Court Opinion

ID: 3321417
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:39:00.508673+00
Date Added: 2024-06-11T14:00:56.752836
License: Public Domain

I concur in the majority opinion except as to that portion which treats of the statute of limitations and its effect upon cases 535, 536 and 537, and as to this and the effect of it upon these cases I dissent.
These cases are all actions to recover from the directors of a savings-bank losses to the bank through the negligence of the directors. They are quite similar, differing merely as to the period of time covered.
The majority opinion holds that the directors were negligent, but that in cases 536 and 537 the actions are barred, and as to 535 partially barred, by the statute of limitations, since the alleged losses were incurred and the illegal dividends paid more than six years next before the commencement of these actions. *Page 483 
This particular question was not argued or briefed until the reargument.
1. The judgment rendered was based upon the issues raised by the first defense, which did not include the statute of limitations. The appeal was taken from this judgment. Moreover, the trial court decided the issue with respect to the statute of limitations in favor of the plaintiffs, and we are considering only the plaintiffs' appeal. That issue is not, in my opinion, properly before the court on this appeal. But since my brethren discuss and decide the point, and as it is of far-reaching consequence and, in my opinion, the most important feature of this case, I will state my views upon it.
It should be noted, in the first place, that these actions are not by the bank, but by the receivers of an insolvent savings-bank, and they represent, primarily, creditors and depositors who in reality are the beneficial owners of the funds of the bank, and, secondarily, of the corporate body. The bank could only know of the negligence of these directors through its negligent officers, and they themselves did not know of the defalcations until after the failure of the bank. The depositors did not know, nor did the creditors, and neither could have known by the exercise of reasonable diligence.
My associates hold that depositors and creditors who did not know of the defalcations, or of the dividends wrongly paid, or of the negligence of the directors, and had no reasonable means of knowing, are barred from pursuing, through the receivers, their just causes of action, because the losses were incurred more than six years prior to the commencement of these actions. They have never had an opportunity when they possessed, or should have possessed, the knowledge which would have enabled them to protect their legal rights. Never, heretofore, have they had their day in court. *Page 484 
2. The claim against these directors is an asset of the bank, and depositors and creditors are the beneficial owners of it. Price v. Society for Savings,64 Conn. 362, 367, 30 A. 139. Neither bank, depositors, nor creditors have ever had the chance to collect this asset. The directors' negligence caused the losses and concealed them from the parties in interest. Shall the directors be permitted to wrong depositors, creditors and the bank, and escape liability by reliance upon their own negligence? Doctrine which leads to such a result does not seem to me to be sound.
"The statute of limitations assumes the existence of a cause of action and also of what, were it not for the statutory prohibition, would be a right of action."Schempp v. Beardsley, 83 Conn. 34, 37, 75 A. 141. But "it is because of the laches of the creditor in failing to pursue his remedy that the statute deprives him of the right to pursue it after a prescribed time." Hull
v. Thoms, 82 Conn. 647, 652, 74 A. 925. "The question [statute of limitations] is one of laches, and that the appellants are not chargeable with any results necessarily from the fact that their father concealed the agreement from them, so that it first came to their knowledge after his death." Fisk's Appeal,81 Conn. 433, 442, 71 A. 559. Upon the principle of these cases the statute is not available as a defense to these directors.
3. We have held that a savings-bank is a large incorporated agency for receiving and loaning money on account of its owners who are its depositors. Coite
v. Society for Savings, 32 Conn. 173, 191; Price v.Society for Savings, 64 Conn. 362, 366, 30 A. 139. Some authorities regard the trustees or directors of a savings-bank as either express or implied trustees of the depositors, others as agents of the depositors, but there is a general agreement that the relation is a *Page 485 
fiduciary one. Let us assume the narrowest relation, that the directors or trustees are fiduciary agents of the depositors, and see what results in law follow. When an agent is entrusted with the care and investment of funds, and losses result to the funds through his negligence, and the beneficiary has no knowledge of the loss or of the negligence until a period more than six years thereafter, when the agency is terminated, can the agent defend against a recovery by the principal by the plea that his principal is barred of his recovery, since the losses occurred more than six years prior to the demand? I take it to be sound law that the agent cannot plead the statute against his principal until the termination of the agency, or knowledge brought home to the principal of the agent's delict. Any other rule would jeopardize the principal's interest, without fault on his part, in favor of the agent whose dereliction of duty caused the loss. The agent may not plead his own neglect in bar of his principal's right of recovery. 1 Mechem on Agency (2d Ed.) § 1347, states the rule: "The purpose of the statute of limitations in these cases is to protect the agent against the assertion of stale claims, but it ought not to be made the means of screening a guilty agent, by allowing him to set it up as a defense, when the agent's own fault furnishes the cause of action, and the principal had no knowledge or means of knowledge that such a default had occurred."Cooper v. Hill, 36 C.C.A. 402, 407, 94 F. 582, 587. In case of ordinary agency, the statute does not run until the agency is terminated. In re Sharpe, L. R. (1892) 1 Ch. Div. 154; 1 Clark  Skyles on Agency, § 425, p. 948.
In King v. Mackellar, 109 N.Y. 215, 16 N.E. 201, the plaintiff entrusted to defendant $3,000 to invest for her. This he did not do. The court (p. 224) recites the provision of the New York Code, that "where *Page 486 
the right grows out of the receipt or detention of money, . . . the time must be computed from the time when the person having the right to make the demand has actual knowledge of the facts upon which the right depends," and says: "This section was a codification of the law as it existed at the time of its adoption and created no new rule of law." In a case where a judgment had been obtained against A without notice, and the time limited for a petition for a new trial had expired, we said: If he, A, has full knowledge of the existence of the judgment the statute of limitations would run from the time of knowledge. If he has no knowledge and was not in fault, a court of equity will entertain his case within a reasonable time after the matter has come to his knowledge. Jeffrey
v. Fitch, 46 Conn. 601.
This rule is one of clear justice, and prevents the statute running in favor of the negligent directors, even though they are in law mere agents of the depositors.
4. Let us now consider whether the directors did not stand in relation to the depositors as trustees. Savings-banks are institutions incorporated by the State for the encouragement of thrift among the owners of moderate incomes in the community. The incorporators of this bank were self-perpetuating and appointed themselves directors, and the directors always constituted a large majority of the incorporators. The depositors had no part, and could have no part, in the management of the bank, or the selection of the incorporators, or directors. A bank of this character is organized for the benefit of its depositors and conducted by its directors without profit to the corporation or directors. The undertaking held out by the bank to every depositor is to receive and invest his deposit through its officers, in the exercise of their reasonable fidelity, *Page 487 
diligence and skill, and in the observance of legal requirements, and to pay him its increment and to return him his deposit on demand, less the expense of management and the maintenance of a surplus as limited by law. The bank is conducted by its directors, and their undertaking toward the depositors is identical with that of the bank. The bank and its directors hold themselves out to the depositors to the performance of this duty. The depositor parts with his title to the specific form of his deposit, and in its stead obtains an equitable ownership in the funds of the bank proportioned to his deposit. Our whole rigorous statutory system for the government and regulation of savings-banks is based upon the theory that the bank and its directors or trustees are administering a trust. The deposits in the bank constitute a trust fund for the benefit of its owners, the depositors. The institution was created by law to administer a trust. Its directors are by its charter "sworn to a faithful discharge of their duties." This indicates the quasi-public character of the trust. Since the bank is managed by directors or trustees, they, upon assumption of office, become the administrators of a trust fund and necessarily, in virtue of their office and duty, trustees in fact, and each depositor comes into a trust relation with the directors who administer the trust fund created by the deposits. Out of this relation arises the right of the depositors to have his deposit managed with reasonable care and in accordance with the statutory requirements, and on the part of the director a correlative obligation so to manage this trust fund.
In an action by a stockholder against directors for wilful misconduct causing a loss in the assets of the bank, we held: "It is its [the bank's] property which has been misappropriated and lost, and the damages to be recovered belong to it, — to be sure in trust for *Page 488 
billholders, depositors and creditors." Allen v. Curtis,26 Conn. 456, 460.
In Pratt v. Pratt, Read  Co., 33 Conn. 446, 455, we said of the ordinary corporation, that it and its directors were trustees for the stockholders, and might be called into equity to account or to be restrained from mismanagement. 1 Morse on Banks  Banking (4th Ed.) § 3, p. 10 says: "A savings bank is simply a trustee; all moneys received under the charter are trust moneys, and the depositors stand in the same relation to the bank as the stockholders of an ordinary bank." In Mallory v. Mallory Wheeler Co., 61 Conn. 131,138, 23 A. 708, we said of the ordinary corporation: "The relation between the directors of a corporation and the company itself is in most respects a fiduciary relation. While not trustees in a technical sense they are often called such in practice." In Hun v.Cary, 82 N.Y. 65, 70, the court said: "The relation existing between the corporation (a savings-bank) and its trustees is mainly that of principal and agent, and the relation between the trustees and the depositors is similar to that of trustee and cestui que trust."
We have decided that funds held for the protection of the members of a beneficial society partake of the nature of trust funds. Grand Lodge of Conn. v. GrandLodge of Mass., 81 Conn. 189, 206, 70 A. 617. InNew Haven Trust Co. v. Doherty, 75 Conn. 555, 559,54 A. 209, in an action against two of the principal officers and directors of a life insurance corporation for their wilful and negligent conduct in making loans contrary to law, we said: "The duty of the defendants in respect to the loan was analogous to that of a trustee in respect to an investment of a trust fund in a manner unauthorized by the terms of the trust. . . . The money in charge of the defendants . . . was . . . held by the corporation under limitations of investment *Page 489 
analogous to those imposed upon a trustee in the investment of trust funds."
The authorities, as a whole, concede that the relation between depositor and director is one of trust, and determine the relation to be either an express trust or an implied trust. 25 Cyc. 1163. They also hold that, against an express trust, the statute does not ordinarily run, while against an implied trust it does.
5. Conceding for the moment that the trust is an implied one, this fact would be of no consequence in this case. The trust was a continuing one created by the law, and re-established with each deposit, and recognized by every depositor when he made each deposit, and by every director when he received it. His continuance in office was a constant recognition of this relation. In Corr's Appeal, 62 Conn. 403, 408,26 A. 478, we held that the statute runs against a resulting trust, but that the statute does not run in the case of a resulting trust which has at all times been acknowledged. When an attorney has the management of his client's estate for investment, the statute does not run, although the authorities which hold the relation between depositor and director an implied trust would hold that the relation between client and attorney was not an express trust. 25 Cyc. 1161. Is there any just ground for depriving the attorney of the defense of the statute and according it to the director?
6. The trust created by law between director and savings-bank depositor arises as soon as the deposit is made. The director, upon assuming office, undertakes the execution of a trust. The deposit is put in the keeping of the directors because they are known to be administering a trust. The law of trusts grows out of the fact that property is entrusted to the control of another. Such a trust has none of the qualities of an implied trust, which is one implied or inferred from the *Page 490 
transactions of the parties to carry out their presumed purpose or intention. This trust is created by law, and imposed upon the parties without their consent, but with their acquiescence, since each director must be presumed to know when he takes office, and each depositor when he makes his deposit, that deposits are entrusted to the care of the directors. If I hand one my money and say, "Invest it and account to me for it," a direct trust is created. The law speaks for the depositor when he makes his deposit and says to the bank and its directors, "Take my deposit, invest it according to law, return me its increase and, upon my demand, the deposit itself." And the law speaks for each director and says to the depositor, "We accept your deposit upon those terms." Would the transaction have been any more direct or express had it been committed to a writing and duly signed by the parties? An express trust may be created by the written or spoken words of the parties, and this is the more common method, or by the act of the parties; or it may be created by the law, upon parties entering into certain business relations with each other of the character of those between depositor and director of a savings-bank.
The right of the depositor in the funds of the bank gives him a right of action, through the receiver, against negligent directors for the loss of those funds, and such a right is that of a cestui que trust against his trustee. The leading case in this country upon this subject isWilliams v. McKay, 40 N.J. Eq. 189. The action was one in equity by a receiver of a savings-bank against the managers of the bank, to recover for losses incurred through their negligence. The court, in an opinion by Beasley, C. J., held that the relation between the managers and depositors was that of trust, and that the trust was a direct one, created immediately upon the placing of the funds under the control of these *Page 491 
managers; and that the statute of limitations would not shield them from losses occurring through their neglect over a period within the statute.
In Greenfield Savings Bank v. Abercrombie,211 Mass. 252, 97 N.E. 897, the investment committee of the trustees of a savings-bank made loans largely in excess of the statutory limits. The trustees were held liable for resultant losses. "But," says the court, "the defendants insist that the statute of limitations is a bar to any remedy for most of their wrongful acts. . . . But this contention overlooks the fact, which has been sufficiently shown, that these defendants stood as to the bank and its depositors in the position of trustees of a direct trust. In such a case the statute of limitations does not begin to run against the cestuis que trust until they have learned of the trustee's wrongdoing or of his practical repudiation of the trust and of the duties thereby imposed upon him."
Both of these cases are illuminating examples and expositions of the doctrine which I would apply to this case.
Brinckerhoff v. Roosevelt, 74 C.C.A. 498, 143 F. 478, was an action by a stockholder against the president of an incorporated building association to recover loss to the corporation through the negligence and mismanagement of the president. The court held (p. 500): "The action is not barred by the statute of limitations or for laches, for the reason that the complainant did not discover the wrongful conduct, which is the foundation of the action, until a few months prior to its commencement. Directors are assumed to act for the interests of their stockholders, and the latter have a right to rely upon the assumption that they are acting honestly until the contrary appears." In reLiverpool Household Stores Asso., 59 L. J. (N.S.) Ch. Div. 616; In re Sharpe, L. R. (1892) 1 Ch. Div. 154; *Page 492 Ellis v. Ward, 137 Ill. 509, 25 N.E. 530; Zuck v. Culp,59 Cal. 142; Williams v. Reilly, 41 N.J. Eq. 137,3 A. 692.
The majority opinion distinguishes some of these cases as being in violation of some positive duty imposed by statute, charter, or by-law. We see no difference between the failure to use reasonable care in meeting such a duty or in meeting the common-law duty to use reasonable care over these funds. Each is equally obligatory.
One feature of these cases may not be distinguished. They hold that the directors or trustees of a savings-bank are either trustees of a direct or express trust for the depositors, the cestui que trust, or under the same duties as the trustees of an express trust. The fact that the bare technical legal title is in the corporation is not permitted to prevent the creation of a direct trust. And it ought not in this case, where the incorporators are self-perpetuating and select the directors who have constituted always more than a majority of the incorporators.
7. All authorities hold that until a fraud could have been discovered by reasonable diligence, the statute does not begin to run against a cestui que trust of either an express or an implied trust. The cause of action begins from the date of the fraud, as it does from the date of the negligent act. The reason for the exception in the case of fraud is that the beneficiary did not have the opportunity to protect his rights until he had knowledge of the fraud. For a similar reason the action of the depositor, for a loss incurred through the negligence of the director or trustee, was not barred until knowledge of it came to him. An instance of the application of this exception is found in Lewey v. Fricke CokeCo., 166 Pa. 536, 31 A. 261. There, in an action of trespass to recover damages for the unlawful mining of *Page 493 
coal under plaintiff's land, the equitable rule, that the statute of limitations runs only from discovery, or a time when discovery might have been made, was applied. The true rule is that the action lies from the time when the cestui que trust could, by the exercise of diligence, have enforced his rights by suit.
8. So long as the directors were in office, no suit could or would be brought to recover for the losses caused by their negligence; it was only after the appointment of the receivers that suit could be brought. Before that time the trust estate was in the control of these directors; the statute does not run during such period of control against a cestui que trust unacquainted with the loss. Rankin v. Cooper, 149 F. 1010, 1016; National Bank of Commerce v. Wade, 84 F. 10, 15, 16. The statute of limitations should not run in favor of fiduciaries having powers and duties of control and management and against a cestui que trust, so long as the fiduciary relationship continues and thecestui que trust has no notice of the violation of trust by the fiduciary.
9. In one of the two cases cited in support of the court's conclusion (Stone v. Rottman, 183 Mo. 552,82 S.W. 76), the statute of limitations was not raised on the appeal.
10. The opinion holds, as I understand, that as to all losses incurred and illegal dividends paid more than six years next before the commencement of these actions, no action in equity would lie in these cases, since the defendant directors were not trustees of an express trust, and the plaintiffs have an adequate remedy at law. And it holds that the action at law is barred as to such losses and dividends unless there was a fraudulent concealment of the cause of action, and that none such appeared of record. So that in no possible action could these directors be found liable for the results of their *Page 494 
negligence preceding such six-year period. I have not been able to persuade myself that such a conclusion is either sound in law, or sensible in practice, or wholesome in its effects.
We hold, upon this record, that the negligence of these directors has caused a very large loss to the depositors of this bank who trusted to their fidelity and diligence. They had no means of knowing of the dishonesty of the treasurer. The directors had. The depositors were in ignorance of this. As soon as the directors were compelled to give up control of the depositors' funds to the receivers, this action was brought. The depositors were ignorant of the embezzlement, and could not have known of it by the exercise of reasonable care. The directors were ignorant of the embezzlement continuing through forty years, but if they had performed their duty as directors, they would have known of it. Who in justice should suffer? Must not the answer be, these negligent savings-bank directors, rather than these innocent depositors?