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TRUST COMPANIES.

CHAPTER I.

HISTORY OF THE TRUST COMPANY MOVEMENT IN THE UNITED STATES.

TH

HE term "trust company" has not in the past been one whose meaning was clearly defined; nor is it at the present day so used as to admit of a definition that is both brief and accurate. This doubtless results, in part, from the fact that the trust company is an institution whose characteristics have gradually developed in accordance with the needs of the time and of the community; and in part because concerns doing widely different kinds of business have found it of advantage to adopt the name "trust company," and to incorporate under the laws governing such companies. Even salary-loan concerns and pawnbrokers have made use of the name, and numerous abuses have led several of the States to pass laws prohibiting the use of the word “trust" in titles, except by direct authority.1

DIVERSITY OF TRUST COMPANY FUNCTIONS.

An analysis of the business actually transacted by the two thousand trust companies now (1914) existing in the United States shows that the term "Trust Company" is applied to corporations whose functions. vary greatly. Some are simply banks of deposit and discount; many are savings banks; some are safe-deposit companies; some are title-insurance or fidelity-insurance companies; some serve chiefly as fiscal agents for corporations, and as registrars, transfer agents, intermediaries in reorganizations, promoters, etc.; some devote themselves to the care of estates and to services as executors, administrators, guardians, trustees, etc. Most companies combine two or more of these classes of functions, while a few undertake nearly all of them. In early years the life insurance and trust businesses were intimately associated.

Thus it is evident that in tracing the development of trust companies we shall find ourselves treating of institutions which, under the same general name, have performed functions of various kinds. Until recent years statistics regarding trust companies have been difficult to obtain, and none are available which distinguish between the different classes of companies using that name. There is no available information showing how many of the trust companies are doing a trust business properly so-called, as distinguished from ordinary savings or commercial banking. It is also to be observed that some of the functions which are coming to be recognized as distinctively those of the trust company have always been carried on to some extent by banks.

1 This was done in New York in 1900.

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What has been said refers to the use of the term by those who are to some degree, at least, conversant with its true or usual meaning. The general public is still curiously ignorant of the signification of the name; and, incredible as it may seem, many intelligent people even confuse the trust company with the "trust."

A ludicrous instance of this was reported at the meeting of the American Bankers' Association in 1897. "In response to a request addressed to the Secretary of State for each State, for a certified copy of the laws relating to trust companies, about half a dozen secretaries transmitted copies of the laws regulating, restricting or prohibiting pools, trusts, unlawful combinations and conspiracies in restraint of trade. The copies of these laws were returned with an explanation that it was the statutes relating to trust companies which act as trustee, executor, etc., which were desired. In one case, the Attorney-General, to whom the letter was referred, replied that he regretted misreading the first letter on the subject, but after a thorough search he was convinced that there were no statutes of his State relating to trust companies, and that, as far as he could learn, there were no trust companies doing business in his State, except the Standard Oil Co."2

Education on the subject has evidently been going on, for the writer has had no trouble in getting satisfactory replies from officials of all the States.

In the following pages the writer has aimed to keep in mind, whenever possible, the distinction between the trust company proper and the ordinary bank doing business under the name "trust company;" but the reader is reminded that, in the statistics particularly, it is not possible to follow out the distinction. The reader will also observe that in our day the trust company has, in most States, so far entered into the field of the ordinary bank, that a proper definition would assign to it both banking and trust functions.

Both the name trust company and the idea of its typical functions have been known since early in the nineteenth century. It was not supposed, however, that these functions were of sufficient importance to establish a distinct class of companies for their performance, nor did the trust company as an institution attract general attention until well along in the last quarter of the century.

THE FIRST GRANT OF TRUST COMPANY POWERS.

The earliest instance of a company chartered with power to perform trust business was that of the Farmers' Fire Insurance and Loan Company, which was incorporated by the Legislature of New York, February 28, 1822. The act states that certain persons "Associated as a

2 Paper by Ralph Stone on "Statutes of the Several States Relating to Trust Companies." Proceedings American Bankers' Association, 1897, p. 158.

3 For the facts stated regarding the early history of this company, see Cator; "Trust Companies in the United States," pp. 67-72; and Proc. Amer. Bankers'

company under the name of the Farmers' Fire Insurance and Loan Company, as well for the purpose of accommodating the citizens of the State residing in the country with loans on the security of their property (which cannot now be obtained without great difficulty) as to insure their buildings and effects, and those of other persons, by loss from fire, and also for such other useful purposes as are hereafter specified, have prayed the Legislature for a charter of incorporation, to be located in the City of New York, which it is reasonable to grant." The company had an authorized capital of $1,500,000, but was permitted to begin with $500,000. It was empowered to loan upon farms, houses, factories or real estate; but mortgaged property taken on foreclosure could not be held longer than five years, on penalty of being forfeited to the people of the State. The company was authorized to grant annuities; to insure all kinds of property against loss or damage by fire; to purchase and hold any stock or foreign debt, or the stock of any corporation. It was especially provided that nothing in the act should be so construed as to authorize the said corporation to receive any deposit or deposits, or to discount any promissory note, bond, due-bill, draft or bill of exchange, "nor shall it be so construed as to allow any banking privileges or business whatever."

Two months later-April 17, 1822-the same Legislature passed another act providing "That the said corporation shall also have authority to receive and take by deed or devise any effects and property, both real and personal, which may be left or conveyed to them in trust; and to assume, perform and execute any trust which has been or which may be created or declared by any deed or devise as aforesaid; and the said corporation are authorized to receive, take, possess, and stand seized of, and to execute any and all such trust or trusts in their corporate capacity and name, in the same manner and to the same extent as trustee or trustees might or could lawfully do. and no further."

There appears no reason to question the statement of the company that this was the earliest bestowal of such powers upon any corporation in the United States. It will be noticed that the powers granted are quite as broad as those now usually given to cover trustee work, though the language is more concise and less explicit than that contained in most modern charters. That the growth of this part of the company's business was rapid is shown by the fact that the insurance business, which was locked upon at first as its chief field of operations, soon began to be neglected in favor of the trust business. This line of work, once established, grew steadily, and it was finally found advisable to give up the insurance business altogether. In 1836 the name was changed to the Farmers' Loan and Trust Company.

Eight years later-in 1830--another company was established in

Assn., 1899, pp. 252-3, paper by Francis S. Bangs. That the company performed trust functions almost from the beginning is also attested by a letter from the Secretary of the company.

New York city with practically the same powers. This was the New York Life Insurance and Trust Company, whose capital was one million dollars, and which was empowered to write insurance on lives, and to execute trusts of every description. For many years after its incorporation life insurance was the most important branch of its business, and in 1903 it still made a feature of annuities. This company "has never had accounts such as are carried by commercial or savings banks, its deposits in trust being largely moneys of executors, trustees, associations, etc." It declines all corporation business, and administers only private

trusts.

It was not long before the trust business took root and vigorously developed in New York's old rival, Philadelphia. Strangely enough, however, the suggestion of taking up the new line of business came not from New York, but from the far East. This fact would seem to establish that, however successful the experiment may have seemed to the Farmers' Fire Insurance and Loan Company, it attracted comparatively little attention among other concerns in New York, and almost none ninety miles away, in Philadelphia.

Gathered in the Merchants' Coffee House in Philadelphia-which took the place of the business men's club of our day-as early as December, 1809, a group of prominent philanthropists and financiers of the Quaker City had determined upon the incorporation of a company for the insurance of lives and the granting of annuities. Three years later, on March 10, 1812, the Governor approved the charter, which had been granted by the Legislature only after much opposition, and later in the same month the company began business with an authorized capital of $500,000. It prospered sufficiently to declare its first dividend of four per cent. on the capital paid in, on July 3, 1815. Its business during these early years, and up to 1836, was correctly described by the title of the company-a title which it still retains-the Pennsylvania Company for Insurance on Lives and Granting Annuities. In 1829 the attention of the officers of the company was attracted to a new line of business. "The great success of what in India at this time were called agency houses was irresistibly drawing the attention of financiers toward them. These were concerns organized to transact business for trustees or individuals, to receive moneys on deposit and to administer estates, and the advancement of the Pennsylvania Company in its chosen work induced its officers to desire an expansion in this new direction." On February 4, 1880, the directors appointed a committee to report on the advisability of entering on "the receipt of money from persons, and, in consideration thereof, carrying out or executing such trusts as the persons giving the money should designate." The committee reported in favor of the project, the attorneys to whom was referred the legality of the undertaking gave their

4 Letter from the President of the company.

5 "Sketch of the Pennsylvania Co. for Insurance on Lives and Granting Annuities," p. 32.

approval, and in January, 1831, the officers were empowered to go ahead with the performance of the new line of work. But for some unexplained reason the work was not taken up, and the efforts of those who wished to push the matter were not successful until February 25, 1836, when the Legislature granted and the Governor approved a supplement to the charter, authorizing the company to enter into the business of executing

trasts.

The powers granted were: To accept and execute trusts of every description; to be appointed trustee, assignee, guardian, committee or receiver; to receive moneys or other property, real or personal, in trust or on deposit, to accumulate the interest thereon, or to allow and pay the

same.

As trustee, assignee, etc., the company was not required to give bond, the company's capital and assets being taken as the security required by law. The charter contained a provision that any court which appointed the company to any trust position might appoint a suitable person to investigate the affairs and management of the company; said person to report "The manner in which its investments are made, his opinion of the ability and integrity with which the affairs of the company are conducted; of the prudence and safety of its investments and the security forded to those by whom its engagements are held; the expense of every investigation so made shall be defrayed by the said company." The provision was also made that the company should pay a reasonable rate of interest upon any sums not less than one hundred dollars collected in its capacity as trustee, assignee, guardian, committee or receiver, and that it should accumulate the surplus income of any minor's estate by adding interest annually on the whole as a new principal. The power to act as executor and administrator was not given until seventeen years later --in

1853.

Upon the new field of business thus opened to it, the company entered with vigor, the six years of delay in obtaining the necessary authority seeming to have prepared the way for a rapid accumulation of trust business. "In the course of a few years the trust transactions became one of the most profitable as well as most important features of the institution, and this feature forms to-day its chief business. The rise of the trust department followed the gradual decline of the life-insurance branch. The practical relinquishment of this business became an advisable policy of the company when the field was occupied by the numerous organizations which, in order to meet rising and acute competition, adopted methods that could not commend themselves to a corporation having charge of so large a number of trust estates.” "6

During the next month of the same year (March 17, 1836), a charter granting the same trust powers was given to the Girard Life Insurance, Annuity and Trust Company. This company also began at once the

6 "Sketch of the Pennsylvania Co. for Insurance on Lives and Granting Annuities," pp. 37-38.

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