CHAPTER XIV. SAVINGS BANKS. § 353. The nature of savings banks.- The original conception of a savings bank was a place where the savings of working people could be deposited and united so as to form loanable capital. The funds were managed without pay by officers who were philanthropic individuals, and the profits upon the capital earned went to the depositors. This was the original type of savings bank and it yet survives, except that the officers are generally paid a salary.1 But there was certain to arise a kind of savings bank, where the profits, over and above a certain interest on the deposits, would go to the managers of the institution; and therefore there are savings banks which are regularly stocked corporations, where the deposit creates a debt and the stockholders are liable for the usual double liability upon their stock. There are still other savings banks which have two kinds of depositors, those who become stockholders and those who are not.3 The peculiar nature of these banks has caused them to be separately noticed. § 354. Illustrative cases on the nature of savings banks. Whether a bank is a savings bank or not depends upon its functions and not its name. A savings bank which is authorized to do a commercial banking business is an ordinary commercial bank;2 and a statute creating savings banks which were authorized to receive deposits and declare divi 1 Huntington v. Savings Bank, 96 U. S. 388. See the remarks made in the opinion. 2 See Queenan v. Palmer, 117 Ill. 169, and Ward v. Johnson, 5 Bradw. 30, for this kind of a savings bank. 3 Stockton v. Mechanics' Sav. Bank, 32 N. J. Eq. 163. But a better case is Murphy v. Pacific Bank, 119 Cal. 334. State v. Lincoln Sav. Bank, 82 Tenn. 42. 2 Mitchell v. Beckman, 64 Cal. 117. dends was held to be within a constitutional requirement which provided that any banking law establishing banks, whether of deposit, discount or circulation, should be approved by a vote of the people of the state. The constitutional provision was not confined to stockholders who owned the bank. A savings bank formed for the pecuniary benefit of its members is not a benevolent or charitable society. But if formed merely for the investment of money, and the payment of the income therefrom, it is a trustee, and a court of chancery may regulate the distribution of its assets, but it cannot change, any more than the legislature can change, the terms of the incorporating act. But even in ordinary savings banks the claim of the depositor is a chose in action-it is not a bailment. It is immaterial, where the bank has engaged to pay a certain interest, that it has invested in stocks which have depreciated. But the managers have no right to profits as such where the profits are divisible among the depositors. In savings banks the depositors are not stockholders 10 unless the form of the organization makes them so; the relation of debtor and creditor arises in most savings banks upon a deposit " unless it be a special deposit.12 § 355. Officers of savings banks.-The statutes are sometimes drawn so as to prevent an officer of a bank of circulation or deposit from becoming a director of a savings bank 3 Reed v. People, 125 Ill. 592. 4 Shenn v. Mendenhall, 23 Minn. 92. 5 In re Newark Sav. Inst., 28 N. J. Eq. 552; Savings Inst. v. Makin, 23 Me. 360. 6 Dodd v. Una, 40 N. J. Eq. 672. 7 Lund v. Seamen's Bank, 37 Barb. 129; People v. Mechanics' Sav. Inst., 92 N. Y. 7; Ide v. Pierce, 134 Mass. 260; Pope v. Burlington Sar. Bank, 56 Vt. 284; Ward v. Johnson, 5 Bradw. 30. 8 Makin v. Inst. for Sav., 19 Me. 128; Makin v. Sav. Inst., 23 Me. 350. 9 Huntington v. Savings Bank, 96 U. S. 388. 10 Savings Bank v. New London, 20 Conn. 111. 11 Ward v. Johnson, 5 Bradw. 30; and compare the cases in note 7, supra. 12 Zinn v. Mendel, 9 W. Va. 580, semble. The bank is in such case bailee and is liable at law for a conversion. Davenport v. Underwood, 13 Am. Law Reg. (N. S.) 211 (Ky.). an exceedingly wise provision; but a court is likely in such case to produce one of those convenient presumptions of which courts keep a liberal supply, to the effect that, if the director allows himself to be voted for, it will be presumed that he has resigned his other office. The officers of the bank are selected generally by the board of trustees by majority vote; but where the trustees are elected annually, and the officers are to be appointed during their pleasure, the office of treasurer is not an annual one.3 If the compensation of the officers is dependent upon net profits, a rise in the government securities owned by the bank has been held to be not a part of the profits. The officers being trustees are liable to the bank as are officers of other banks." If they make a loan to a greater amount than is permitted by the statute they are liable for the loss, although the statute fixes no penalty. Where a treasurer of a savings bank assigned to his bank a note and mortgage of lands not worth double the amount of the note as the law required, and without submitting the loan to the finance committee as required by the by-laws, he is liable irrespective of a failure on the part of the directors to repudiate the loan for so long a period as six years, and irrespective, too, of the knowledge of the directors. The treasurer is liable for permitting the funds of the bank to be used in making an unlawful and imprudent loan not submitted to the finance committee. The president is liable for loss upon an improvident loan made to him not authorized by or submitted to the finance committee. The treasurer is also liable where he signed the check for the loan.10 The purchase of realty which was not authorized by the charter and not submitted to the finance committee ren 1 People v. Conklin, 7 Hun, 188. 2 See the last case cited. 3 Commonwealth v. Reading Sav. Bank, 129 Mass. 73, a suit on a bond. 4 Jennery v. Olmstead, 36 Hun, 536. 5 See § 79, ante, et seq. 6 Thompson v. Greeley, 107 Mo. 8 7 Williams v. Riley, 34 N. J. Eq. 398. 8 Williams v. McKay, 46 N. J. Eq. 25. See § 79, ante, where the conclusions from this case are stated in the text. 9 See last case cited. 10 See last case cited. ders liable for the loss those officers who took part in the transaction." The treasurer who signed the checks therefor in blank is also liable. All those officers who participate in making unlawful loans are liable for the loss thereon to the bank. For a release of securities on a loan by the president where the loan is to a manager, the president and manager are both liable. The secretary of the bank, who knew that a loan was unlawful, but acquiesced in it, must respond to the bank; 15 but a director who took no part in the loan, but found out the fact after it was made, and made no objection, cannot be held.16 The trustees who act in good faith and with ordinary care and prudence in making a loan on a mortgage are exempt from blame." If they are directly concerned in making unlawful loans they are, of course, responsible for the loss.18 Where an executive committee of the trustees is acting, they are liable for not exercising the proper control of the bank's affairs.19 But the managers are also responsible if they fail to bestow upon the affairs of the bank that reasonable care which the law requires of them, in consequence of which their associates are enabled to cause loss.20 The habitual disregard by the president of the bank of the charter and the by-laws shows negligence in the managers." They are presumed to have failed to exercise ordinary care.22 Where money has been secretly withdrawn from the bank and covered by a system of false entries for a series of years, and the fact has not been dis 11 See last case cited. 12 See last case cited. 13 Paine v. Barnum, 59 How. Pr. 303: Williams v. McDonald, 42 N. J. Eq. 392; Knapp v. Roche, 44 N. Y. Super. Ct. 247; Hun v. Cary, 82 N. Y. 65. 14 Williams v. McKay, 46 N. J. Eq. 25. 15 See last case cited. 16 Knapp v. Roche, 44 N. Y. Super. Ct. 247. 17 Williams v. McDonald, 37 N. J. Eq. 409. 18 See cases cited in note 13. 19 Williams v. McKay, 46 N. J. Eq. 25. 20 Wilkinson v. Dodd, 40 N. J. Eq. 123, 42 id. 234, 42 id. 647; Williams v. McDonald, 42 N. J. Eq. 392. 21 Williams v. McKay, 40 N. J. Eq. 189. 22 See case last cited, reversing Williams v. Halliard, 38 N. J. Eq. 373. 26 covered by the executive committee or the board of trustees, who would have discovered it had they exercised reasonable diligence, they are bound to respond to the bank for the loss. They cannot escape by averring that they did not know of the fact and had not time to give to the affairs of the bank. But for single transactions they are not responsible if they were not otherwise negligent; 25 nor would they be liable for the first of a series of transactions by the president in disregard of the charter, if they could not reasonably have anticipated it. For declaring unlawful dividends they can be held;27 but if in regard to a particular transaction a trustee did not act he is not responsible for it, if he is not made liable on some other ground of failure to exercise care.28 But a trustee is released for a loss where the loss is paid by a subsequent trustee.29 And if a trustee gives the bank security to provide against loss upon a particular loan already made, he does not thereby become surety for money loaned to the bank.30 The suit against the officers may be brought by the bank or its receiver. It may be at law where no accounting is necessary." But under one statute the state auditor alone can sue.33 If, however, the bank and its receiver, or any other officer whose duty it is, refuses to bring the action, the creditors may sue, making the bank or the receiver and other officers parties. The recovery belongs to the assets of the bank. But the parties who profited by the improvident loans of the bank are not nec 23 Williams v. McKay, 46 N. J. Eq. 25; Paine v. Irwin, 59 How. Pr. 316. 24 Williams v. McKay, 46 N. J. Eq. 25. 25 See case last cited. 26 See case last cited. 34 See SS 79, 81, ante, and Wilkin- 33 Ryan v. Ray, 105 Ind. 101. 27 Van Dyck v. McQuade, 57 How. 341; Maisch v. Savings Fund, 5 Phila. Pr. 62. 28 Compare Hun v. Cary, 59 How. Pr. 426, with s. c., 82 N. Y. 65. 29 Hun v. Van Dyck, 26 Hun, 567, 92 N. Y. 660. 30 Best v. Thiel, 79 N. Y. 15. 30, an excellent opinion by Sharswood, and Leffman v. Flannigan, 5 Phila. 155, an opinion by Hare. And see § 83, ante. 35 Chester v. Halliard, 34 N. J. Eq. 341. |