Hunt , 141 Mass. 515 ( 1886 )

G. Allen, J.

In Harvard College v. Amory, 9 Pick. 446, 461, it was declared: “ All that can be required of a trustee to invest is, that he shall conduct himself faithfully, and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.” In that case, investments in stocks of an incorporated manufacturing company and of an incorporated insurance company were held to have been within the authority of the trustees. This general statement of the rule has been adhered to ever since. Lovell v. Minot, 20 Pick. 116. Kinmonth v. Brigham, 5 Allen, 270. Clark v. Garfield, 8 Allen, 427. Brown v. French, 125 Mass. 410. Bowker v. Pierce, 130 Mass. 262. In the present case, the will under which the trustee was appointed is not before us, and his authority in respect to the investment in controversy is to be determined on general principles.

1. The fact that the certificate of deposit was indorsed by Lovell to Hunt, and by Hunt to himself as trustee, does not of itself show that the latter indorsement represented a transaction by which Hunt individually transferred the certificate to himself as trustee. The fact as found is the other way. The transfer to him personally appears to have been a mere form. The purchase was by Hunt as trustee, and the payment was from the trust funds.

2. The certificate of deposit was not illegal, as being in violation of the U. S. Rev. Sts. § 5183, which forbids national banka •to issue any other notes to circulate as money than such as are. authorized by the provisions of the statute. In Shute v. Pacific Bank, 136 Mass. 487, it was held that a certificate of deposit, in the same form as that now before us, was not to be deemed a promissory note, within the meaning of the Gen. Sts. c. 53, § 10, which provide that, in any action by an indorsee against the promisor upon a promissory note payable on demand, any matter shall be deemed a legal defence which would be a defence, to a suit thereupon if brought by the promisee; so that the bank was held not to be entitled to defend an action brought by the indorsee, to recover the amount of the certificate, by setting off a debt due to the bank from the original depositor. It was recognized in that case that such certificates have in most respects the incidents of promissory notes, and are classed as such ; but certain distinctions were pointed out between them and common promissory notes such as were contemplated by the statute. If the United States Revised Statutes forbade the issue of any other notes whatever than such as were therein authorized, it would be difficult to hold this certificate to be legal. Miller v. Austen, 13 How. 218. But assuming that it might fall within the general designation of a note, it cannot be considered as a note intended to circulate as money, within the meaning of the statute. It requires to be indorsed. It was understood not to be payable till a certain future date. It is not in a sum adapted for general circulation as money. The form of the instrument, and the incidents above mentioned, show that it was not intended to circulate as money between individuals, and between government and individuals, for the ordinary purposes of society. Craig v. Missouri, 4 Pet. 410, 432. Briscoe v. Kentucky Bank, 11 Pet. 257, 314, 318. Virginia Coupon cases, 114 U. S. 269, 284. See also Merchants' Bank v. State Bank, 10 Wall. 604, 648, where it was held that certified checks do not fall within a similar prohibition.

3. But it is urged that the issue of such certificates of deposit is not good banking, and is of itself so calculated to put a prudent investor on his guard that a trustee ought to be held responsible for any loss arising from such an investment. In respect to this objection, it is to be observed, in the first place, that this method of doing business is not illegal or novel. If Congress had intended to prohibit the issue of certificates of deposit altogether, or of certificates payable on time or with interest, it would probably have said so in plain terms. The statute was passed in view of known methods of doing business. It has long been understood that the relation between a bank and its depositor is that of debtor and creditor. In England, the business of banking has been carried on to a greater extent by individuals than by incorporated companies; but the ordinary relation with depositors is the same. Carr v. Security Bank, 107 Mass. 45. It is competent for the parties to make such contract as they please respecting interest, and the time of payment of the principal. To borrow at a low rate of interest and to lend at a higher rate is not an uncommon, though not a universally approved, method of banking. Whether it is good or bad policy for a national bank to do this, is not a matter for judicial determination. In Foley v. Hill, 2 H. L. Cas. 28, it was finally determined authoritatively for England, in 1848, that the relation between a banker and his customer is the ordinary relation of debtor and creditor, with a superadded obligation, arising out of the custom of bankers, to honor the customer’s drafts; and that this relation was not altered by an agreement by the banker to allow interest on the balances in the bank. Lord Chancellor Cottenham said: “ The money paid into the banker’s is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places.” p. 36. And Lord Brougham said: “ The party who receives the money has the use of it as his own, and in the using of which his trade consists, and but for which no banker could exist, especially a banker who pays interest.” p. 43. Adjudicated cases show that certificates of deposit bearing interest, or payable at a future date, have often been before the courts, and, in the absence of statutory prohibition, they have not been deemed open to legal objection on this ground. Miller v. Austen, ubi supra. Kilgore v. Bulkley, 14 Conn. 362. Patterson v. Poindexter, 6 Watts & S. 227. London Savings Fund Society v. Hagerstown Savings Bank, 36 Penn. St. 498. Cate v. Patterson, 25 Mich. 191. Laughlin v. Marshall, 19 Ill. 390. Howe v. Hartness, 11 Ohio St. 449. See also 2 Dan. Negot. Instr. §§ 1698-1707 a; Story Prom. Notes, § 12, n.; Morse on Banking, 64.

It is undoubtedly true that a bank incorporated under the authority of this Commonwealth could not lawfully issue such certificates, by reason of express statutory prohibition. Pub. Sts. c. 118, § 40. Gen. Sts. c. 57, § 63. Rev. Sts. c. 36, § 57. Sts. 1834, e. 203, § 1; 1828, c. 97, § 2. This prohibition, however, is subject to exceptions, in favor of the Commonwealth, of savings banks, of assignees in insolvency, of counties, cities, and towns, and of other banks. To all of these, state banks may pay interest; to some of them, they may issue notes payable at a future day certain. These exceptions are sufficient to show that the insecurity of the deposits or loans was not the evil specially feared by the Legislature. By the Pub. Sts. c. 157, § 53, moneys belonging to insolvent estates must be deposited by the assignee in some bank. The treasurer of the Commonwealth may deposit public moneys in national banks on interest. Pub. Sts. c. 16, § 55. County treasurers must deposit surplus funds in their hands in national banks, at such rates of interest as may be practicable. Pub. Sts. c. 23, § 18. The Rev. Sts. c. 36, § 78, authorized savings banks to lend their deposits on interest to banks, without any expressed limit as to amount of loan or time of payment. Such limitations, however, have since been enacted, in various statutes, and now savings banks may deposit sums not to exceed twenty per cent of the amount of their deposits, on call, in national banks, and may receive interest for the same. See Gen. Sts. c. 57, § 144; Sts. 1863, o. 175, § 3 ; 1876, e. 203, § 9; 1881, e. 214, § 3; Pub. Sts. c. 116, § 20. Since savings banks might heretofore, and may still, invest their funds, to a limited amount, in the shares of such banks, (Rev. Sts. c. 36, §,78; Gen. Sts. c. 57, § 142; Pub. Sts. e. 116, § 20; St. 1882, e. 224,) the provision that deposits may be made on call does not imply that a loan of a moderate amount to a national bank for a short term is supposed to be insecure. A legal debt from a bank, due on demand, or within a short time, may properly be considered as a- security of a' higher order than shares in its capital stock. There is nothing in all this legislation which calls upon us peremptorily to hold a trustee responsible for a loss incurred by reason of purchasing, a certificate of deposit in a national bank, payable at a future time certain; but every such case, as it arises, must be determined on its own circumstances-.

In the present case, it was found as a fact, on the testimony of two witnesses, confirmed by that of the trustee himself, that it was not and is not usual or customary for national banks to issue certificates of deposit payable at a future time, stated either on the face of the certificate or by an agreement with the payee. But during nearly a year prior to the issue of the certificate in question, this particular bank had issued many such certificates. It was a legal form of obligation. It does not appear that this practice was objected to, and, indeed, it does not appear, except by inference from the statutory requirements, that it was known by the comptroller of the currency or the national bank examiner. These certificates were taken to a considerable extent by certain savings banks and trust companies. Whether these institutions were authorized by law to make such investments, we need not further consider. There is nothing to show that the bank was then in doubtful credit, or that any suspicion of its insolvency was entertained in the community. It is expressly found, and this finding is not open now to revision as the case is presented to us, that the trustee purchased the certificate in good faith. The purchase was at a rate of interest not shown to be excessive. The amount of the capital stock of the bank is not stated; it appears that it was a national bank, organized under the laws of the United States, and doing business in Boston. It was subject to-the supervision of the government officers, and to the various regulations provided in the statutes for such institutions. Its stock then sold at par in the market; and occasionally, about that time, at a small premium.

It has always hitherto been considered in Massachusetts that investments of trust funds might properly be made in the shares of banks incorporated under the authority of the Commonwealth, or of the United States. Looking, as we must, simply at the circumstances of the case which is submitted to us, a majority of the court do not think the trustee ought to be held responsible for the loss on the purchase of the certificate.

4. The various matters of evidence which were objected to were competent.

Decree accordingly.