark Savings Institution's Application, 28 N. J. Eq. 552. For honest errors of judgment, while acting with ordinary skill and prudence, measured according to the demands of the duties of business which they have taken upon themselves, they are not to be held liable; but they cannot excuse themselves from the consequences of their misconduct or of their ignorance or negligence by averring that they have failed merely to exercise ordinary skill, care and vigilance. And so are the decisions as to the trustees or managing officers of savings banks in New York and New Jersey, in which such banks are not commercial institutions having a capital stock and conducted in whole or in part for the gain of their stockholders, but occupy the same position and are intended to serve the same beneficent purposes as is the case in this commonwealth. It is held that the relation between the managing officers and the depositors, or the bank as representing them, is that of trustees and cestuis que trust. Hun v. Cary, 82 N.Y. 65, 37 Am. Rep. 546, in which it was held also that where loss has occurred from the failure of such a trustee to exercise ordinary care and judgment, he cannot excuse himself by claiming that he did not possess those qualities; for by voluntarily assuming the position he undertook that he did possess and would exercise them. Williams v. McKay, 40 N. J. Eq. 189, 53 Am. Rep. 775; Williams v. Reilly, 41 N. J. Eq. 137, 3 A. 692; Dodd v. Wilkinson, 42 N. J. Eq. 647, 9 A. 685, affirming s. c., nom. Wilkinson v. Dodd, 40 N. J. Eq. 123, 3 A. 360. And see Liverpool Household Stores Association, In re, 59 L. J. Ch. N. S. 616. As was said by Beasley, C.J., in Williams v. McKay, ubi supra: 'The equitable rule which is applicable to persons holding official positions such as were held by these defendants, is not in doubt. The duty belonging to such a position is a plain one--to care for the moneys intrusted to them in the manner provided in the charter, and to exercise ordinary care and prudence in so doing. It is true that the defendants were unpaid servants, but the duty of bringing to their office ordinary skill and vigilance was none the less on that account, for to this extent there is no distinction known to the law between a volunteer and a salaried agent. These defendants held themselves out to the public as the managers of this bank, and by so doing they severally engaged to carry it on in the same way that men of common prudence and skill conduct a similar business for themselves. This is the measure of the responsibility of officers of this kind.' This is the same rule of duty to which other trustees have been held, that they must ...