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"It is very clear that, under this statute, it is not lawful for a savings bank to purchase adjoining property, upon the theory of protecting its vaults, nor for the purpose of erecting and renting buildings thereon. A bank should, of course, own a lot large enough for the safety and security of the building and vaults, and no definite rule can be laid down on that subject; but the trustees should exercise a prudent discretion.

"In respect to purchase at foreclosure sales, and conveyances to the bank in settlement of mortgages, or other debts due the bank, I am of opinion that the amount which should be reported as invested in real estate, so acquired, should be the face of the loan or debt liquidated by the conveyance, with the accrued interest, and any costs attending the acquisition of title.

"This should be regarded as the rule in all cases, unless other payments or other securities are received by the bank, and in such cases the amount of such payments or securities would diminish the investment in real estate to that extent."

4. In reply to an inquiry made by the superintendent of the banking department as to his power to extend the time allowed savings banks to hold real estate purchased upon foreclosure or judgment, when such extension is requested after the lapse of five years from the time title is vested in such bank, the attorneygeneral, in his opinion filed in the banking department March 1, 1888, holds as follows:

"The banks should endeavor to carry out the provisions of the act and sell the property within the five years; if they do not, it is for the superintendent to say whether the case is a proper one for granting the relief. Extending the time before the expiration of five years would tend to defeat rather than carry out the general policy of the statute. Which policy evidently was, that the property should not, except in case of necessity, be held by the banks in excess of that period, and should the superintendent extend the time during the limited period, the banks would have no incentive to endeavor to dispose of the property within the five years allotted.

"I am of the opinion, therefore, that the superintendent may extend the time for savings banks to sell their real estate, acquired in the way above set forth, after the expiration of the five years allowed them to hold it.”

5. A savings bank cannot legally erect buildings on real estate purchased by it on foreclosure. Opinion Atty.-Gen., January 29, 1908.

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§ 148. Available fund for current expenses; how loaned. trustees of every such corporation shall as soon as practicable invest the moneys deposited with them in the securities authorized by this article; but for the purpose of meeting current payments and expenses in excess of the receipts, there may be kept an available fund not exceeding ten per centum of the whole amount of deposits with such corporation, on hand or deposit in any bank in this state organized under any law of this state or of the United States, or with any trust company incorporated by any law of the state; but the sum so deposited in any one bank or trust company shall not exceed twenty

five

per centum of the paid-up capital and surplus of any such bank or company; or such available fund, or any part thereof, may be loaned upon pledge of the securities or any of them named in subdivisions one, two, three, four and five of section one hundred and forty-six, or upon the first mortgage bonds, or any of them, of the railroads mentioned and described in subdivision six of said section, but not in excess of ninety per centum of the cash market value of such securities so pledged. Should any of the securities so held in pledge depreciate in value, after making any loan thereon, the trustees shall require the immediate payment of such loan or of a part thereof, or additional security therefor, so that the amount loaned shall at no time exceed ninety per centum of the market value of the securities pledged for the same.

(Former section 118; L. 1901, ch. 406; R. S., 1568; L. 1882, ch. 409, § 261; L. 1886, ch. 509.)

1. Loaning money on promissory notes, cashing checks, or permitting depositor to overdraw his account renders any officer of a savings bank that is, or was, a party to it liable. Knapp, Receiver, v. Roche, 44 Super. Ct. (12 J. & S.) 248.

2. A deposit by a savings bank of its funds in a national bank is not illegal where such deposit is not shown to exceed ten per cent. of their deposits, although the terms of such deposit secure to the savings bank a payment of interest upon its amount, as such agreement to pay interest does not convert the deposit into an unauthorized loan. 1887, Erie County Sav. Bank v. Coit, 104 N. Y. 532, 11 N. E. 54.

3. The author trusts that the length of this note needs no apology, and that the unusual prominence given to a referee's opinion in the subjoined case is justified by reason of the fact that at the time of its rendition it caused much comment. The professional standing of the counsel employed, the novelty of the issues, and the large amount (comparatively speaking) claimed to be due from the defendants, all contributed to make the case a prominent one. See article "Trustees as tortfeasors" by one of the counsel. Am. L. Rev. XIV. 36; XV. 159.)

The superintendent of the banking department forwarded in December, 1878, a circular to all the savings banks of this State, calling attention to this decision. And in his annual report to the legislature, concerning savings banks, dated April, 1879, he uses the following language:

"Duties of trustees defined. In one of the failed savings banks in New York, a legal contest arose from suits brought by the receiver, Willis S. Paine, Esq., against trustees. The case was referred to Clifford A. Hand, Esq. The opinion is so wide in its comprehension, so broad and logical in its conclusions, so exhaustive in the authorities cited, and so luminous in the statement of the responsibilities and duties of trustees, that I have deemed it very useful to give it a place in the Appendix to this Report."

In July, 1879, said superintendent addressed a formal communication to the attorney-general asking the following questions:

"1. Can trustees of a savings bank lawfully appropriate the funds of the corporation, to other purposes than those expressly named in laws regulating their administration?

"2. If funds have been, or should be, misappropriated by trustees of a savings bank, are not the trustees making such appropriations liable, personally, for the funds so used?

"3. Would the ordinary statute of limitations hold in such cases of misappropriation of money, or is the liability of trustees continuous, as Mr. Hand holds in the case of Willis S. Paine, Receiver of the Bond Street Savings Bank, v. Trustees?

“4. Is it the duty of the superintendent of the bank department to require the restitution of funds misappropriated unlawfully by the trustees of a savings bank, to purposes wholly foreign to the affairs of the bank?

"5. Would not the misuse of funds in such unlawful ways by any trustees, and refusal to restore them, constitute probable cause for the removal of such trustees from office under the Law of 1879 (chapter 422)? "

The reply of that officer was substantially as follows:

"It is a settled rule of law that the powers of corporations are limited by the acts creating them. Being artificial creatures they have only such powers as are granted for the purposes of their creation. Trustees of corporate bodies can only exercise the powers granted to the corporation they represent. Their office is a trust, and their duty is to execute the trust conferred upon them; and the duties imposed are the measures of their powers. Trustees acquire no interest in, or authority in respect to, the trust property, personal to themselves, nor any power over it beyond the charter or statutes under which they act. The courts have been rigid in enforcing these principles, and in holding trustees to personal accountability for abuses of their trust, in assuming the exercise of powers not conferred, in the waste or illegal application of trust funds or property, and in restraining corporations to authorized acts. The court of appeals, upon this subject, uses the following explicit language:

"The public are interested in restraining corporations to the enjoyment of the precise franchise granted, and the exercise of the powers expressly conferred, and the incidental powers essential to the express power. Shareholders are also interested in keeping their trustees, the governing boards, within the limits of the delegated power with which they are clothed. It is axiomatic that a corporation can make no contracts, and do no acts, except such as are authorized by its charter, either expressly, or as incidental to its existence. Corporations necessarily depend, both for their powers and the mode of exercising them, upon the construction of the statute which gives them life and being.' 60 N. Y. 294, 19 Am. Rep. 181.

(chap. 371, Laws of 1875), the powers clearly defined, and their powers are Every trustee of a savings bank takes

"By the act relating to savings banks of savings banks and their trustees are limited to those expressed in the statute. his position subject to the limitations of the statute' and to the duties it imposes. By this statute savings banks have power, to receive money on deposit, to invest the same, and further transact the business of a savings bank as hereinafter provided.' § 1, sub. 7. (§ 235, sub. 7.)

"By section 26 (§ 260) the manner in which savings banks may invest the moneys deposited therein is particularly prescribed. Section 27 (§ 261) au

thorizes a limited percentage of deposits to be kept on hand for current payments and expenses, and for violating 'the spirit and intent' of this provision the superintendent, by section 28 (§ 262), is required to report the bank to the attorney-general, to be proceeded against for mismanagement. By section 23 (§ 257) the sums deposited, together with any dividend, or interest credited thereto, are required to be repaid to the depositors after demand and notice.

The trust, as thus defined by law, is to receive deposits, to invest them only in the manner prescribed, and to return the principal and interest to the depositor. The whole fund is protected by careful provisions of law. For the purpose of executing this trust, every bank is required to have a board of trustees of not less than thirteen, who must elect from their number a president and two vice-presidents, and also elect or appoint from their number, or otherwise, such other officers as they may see fit, § 16 (§ 250); and the trustees, acting as officers of the corporation, whose duties require and receive their regular and faithful attendance at the institution, are authorized to receive such compensation as, in the opinion of a majority of the board of trustees, shall be just and reasonable; such majority to be exclusive of any trustee to whom such compensation shall be given. And trustees are prohibited from receiving pay as trustees, for their attendance at meetings of the board.

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"In addition to the compensation of officers, clerks and attorneys, expenditures may be lawfully made from the income, for the incidental and necessary expenses of the institution, such as furniture, rents, taxes, fuel, light, stationery, watchmen, and whatever may be requisite for the proper management of the trust property and its protection. Expenditures for those purposes fall within the legitimate duties of the trust; but neither the deposits, nor their income, can be lawfully used or expended for other purposes. They cannot be used to pay trustees compensation for services upon committees; ' nor the chairman of a regular standing committee for services as trustee in acting as such chairman;' nor to pay for an annual supper or entertainment for the trustees;' nor to pay for a service of plate donated to a local organizer of a railroad enterprise; ' nor to make contributions' for charitable, benevolent or sanitary objects; nor to make gratuitous appropriations to the widows of deceased officers; nor to pay costs and expenses to get bills through the legislature to pay interest' on illegal loans; nor to make gratuities to officers for past services, who had been paid regular salaries; nor to lobby agents to procure general legislation relative to savings banks.'

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"Payments from the money of depositors for all such purposes are clearly illegal, and render the trustees who authorize or consent to them personally liable for the diversion of the funds.

"It is undobutedly the duty of the superintendent of the bank department to require the restitution of the funds misappropriated, or unlawfully diverted by the trustees of a savings bank; and in case of failure to make restitution, to report the facts to the attorney-general that proceedings may be instituted for their recovery, according to law. Nor is there any doubt that the misuse of the funds, or their illegal expenditure by the trustees, and a refusal to make restitution, constitute such abuses of trust as to furnish ground for the removal of the culpable trustees under the provisions of chapter 422 of the Laws of 1879, and the Revised Statutes.

"The statutes of limitations have no proper application to cases of trusts, but

the liability of trustees, for illegal appropriation of trust funds, continues while the trust relation exists. If proper proceedings are delayed unreasonably after the relation ceases, the recovery will be barred by lapse of time."

The essential portion of Mr. Clifford A. Hand's opinion is as follows: "This case presents the alternative that heavy losses must be visited either upon the multitude of depositors in a savings bank, or upon a small number of trustees to whom the management of the bank was intrusted. Whatever the event, there is unavoidable hardship. The bank was itself in effect merely a trustee. Its function or office was declared by the charter to be the receiving of deposits and investment of them for the use, interest and advantage of the said depositors.' From the time when its doors were first opened for business, until they were closed by the decree of this court, every transaction was under this trust responsibility. It was the aim of the charter, in all its provisions, to secure safety of deposits, and to prevent exposure of them to hazard or venture for loss or gain. The persons for whose use and benefit the bank was thus chartered were known to be such as were in need of special safeguards. Their savings were in amounts insufficient for separate investments, and they lacked the skill requisite to prudently invest them. At the same time a loss, however small, might easily cause them suffering which they were little able to bear.

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"Duties of trustees defined. · - But we must rest content with the plan and provisions which the legislature has seen fit to prescribe. By that plan, the trustees were charged with the duty of keeping deposits duly invested, and they were clothed with ample power and discretion for the discharge of this duty. In the exercise of their discretion within the prescribed limits, it would be manifestly oppressive to hold them liable for every loss or misfortune happening to the fund. To such an injustice the reasoning of Lord HARDWICKE Would apply: For as a trust is an office necessary in the concerns between man and man, and which if faithfully discharged is attended with no small degree of trouble and anxiety, it is an act of great kindness in any one to accept it. To add hazard or risk to that trouble, and to subject a trustee to losses which he could not foresee, would be a manifest hardship, and would be deterring every one from accepting so necessary an office.' Knight v. Plymouth, 3 Atk. 480; and see Thompson v. Brown, 4 Johns. Ch. 628. And this language is peculiarly applicable to the office of unpaid director, or gratuitous trustee. In short, the case must be tested by its circumstances and the established principles of equity jurisprudence, without undue regard to the hardship necessarily resulting to the one or the other of the parties.

"That the director or trustee of a corporation is subject to the rules of duty and responsibility incident to other trusts, so far as these rules are capable of practical application, and except as they may be modified by special statutes, will hardly be denied. Whenever the point has arisen (as in French, Receiver, v. Ingram, decided by Mr. Justice VAN BRUNT; Butts v. Wood, 38 Barb. 181), the courts have so declared. And the cases are abundant where the analogy has been taken for granted. The degree of skill and diligence required of such a trustee, serving without compensation, is not so easy to define. The general requirement, that it must equal that of a man of ordinary capacity and prudence in the management of his own affairs, is, perhaps, to be qualified, in view of the gratuitous character of the service, although trusts have always been regarded in English jurisprudence as offices of friendship or personal confidence, rather than of profit.

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