Lippitt v. Ashley , 89 Conn. 451 ( 1915 )

Before taking up the merits of the appeal, there are some preliminary matters which may be briefly disposed of. The plaintiffs claim not only to recover from the defendants as directors, on the ground of neglect of duties as such directors, the amounts embezzled by Converse and the amount of dividends paid out in excess of net profits during his term of office, but they also claim, in case No. 534, to recover from the defendant Cleveland, in his capacity as treasurer, the amounts of dividends paid out in excess of net profits during Cleveland's term of office. We do not think the complaint is adapted to that end, and this claim may be dismissed from the case on that ground without further discussion.

It is also claimed that § 3453 of the General Statutes which makes the directors, managers, and trustees of any savings-bank, "assenting" to a violation of any provision of statutory law relating to savings-banks, jointly and severally liable to such savings-bank for any loss which may result therefrom, imposes an absolute liability upon directors of savings-banks, and that the defendants are liable for losses occasioned by the payment of illegal dividends, whether they were negligent or not. We think, however, there can be no assent, within the meaning of the statute, unless the directors had actual knowledge that the dividends declared were not earned, or unless they were negligent in not knowing the actual financial condition of the bank, in which case knowledge of the actual facts should be imputed to them for the purposes of this statute.

The cases, therefore, turn wholly upon the question of negligence, as affected by the defense of the statute of limitations.

The first question presented by this appeal is whether the finding of reasonable care, expressed in paragraph 108, is purely a finding of fact, in which case this record presents no appealable question; or whether it is a conclusion of fact and of law, in which case the record presents the question whether the proper standard of legal duty was applied to the case, and whether the conclusion of the court is logically deducible from the premises of fact set forth in the finding.

When a defendant is sued for negligence in his individual capacity as a private person, the question whether he has or has not exercised that degree of care which under all the circumstances might reasonably have been expected of an ordinarily prudent man, is, generally speaking, a question of fact. But these defendants are sued as bank directors, and the standard of reasonable care required by law of bank directors is affected by their fiduciary position, by the nature of the business, and by the fact that, in accepting the office, they hold themselves out as reasonably competent and reasonably qualified to perform the duties of the office. So that the issue in this case is not whether the defendants have conducted themselves as might reasonably be expected of ordinarily prudent men, but whether they have conducted the affairs of this bank as might reasonably be expected of ordinarily prudent bank directors. Moreover, a finding of reasonable care in the conduct and direction of the affairs of a bank for a period of forty years is more likely than not to be a conclusion based upon other findings of fact as to the nature of the defendants' conduct in several different lines of action; and it is evidently so in this case, for the findings of fact are not only numerous, but many of them sum up the whole course of the defendants' conduct with reference to some particular line of action or omission. The ultimate finding of reasonable care is necessarily a conclusion founded on these intermediate generalizations, and, if logically inconsistent with them, may be reviewed in this court.

Bank directors, in their relation to the corporation, its creditors and depositors, occupy a fiduciary position. Many authorities regard them as trustees, others as not technically trustees, but all agree that by accepting the office they become obligated to exercise reasonable care and prudence in the discharge of their duties. In the view which we take of this case it is unnecessary to examine the numerous authorities upon the subject, for they are all agreed that such is the general rule.

The difference in the relation between a savings-bank and its depositors on the one hand, and an ordinary bank of discount and its depositors on the other, is well understood, and without going so far as to say that the directors of a savings-bank are trustees in any higher sense than those of other banks, it is, nevertheless, evident from the character of the institution, that the rule requiring of bank directors the exercise of reasonable care and diligence in the performance of their duties should not be relaxed at all in the case of savings-bank directors. Reasonable care in the performance of the duties of director of a savings-bank means the exercise of the same degree of care that ordinarily prudent directors of savings-banks would exercise under like circumstances. It seems clear that a due performance of the duty of reasonable care on the part of savings-bank directors involves at least a compliance with the statutes of the State, the by-laws of the corporation, and the usages of the business. Absolute uniformity of usage is not required, but in savings-banks, as in the conduct of other business, the omission to make use of an ordinary and approved precaution against the known risks of the business is, in the absence of any substitute for such omitted precaution, prima facie evidence of a want of reasonable care. The directors were careful in selecting as treasurer a man who enjoyed, in a peculiar degree, the confidence of the community; they used care in the selection of competent auditors; they were diligent in attending directors' meetings; they were prudent and successful in investing the funds of the bank; and they were themselves honest, prudent and successful business men. Nevertheless, the fact that they fully discharged their duty as directors in these other respects does not release them from the discharge of the very important duty of reasonable oversight and supervision of the treasurer's conduct of his office. That such was their duty is well settled. In Lowndes v. City National Bank,82 Conn. 8, 16, 72 A. 150, we said: "The law requires of directors the exercise of good faith and ordinary diligence and care in the performance of their duties. These duties include that of reasonable oversight and supervision. . . . Where there is a duty of finding out and knowing, negligent ignorance has the same effect in law as actual knowledge." And in that case we quoted, with approval, from Martin v. Webb, 110 U.S. 7,15, 3 Sup. Ct. Rep. 428: "Directors cannot, in justice to those who deal with the bank, shut their eyes to what is going on around them. . . . That which they ought, by proper diligence, to have known as to the general course of business in the bank, they must be presumed to have known."

Irrespective of authority, it would be clear that the whole duty of bank directors is not done without reasonable oversight and supervision of the mode in which the appointed custodians of its funds conduct their office. This duty of supervision is not performed by reposing confidence in such officers, however worthy of confidence they may seem to be. The history of the business, known to every bank director, shows that confidence without supervision has often proved to be a temptation and an opportunity. We do not mean to say that directors are required to proceed on the theory that their officers are under suspicion, or to examine the books themselves, or to employ expert accountants specially commissioned to detect possible defalcations. Until something happens which is calculated to put reasonably prudent bank directors on inquiry, they are entitled to assume that their officers, if selected with reasonable care, are honest. Yet there is a proper field for oversight and supervision of books and accounts within these limits, and for the purposes of this case it is sufficient to say that bank directors are bound to see that an approved system of bookkeeping is adopted, which will tend to furnish some protection to the bank against mistakes and false entries; and that they are bound to exercise reasonable care in seeing that the bank gets the benefit of the protection which such a system of bookkeeping purports to give. No system of bookkeeping pretends automatically to prevent or detect embezzlement; but approved systems do provide opportunities for checks and comparisons which are adapted to discover honest mistakes, and which have some tendency to discourage dishonest impulses; and the duty of making a reasonable effort to see that the bank gets whatever measure of protection its system of bookkeeping purports to give is very plainly a part of the directors' duty of reasonable oversight and supervision. Otherwise there would be no object in requiring them to adopt an approved system.

In this case an approved system of double-entry bookkeeping was adopted which contemplated that a certain measure of protection would be afforded by comparing one set of entries with the other set, from time to time. Such comparisons involved the taking of so-called trial balances of the depositors' ledgers. Yet, during the thirty-nine years over which Converse's stealing extended, the directors did not require that such trial balances should be taken, and none were taken; and by reason of that omission the bank was deprived of whatever measure of protection against mistake or dishonesty its double-entry system of bookkeeping purported to give. The findings of the trial court on this point are as follows: "77. The embezzlements of said Converse would have been discovered at any time after 1879 by any competent bookkeeper or auditor taking a so-called trial balance of the depositors' ledger; that is, by totaling the balances due depositors as of any given date, as stated in the several individual accounts in the individual ledger, and comparing such total with the net amount due depositors as stated on the general ledger and on the daily balance books, or as appearing from the net difference between the gross deposits and the gross withdrawals as stated in the deposit and withdrawal registers. 78. It is customary in savings-banks in Connecticut to have a trial balance of this kind taken by their treasurers at periods varying from once in three months to once in two years. 79. No trial balance was ever taken of the depositors' ledger and the general ledger of the Windsor Locks Savings Bank until shortly prior to the appointment of the receivers. 80. About January, 1912, the existence of the shortage and defalcations was at once discovered by taking such a trial balance."

In this connection we are referred to other paragraphs of the finding, which read as follows: "98. The bank followed the usual method of conducting its business found in other banks in this State of a like kind, and in other banks in this State of the size of this one the treasurer keeps the books and proves his balances, and the directors rely for knowledge of its condition upon the statements of the treasurer, the reports of the auditors appointed in accordance with section 3447 of the General Statutes, and upon the examinations and reports made by the bank commissioners. 99. It is not customary for directors of other banks to instruct their treasurer how to keep his books, nor to instruct the auditors appointed in accordance with law how to make their audit."

We see no inconsistency between the specific findings as to trial balances and the general findings as to conduct of the business of this bank, or the customs of directors of other banks. Taking these findings as a whole, the important difference between other banks and this bank was that in other banks it was customary to require the treasurer to take trial balances of the depositor's ledgers from time to time, and in this bank not.

It does not appear how long this custom of requiring such trial balances has existed, but the fact that it is found as a custom shows that it has been a general practice for a period long enough to make it a material fact in this case; that is to say, long enough for the defendants to have known of it, if they had been reasonably diligent in informing themselves of their duties as directors of a savings-bank. Otherwise the finding would have been qualified by some limitation of time or lack of opportunity for knowledge on the defendants' part.

That the custom itself is reasonable goes without saying. Indeed, it is not only reasonable, but a necessary incident of such a mode of bookkeeping, that a financial institution, which keeps its statements of liabilities in two different forms, should make some effort, from time to time, to see if the two statements agree. This much seems to have been taken for granted at the trial, for the court has found, as if in mitigation of the failure to require such trial balances to be taken, that the defendants believed that Converse proved his balances, and believed that the auditors thoroughly examined the books, and believed that the bank commissioners verified their statement of liabilities by a thorough examination. Upon what ground these beliefs rested is not found, unless upon the reports of the treasurer, auditors and bank commissioner, none of which purported to be or to embody such a trial balance. The fact remains that the directors never asked for or saw such a trial balance during their entire period of service, although it was customary in savings-banks in Connecticut to have such trial balances taken by the treasurer from time to time, and although it was a reasonable and a necessary incident of their system of bookkeeping that such trial balances should be taken from time to time for the protection of the bank. This, we think, was an omission which constituted want of reasonable care, unless some other precaution was adopted in its place.

It is said that the reports of the auditors and bank commissioners were a sufficient substitute; but, as already stated, they are not, in form or in substance, trial balances. Then it is said that the directors had a right to believe from the reports of the auditors that the statement of liabilities in the general ledger had been compared with the statement of liabilities in the depositors' ledger. But the finding is, in this regard, that none of the defendants at any time made any inquiries of the auditors as to the character of their audit or the amount of time occupied, or the method employed, or gave them any instructions; but that the only directions or instructions given to the auditors were given by Converse, and that all the reports of auditors — with two possible exceptions — were entirely in the handwriting of Converse, except the signatures of the auditors appended thereto. Upon this finding, nothing remains to justify the directors' belief that trial balances of the depositors' ledgers had actually been made, except the auditors' reports themselves.

It is not necessary in this case to determine whether the directors, having failed to require the treasurer to take such trial balances, were in duty bound to direct the auditors to do so. We refer to these findings simply to point out that the failure of the directors to give directions to or make inquiries of the auditors, leaves their mistaken belief that the auditors actually made such trial balances or comparisons without any foundation, except such as may be found in the reports themselves and in the inferences to be drawn from their examination.

These reports were in two forms: first, a certificate annexed to the treasurer's summary of assets and liabilities, as follows: "This certifies that we have this day examined the books and vouchers of the Windsor Locks Savings Bank, and found this above statement . . . correct." The reports in this form are, on their face, merely verifications from the books of the treasurer's figures of assets and liabilities. They import no examination of the books, except to see that the figures in the treasurer's statement agree with those appearing on the face of the books, and do not purport to be an audit or examination to see whether the books were correctly kept, or whether they agreed among themselves. The other form of auditors' report was on the blank prescribed by the bank commissioners, and reads as follows: "We, the undersigned, not being directors, managers, or trustees of the Windsor Locks Savings Bank, having been appointed by the directors of said bank auditors to examine its books, accounts and securities, do hereby certify that we have made the examination required by Section 3447, General Statutes of Connecticut, and find that the condition of said bank on the 1st day of October, 19__, was as follows, viz.:" Then follows a statement, the words and figures all in Converse's handwriting, as the defendants knew, and evidently, therefore, prepared by Converse in advance of the audit.

We doubt whether an audit of this kind is a compliance with § 3447, which plainly contemplates that the auditors shall find out for themselves, by an independent examination of the books, what is the condition of the bank. But however that may be, it is clear enough that these reports are not, and do not purport to be, based upon trial balances of the depositors' ledgers. To any one who knew that they were in the handwriting of the treasurer, they would fairly indicate that the auditors had verified the treasurer's statement of the amount of the deposits, and had examined the books and accounts for that bank for that purpose; which would not necessarily or reasonably involve anything more than an inspection of the figures in the deposit and withdrawal registers and of the total deposits as stated in the general ledger, and daily balance books, these being the only books which contain any statement of the total deposits. In short, all these auditors' reports are, on their face, directed to the single purpose of ascertaining the assets and liabilities of the bank as shown on its books, and not to the purpose of ascertaining whether the statement of liabilities to depositors as shown in detail by the depositors' ledgers agrees with the statement of total deposits as shown on the other books. That such was the common understanding in banking circles is shown by the survival of the custom of having the treasurer take trial balances of the depositors' ledgers from time to time.

All other savings-bank were required by statute to have their books and accounts examined by auditors annually, and the form of the audit prescribed by the bank commissioners was presumably uniform for all savings-banks; yet other boards of savings-bank directors continued to require their treasurers to take trial balances from time to time, and did not regard the statutory audit as a substitute for such trial balances. In 1913 the legislature amended § 3447 by adding these words: "Such auditors shall cause to be exhibited the last trial balance of depositors' ledgers, verifying the same with the controlling account in the general ledger, and immediately report any variance to the bank commissioners." Public Acts of 1913, Chap. 187, § 6 (p. 1804). The statute as amended still requires the auditors to examine the books and make a sworn statement of the true condition of the bank, and the amendment does not require the auditors to take a trial balance of the depositors' ledgers. It assumes that such a trial balance has already been taken by the officers of the bank, and requires the last trial balance to be exhibited to the auditors. From the form of the reports, the usage of the business, and the amended statute, it is apparent that both bankers and legislators have always assumed that the statutory audit did not involve the taking of a trial balance of the depositors' ledgers. And if these defendants, ignorantly and without asking any questions, believed that their auditors did take such trial balances, we think they were not, on the facts found, reasonably justified in that belief. The same considerations apply to the reports of the bank commissioners, and to the finding that the defendants believed that the bank commissioners verified their statements of the bank's liabilities by a thorough examination of its books; and also to the finding that the defendants believed that Converse had balanced all his books. Being obligated to exercise reasonable care and prudence in the discharge of the duty of general supervision of the affairs of the bank, the defendants were not, on the facts found, warranted in dispensing with any actual supervision over the methods of bookkeeping; and in assuming, without asking any questions, that trial balances of the depositors' ledgers were taken.

We cannot assent to the argument that the State, by § 3447, has undertaken to give directors of savings-banks instructions how to supervise the treasurer's accounts, and that the directors have fully complied with their duty in this regard by appointing competent auditors, and then leaving the whole supervision of the treasurer's accounts to such auditors and to the bank commissioners. The duty of supervision rests ultimately on the directors, and, on this finding, that duty was not fully discharged by believing, without inquiry, and without reasonable justification from the form of their reports, that the treasurer and auditors and bank commissioners had taken trial balances of the depositors' ledgers.

The defendants' argument assumes, and wrongly so, that the statutory audit is in lieu of the common-law duty of the directors. For reasons which are manifest, the legislature did not, and did not intend to, shift the whole responsibility for supervision of the books and accounts from the board of directors and put it upon auditors appointed annually for a special purpose, and having no connection whatever with the bank except for a few hours in each year.

Our conclusion is that the specific findings of the court with reference to the omission to require trial balances of the depositors' ledgers from time to time, according to custom, are, under the other circumstances disclosed by the specific findings, inconsistent with the conclusion of the trial court as expressed in paragraph 108, that the defendants have performed the duties of their office with reasonable care and ordinary prudence, and that they supervised and directed the affairs of the bank with that care and diligence that ordinarily prudent men would exercise under like circumstances.

The question then arises, whether the defendants' neglect of their duty of supervision, of which the failure to require trial balances of the depositors' ledgers from time to time is the most prominent feature, can be regarded as the proximate cause of the loss, in view of the fact that the trial court has included in its finding a statement to the effect that such trial balances, taken by a dishonest treasure, would not have disclosed the actual condition of the books. The argument that the defendants ought not to be held liable for the omission to require trial balances, because trial balances made by a dishonest treasurer would amount to nothing, cannot be pushed very far without practically nullifying the rule laid down in Lowndes v. City National Bank,82 Conn. 8, 72 A. 150, that the law requires of directors the duty of reasonable oversight and supervision; for such an argument leads ultimately to the conclusion that if the person or persons in charge of the books are dishonest, all ordinary methods of supervision by directors become useless, and may therefore be dispensed with. To say that the taking of trial balances of the depositors' ledgers by the treasurer of a bank is a useless precaution because he may falsify the trial balances as readily as he may falsify the books, is to contradict the best opinion of those experienced in the banking business, as indicated by their custom of requiring such trial balances to be taken. We cannot say that the taking of such trial balances in this case by Converse would necessarily have resulted in a discovery of his stealing. Yet we can say that the knowledge that such trial balances would not be asked for made the chance of discovery seem more remote. It cannot be assumed that Converse was a predestined criminal. It is quite as reasonable to suppose that he yielded to temptation and continued his stealing because it was made easy for him to do so without fear of detection. The history of most defaulting bank officials is that they feel compelled to keep the depositors' ledgers in balance with the other books by a system of false debits on individual accounts; a system which in the case of savings-banks presents peculiar difficulties, in view of the necessity of semiannual calculations of interest on depositors' balances. Converse, however, had no apprehension that a trial balance of the depositors' ledgers would be asked for, or that a false trial balance, which would have been on record, if it had been asked for, might be audited by third persons. He did not feel it necessary to falsify depositors' accounts in detail. He followed the easier path left open by the neglect to require any trial balances; and the system, or lack of system, under cover of which he successfully began and continued his course of embezzlement, was the natural result of such neglect. What would have happened if the directors had, unexpectedly to Converse, asked for a trial balance of the depositors' ledgers, we cannot say. It is not possible, in such cases as this, to demonstrate the causal relation between neglect and injury as clearly as if the problem was one of mechanics. But it is certain that, unless we are to abandon the salutary doctrine of Lowndes v. CityNational Bank, 82 Conn. 8, 72 A. 150, these bank directors must be held responsible for a neglect to take an approved precaution against the known risks of the business, which obviously made it easier for Converse to continue and to cover up his embezzlements in the particular manner which he chose to adopt for that purpose. Such negligence, so related to the loss, being apparent on the findings, we do not think it is a good defense to conjecture that Converse would have stolen just as much even if the directors had not been negligent.

On the whole case, we are of opinion that the trial court has failed to apply the proper standard of legal duty to the defendants' conduct in this case; that the reasonable care which the law requires of savings-bank directors is that degree of care which might be expected of reasonably prudent directors, having regard to the reasonable usages of the business, as well as to the statutes, and to the charter and by-laws of the corporation; that the custom of requiring the treasurers of savings-banks to take trial balances of depositors' ledgers from time to time, as found by the trial court, is a reasonable usage of the business; and that the failure to require such trial balances was, under the circumstances of this case, a proximate cause of the loss, and of the illegal declaration of dividends.

The defendants plead the statute of limitations as to all damages claimed in Nos. 536 and 537, and also as to so much of the damages claimed in No. 535 as accrued more than six years next before the appointment of the receivers; and the plaintiffs reply alleges that each of the defendants continued in office until within six years before the appointment of the receivers, and that by voting assent to the declaration and payment of unearned dividends, and by permitting the publication of false reports to the bank commissioners, and otherwise representing the bank to be solvent, the defendants fraudulently concealed from the depositors the causes of action set forth in the complaints.

The most important claim of the plaintiffs is that savings-bank directors are trustees in whose favor the statute of limitations will not run so long as they hold office. This question was not briefed or argued at the first hearing, but it has now been fully discussed before us on reargument granted for that purpose. The general rule, as quoted with approval in Cone v. Dunham,59 Conn. 145, 158, 20 A. 311, is as follows: "To exempt a trust from the bar of the statute of limitations it must, first, be a direct trust; second, it must be of the kind belonging exclusively to the jurisdiction of a court of equity; and third, the question must arise between trustee and the cestui que trust." Haywood v. Gunn, 82 Ill. 385. These cases do not meet the above requirements. Bank directors are not technical trustees any more than are the directors of other corporations; yet nobody doubts that corporate directors, including bank directors, may, under certain circumstances, make themselves liable for corporate assets as if they were trustees. But the question which we have to answer is a much narrower one, namely, whether these defendants ought to be treated as if they were trustees of a direct or express trust, or whether they ought to be treated as if they were trustees of an implied trust. In the former case the statute will not run, and in the latter it will.

It seems to us that in such cases a distinction should be drawn, dependent upon the character of the alleged breach of duty. If a fiduciary embezzles the funds in his hands, we call it a breach of trust, whether it be technically such or not. But if he neglects to deposit the funds in a bank and they are consequently stolen from his residence, we call it negligence, although such negligence is a breach of duty arising from a fiduciary relation. A similar distinction will be found in the cases against bank directors. If, as in Williams v.McKay, 40 N.J. Eq. 189, the directors are charged with ruining the bank through a persistent course of loaning money in direct violation of the express terms of the charter, under such circumstances that all of the defendants are chargeable with a systematic violation of the charter by making ultra vires loans, then, whether one agrees with it or not, it is easy to understand the process of reasoning which results in the conclusion that, upon a plea of the statute of limitations, they ought to be treated as if they had violated the terms of an express trust. That, however, is not the case we are called upon to decide. In these cases the directors have complied with the charter and by-laws and with the statutes, and their only breach of duty is the failure to exercise reasonable care in the supervision of the conduct of a dishonest treasurer, of whose dishonesty they had no notice. It seems more reasonable to hold that such a breach of duty, if it be a breach of trust at all, is comparable rather to a breach of an implied trust than to a breach of an express or direct trust, as the latter is defined in Cone v. Dunham, 59 Conn. 145, 158,20 A. 311. Without attempting to exhaust the comparison, two points are referred to: first, that the duty of exercising reasonable care in supervising the conduct of the treasurer is a duty which is imposed on the directors by law as a consequence of their acceptance of the office, and is not an obligation created or imposed by the terms of a written instrument; second, that it is one of the characteristics of a direct or express trust, and one of the most persuasive reasons for exempting such trusts from the bar of the statute, that they are not terminable at the will of the cestui que trust, whereas one of the distinguishing characteristics of an implied trust is the right of the beneficiary to a conveyance of the legal title on demand. In both of these particulars the special relation here in controversy between the defendants and the depositors resembles an implied trust rather than an express trust.

It is not necessary to the decision of this case to determine whether directors of a savings-bank ought to be called trustees, mandataries, or agents, in their relation to creditors and depositors. Giving full consideration to the undoubted fiduciary character of that relation, and regardless of any technicalities, the fact remains that the only breach of duty which is here alleged and proved is one which is more analogous to the breach of an implied trust than to the breach of a direct or express trust. Our conclusion seems to be in accord with the general course of decisions on this point, and we will refer for illustration only to the comparatively few cases in which the precise point of the applicability of the statute of limitations to suits against bank directors for the recovery of corporate assets has been determined. Wallace v. Lincoln SavingsBank, 89 Tenn. 630, 15 S.W. 448, and Stone v.Rottman, 183 Mo. 552, 82 S.W. 76, were actions founded, as these are, solely on the negligence of the directors in not discovering or preventing the loss of corporate assets caused by the wrongful conduct of a president or cashier; and it was held in both cases that the statute did not apply. We have not been referred to any suit for the recovery of corporate assets in which bank directors charged only with passive negligence, not amounting to actual or constructive participation in the wrongful acts which were the original cause of the loss, have been treated, on a plea of the statute of limitations, as trustees of an express trust. In all of the cases in which the statute has been held not to apply to bank directors, the defendants have either participated in a positive violation of the express terms of the charter, by-laws, or statutes, or they have had notice of such violation by others and have taken no steps to prevent its continuance. In Williams v. McKay,40 N.J. Eq. 189, the losses resulted from a long and systematic course of loaning money on personal security merely, in violation of an express provision of the charter, and from the president drawing personal checks on the bank. The by-laws provided for reports of the executive committee (who made the loans and whose duty it was to examine the books) to the board; and the court, on demurrer, held that on the allegations of the complaint, all of the directors were chargeable with knowledge of the systematic doing of the illegal acts. In Rankin v. Cooper, 149 F. 1010, the bank was wrecked by long-continued and renewed loans to the president and others in violation of the terms of the federal statutes relating to national banks; and in that case each director had personal notice from the comptroller of the treasury of the existence of those loans and of their illegal character, yet they did nothing to collect them or prevent their renewal and increase. In Greenfield Savings Bank v. Abercrombie,211 Mass. 252, 97 N.E. 897, and National Bank of Commerce v.Wade, 84 F. 10, the loss was caused by loans made in direct violation of the statutes, and only those directors and officers who participated in making the loans were made defendants. Upon principle and authority we think that the defendants' breach of duty in these cases cannot be treated as a breach of an express or direct trust.

In view of this conclusion, it is unnecessary to determine whether these actions are, within the rule laid down in Cone v. Dunham, 59 Conn. 145, 158,20 A. 311, exclusively cognizable in equity, or whether they are between the trustee and cestui que trust. We prefer to rest our decision on the broader ground that the defendants are not guilty of anything more than passive neglect of the duty of exercising reasonable care in the supervision of the treasurer, without actual or constructive notice of any wrongdoing on the treasurer's part. Their offense is not so heinous as to require that they should be deprived, by a court of equity, of their statutory defense. Both reason and authority indicate that the exercise of such an extreme judicial power may well be reserved for a different case.

These considerations dispose, also, of the claim that the directors are equitably estopped, by the declaration of dividends and by the published annual reports of the condition of the bank, from asserting the defense of the statute of limitations. It is the bank's cause of action which is sued upon, and the bank which is the beneficial claimant; and the depositors, in whose favor the alleged estoppel is claimed, have no right of action against the directors. But if we should assume that the receivers might, in a proper case, assert an equitable estoppel in favor of the depositors as against the defense of the statute of limitations, this is not such a case. This court has questioned whether "a party in a court of law can be prohibited, on the score of equitable estoppel, from defending himself under a public statute, designed to be of universal operation in the matter of legal remedies." Bank of HartfordCounty v. Waterman, 26 Conn. 324, 330. At least it is manifest that the courts cannot nullify the statute in every case in which they think it is inequitable to apply it, and the cases in which such an estoppel has prevailed over the statute have generally been limited, as we think they ought to be, to cases in which the defendant's conduct or representations were directed to the very point of obtaining the delay of which he afterward seeks to take advantage by pleading the statute. See 25 Cyc. 1016, and cases collected in the notes. In the cases at bar there is nothing to indicate that the declarations of dividends and the filing of the reports required by statute with the bank commissioners were intended to prevent the depositors from withdrawing their balances, and there is no finding that the depositors were thereby induced to refrain from doing so. We think the essential elements of an equitable estoppel sufficient to overcome the statute are entirely lacking in these cases.

The claim that the statute is suspended because the cause of action was fraudulently concealed, apparently rests on the erroneous theory that these actions are in effect suits on behalf of the depositors; that the directors were negligent in not knowing the true condition of the bank, and therefore they are to be treated in law as if they knew that the bank was insolvent, and still continued to declare dividends and permit the publication of false reports of its financial condition. On the contrary, these actions are on behalf of the bank, to recover for the consequences of negligent acts or omissions on the part of the whole board of directors, acting as such, which acts or omissions were necessarily known to the bank at the time they were done or omitted. The bank did not know, and neither did the defendants know, what where the consequences of such negligent acts or omissions, but the causes of action arose from the neglect and not from the consequences, although the measure of recoverable damages depends upon the latter. There has been no concealment, actual or constructive, by the defendants of any fact or cause of action, much less any fraudulent concealment.

Neither can we disregard the artificial entity of the corporation and treat the directors as if they held the legal title to the funds of the bank. The legislature has, by special charter, authorized this and many other savings-banks to be conducted as corporations without giving the depositors any membership in the corporation, or voice in the selection of its officers or in the management of its affairs. Such being the policy of the State, its courts cannot disregard the corporation character of this institution so long as the directors conduct its business in accordance with the charter.

The defense of the statute of limitations is upheld as to all losses incurred and illegal dividends paid more than six years before the time of serving the citation on the Windsor Locks Savings Bank for the appointment of receivers, to wit, February 6th, 1912. General Statutes, § 3471.

In Nos. 536 and 537 there is no error. In Nos. 534 and 535 there is error and new trials are ordered.

THAYER, J., concurred in the result and in the opinion.

WHEELER, J., concurred in the opinion, except as to that portion of it 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 he dissented.

PRENTICE, C. J., and RORABACK, J., dissented from the opinion, except that portion of it which deals with the operation of the statute of limitations, and from the result in cases 534 and 535; they concurred in the result in cases 536 and 537.