Paine agt. Barnum et al.

the merits that these persons are necessary parties they may then be ordered to be brought in.

To this it may be added that for the moneys borrowed, notes were received by the bank from the borrowers, and the transaction, in the form in which it was made, was afterwards ratified by the bank by a sale of certain collaterals and the foreclosure of the mortgage. The makers of the notes are still liable upon them, and their payment may be enforced in an action at law; and to the rights of the corporation and the plaintiff, as receiver, the defendants, on payment of the damages sustained through the breach of trust, may be subrogated ; and for that purpose the notes may be ordered to be surrendered to them, and I conclude that that would be the more reasonable and simple method for obtaining indemnity by the

trustees.

Besides, as already stated, these persons are non-residents of this state and are alleged to be insolvent. As the rule in question is founded in part upon convenience, the burden and inconvenience of proceedings to bring in non-residents, if it could be effectively done, should not be cast upon the plaintiff when the persons asked to be brought in are insolvent and have no property in this state out of which contribution could be enforced, and who cannot be made amenable to final process here in so far as it affects the person.

There is not, as is urged by the learned counsel for the defendants who demur, any misjoinder of causes of action. There is, in fact, but one cause of action alleged in the complaint, and considered as an equity action it was proper to join as defendants the legal personal representatives of the deceased trustee Willetts with the other defendants.

There must be judgment for the plaintiff on the demurrer with liberty to the defendants, however, to answer in twenty days on payment of costs.

Paine agt. Irwin.

SUPREME COURT.

WILLIS S. PAINE, as receiver of the Bond Street Savings Bank, agt. ROBERT IRWIN and others.

Savings banks-purchase of mortgages from a trustee of such bank con·Such transaction ultra vires.

demned

Where a savings bank in the city of New York purchases from a trustee of such bank bonds and mortgages owned by him, aggregating $32,000, made by one person upon unproductive property in the city of Brooklyn of uncertain value, not worth twice the value of the mortgages, such transaction is ultra vires.

Special Term, August, 1880.

Wilson M. Powell, attorney for defendant Willetts, executor, &c., and Arthur G. Sedgwick and Edmund Randolph Rob inson, of counsel, for demurrer.

Elihu Root, attorney and counsel for defendant Toucey.

Barlow & Olney, attorneys, and Francis C. Barlow, of counsel for plaintiff, opposed.

VAN VORST, J.-It is unnecessary to repeat the reasons which led to the conclusion that the demurrers in the action in favor of this same plaintiff against Barnum and others (ante, 303) could not be sustained. In so far as it is applicable, what was there decided as to the liability of the trustees of the Bond Street Savings Bank must be regarded as the law of this case.

The case, however, has some features peculiar to itself. The complaint contains two causes of action. In the first the defendants are sought to be held liable for an alleged breach of trust, in appropriating the moneys of the bank in the purchase of four bonds and mortgages for $8,000 each, made by

Paine agt. Irwin.

one Donnelly; the mortgages being upon property in Vanderbilt avenue in the city of Brooklyn. These bonds and mortgages were owned by George W. Mead, a trustee of the bank, and were purchased from him by the bank, with its funds, by the direction of the trustees. The testator of the defendants who demur, as well as the defendant, Toucey, voted for and approved the purchase.

It is alleged that the mortgaged premises were not productive property, and that its value was uncertain, contingent and speculative, dependent upon the completion of buildings thereon; that the premises were not worth twice the amount of the mortgages.

The purchase of these mortgages was ultra vires. The following are some of the reasons for such conclusion:

They were purchased from a trustee. Such dealing by trustees with a co-trustee is in itself open to just objection, but the transaction is in violation of the prohibition contained in section 6 of the charter of the bank, to the effect that no trustee shall, directly or indirectly, borrow any of the funds of the bank, or in any manner use the same except to pay necessary current expenses. Trustees who sanction such use of the money by a co-trustee, equally with him, violate the law. The force of this prohibition is not avoided by resorting to a purchase from a trustee of mortgages, instead of loaning money to him thereon. When the substance of the statute is violated, the form which is given to the transaction is immaterial.

It was also a violation of the provisions of the charter which prohibit lending more than $20,000 to one individual on bond and mortgage. Buying mortgages is as much within the prohibition as lending money and taking mortgages. In addition, the mortgages were upon unproductive property not worth double the amount, as required by section 6 of the charter. For the purposes of this demurrer, I think the complaint sufficiently shows loss. A breach of statutory obligation and a violation of duties imposed, may well be presumed to be

Paine agt. Mead et al.

followed by loss. But the complaint discloses actual loss — its amount is yet to be determined on the trial.

The other objections to this cause of action are sufficiently covered by what is said in the case of Paine, receiver, agt. Barnum and others (ante, 303).

The objections to the second cause of action are not well taken. The concurrence in, and sanction of, the loan upon vacant lots by the testator, Willetts, and the other trustee, who demurs, clearly appear. It is averred that they voted for it. It was as effective to do so as members of the finance committee, as in the full board. As trustees they approved of this improper use of the moneys of the bank.

There must be judgment for the plaintiff on the demurrer, with liberty to the defendant to answer on payment of costs.

SUPREME COURT.

WILLIS S. PAINE, as receiver, &c., agt. ERASTUS F. MEAD et al.

Savings banks- Responsibility of trustees for the acts of its officers — Complaint-Demurrer.

A transaction entered upon the books of a savings bank, although made by the bank officers, is presumed to have been done with the knowledge and assent of the trustees, who are responsible for the acts of the officers whom they place and retain in position.

Special Term, August, 1880.

VAN VORST, J.-The loan in this case to Benjamin W. Wright, of the sum of $25,000, payable on demand, on the security of a bond and mortgage on premises called "Boscobel," in Westchester county, was, under the facts alleged, an illegal and grossly negligent act.

The sum loaned exceeded the amount in that manner directed to be invested by the charter, and was upon vacant

Paine agt. Mead et al.

and uproductive land, not worth twice the sum loaned. For the reasons assigned in the opinion in the case of Paine, receiver, agt. Barnum (ante, 303), the transaction cannot be sustained as a legal application or use of the available fund.

The complaint alleges that the loan was not an act of that degree of care, skill and prudence which a prudent man would use in and about his own business, and that it was an imprudent, foolish and improvident act. The truth of these allegations are admitted by the demurrer.

The transaction was at the time entered on the books of the bank, and, although made by the bank officers, it is presumed to have been done with the knowledge and assent of the trustees. They are legally chargeable with notice of the acts of the officers in and about the business of the bank, especially when they are entered on the books, and if they would escape liability they must dissent from and oppose illegal or improvident action, and seek to remove officials who do them.

The trustees are responsible for the acts of officers whom they place and retain in position. But the complaint contains allegations charging the trustees with knowledge and approval and ratification of the act. This renders them liable. Their defense, if any, must be interposed to the merits.

Neither of the grounds of demurrer are well taken, and there must be judgment for the plaintiff, with liberty to defendants to answer on payment of costs.