Ashuelot Savings Bank v. Albee

No defence being suggested in behalf of the treasurer, his sureties may be regarded, in the present inquiry, as the only defendants. Their defence is, not that they were discharged by the negligence of the examining committee, but that they were induced to sign the bond by representations false in fact and fraudulent in law. They were induced to sign the bond by the combined influence of the treasurer's request; their confidence in him and in the other officers of the bank, and their management of its affairs; their knowledge that some of the trustees represented the bank to be sound when they had occasion to speak of it; and the published reports of the examinations made by the committee of the trustees. One defect in this defence is, that it does not appear that the alleged representations (contained in the published reports of the committee's examinations, and in the oral commendations of the soundness of the bank) formed a substantial or material part of the inducement (Cool., Torts 502), or that the defendants would not have signed the bond if these representations had not come to their knowledge. Safford v. Grout, 120 Mass. 20, 24, 25.

Some of the trustees, when they had occasion to speak of the condition of the bank, were accustomed to represent it as sound. It does not appear that these oral recommendations were intended or understood to be anything more than expressions of opinion, or were the joint or concerted action of the board or any of its members, or were the action of a quorum or any number authorized to bind the plaintiffs, or were intended or understood to be given by any one in his official capacity, or that, on any ground, they can be considered as representations made by the plaintiffs. And if they were statements of the fact of soundness, and not mere expressions of opinion, and if, in contemplation of law, they were made by the plaintiffs, they are immaterial because it does not appear that they were made to the defendants, or with any expectation of their coming to the defendants' knowledge, or with any belief or reason to believe they would induce any one to become a surety of the treasurer. The necessary privity is not shown. Cool. Torts 493.

The law required that a thorough examination of the plaintiffs' affairs should be made by the trustees, or by a committee of trustees, once in every six months; that a report of such examination, signed by a committee of the trustees, should be returned to the bank commissioners; that a copy of the report should be published by the plaintiffs in a newspaper; and that proper blanks for these examinations should be furnished to the plaintiffs by the bank commissioners. G. L., c. 170, ss. 2, 3, 4. These duties were performed with an exception by which the examinations, reports, and publications were rendered useless. The committee erroneously believed their examinations were thorough. By their superficial inspection the annual defalcation was not discovered. They acted in good faith, and according to their understanding of their duty; but, as frequently happens in such business, confidence in the treasurer, and lack of special detective skill, made the examiners. incompetent for the task assigned them. The case is not an exceptional instance, but the operation of a general system. Many trust funds, private and public, need the service (obtainable for an adequate compensation, under the law of demand and supply) of investigators, not only mentally and morally sound, but also trustworthy as experts, laborious, capable of inquisition, and not disqualified by confidence in anybody.

The plaintiffs are an incorporated trustee, existing only in contemplation of law, and the action is brought on a bond given by the defendants in 1877 for the security of the trust fund. The plaintiffs, having no beneficial interest in any property, hold a mere legal title: the whole equitable estate is in the depositors. If the published reports of examinations made in previous years had induced the defendants to become depositors in 1877, and they claimed damages out of the trust fund in an action on the case against these plaintiffs for deceit, or in a distribution of the fund in insolvency proceedings (G. L., c. 166, ss. 9-17), other depositors would claim that the insufficient examinations were not made, reported, or published through any fault of any of the equitable owners of the fund, and that such owners had no more control of the election or action of the trustees, or the committee of trustees, in previous years, than the subsequent depositors or the treasurer's sureties had in 1877. A single unincorporated person carrying on the business of a depositary and savings-bank could be liable for deceit and fraud: but some of his depositors would contend that their property, held by him as a trust fund, and invested in his name as trustee, could no more be taken on execution to pay damages for a fraud committed by him on other depositors, than a ward's property similarly held and invested could be applied to pay the debts of his guardian. For the indemnification of persons defrauded by the plaintiffs' trustees, the plaintiffs have no property except the trust fund. To invalidate the treasurer's bond for fraud committed by trustees, is to make the fund answerable for the fraud. This cannot be done in behalf of the defendants without showing that in law the averments of thorough examinations were made by the plaintiffs, and that the plaintiffs were by law authorized to appropriate deposits in satisfaction of damage caused by representations that the examinations were thorough.

For some purposes the plaintiffs' depositors are stockholders of a bank. In some sense they are the plaintiffs, and the trustees are their agents. Cogswell v. Bank, 59 N.H. 43; Hall v. Paris, 59 N.H. 71. But the committee of trustees who made the examinations were not so far the agents of the depositors as to make the depositors personally liable as principals. The examinations were not, in every legal sense and for all legal purposes, the acts of the depositors. If these defendants claimed damages out of the trust fund for losses caused by the reported examinations inducing them to become depositors, they would need to show that the reports were, in law, representations made by these plaintiffs; that the reports were published on such occasions, or for such a purpose, that every reader had a legal right to rely upon them as representations made by the bank to induce deposits, and that the loss incurred by relying upon them was a damage for which some depositors should be indemnified out of the property of other depositors held in trust by the bank. If, after the reports were published, and before the defendants became depositors, others had made deposits not on the faith of the reports, or had withdrawn their deposits, various questions might arise. There may be a question whether the statute requiring the plaintiffs to publish the reports of the examinations means anything more than that the trustees should cause them to be published at the plaintiffs' expense. And if the examining committee of three trustees, by false representations in their reports, had caused the defendants to suffer losses by becoming depositors, there may be a question whether the plaintiffs would be responsible for the fraud, and whether the defendants would be entitled to damages out of the trust fund.

Whatever personal liability of the committee or corporate liability of the plaintiffs might be claimed by those for whose benefit the examinations were made and reported, they were not made or reported by the committee, or published by the plaintiffs, for the purpose of inducing any one to sign the treasurer's bond, or with an understanding on the part of the committee or the plaintiffs that the publication would authorize any one to hold the plaintiffs responsible for his act of becoming a surety. If the defendants were discharged by the committee's fraud, the committee ought to be liable to the plaintiffs. The depositors should have security not inferior to the bond (Laws 1855, c. 1746, s. 5; G. L., c. 170, s. 7), for which a right of action against the committee might not be an equivalent. If any one of the defendants proposed to sign the bond on the faith of the committee's assertion of thorough examinations disclosing no embezzlement, and to hold the committee or the plaintiffs responsible for the statement, fair dealing required him to apply to the committee for the information on which he proposed to act, to let them know why he sought it, and give them an opportunity to exercise their right of declining to make any representation for which they or the bank could be accountable to him.

The committee's duty of diligent examination and truthful report was not due to persons considering the question of becoming sureties of the treasurer. It was a duty imposed by statute for the benefit of depositors, and not to enable a reader of the published reports to determine whether the treasurer was a man whose official bond he could safely sign. Publications ordered by the legislature for the protection of depositors the defendants seek to employ in depriving the depositors of protection. If the defendants had been induced by the reports to make deposits in the bank, they might have claimed that they were of a class whom the reports were intended to influence. The publication was for the information of the public, and to supply all with evidence which they might consider on the question of taking certain action. But the question of becoming a surety of the treasurer was not one for the decision of which the law compelled the reports to be made public as evidence furnished by the plaintiffs, with the consequence of subjecting the trust fund to a great risk of losing the security of the bond. Whatever authority it might be claimed any of the plaintiffs' officers or managers had to accomplish or defeat the purpose of the statutory trust by performing the duty of publishing the results of the committee's examinations, the duty of publication was not imposed to aid the treasurer in obtaining sureties, or to clothe any one with a power of nullifying the statutory requirement of a bond. The doctrine of Graves v. Lebanon N. Bank, 10 Bush. 23, cannot be accepted as a discharge of these sureties without unreasonably imputing to the legislature an implied intention to expose the savings of depositors to unnecessary and unjust peril by authorizing the protective bond required by s. 7 of c. 170, Gen. Laws, to be destroyed by the protective publication required by s. 2 of the same chapter. There is no evidence that the reports were published, or were understood to be published, with any other object than the execution of the legislative command, the purpose of which did not establish between these parties the privity of representation necessary for this defence.

In Lee v. Jones, 17 C. B. N. S. 482, the contract, written by the plaintiffs and signed by the defendant, guaranteeing payments to be made to the plaintiffs by their commission agent, recited certain material facts, but concealed from the defendant the fact of an existing indebtedness of the agent to the plaintiffs. In this case, the examining committee neither concealed anything, nor had anything to conceal. They had no knowledge of any embezzlement or danger. The written statements of the bank's condition were the correct results of their examinations, and were true according to their best knowledge and belief, as they made oath. Their examinations being worthless, their best knowledge and belief were of no value. The only incorrect representation made by them in their reports was the statement that their examinations were thorough. Whether this was anything more than an expression of opinion it is not necessary to inquire. The want of privity is decisive.

Judgment for the plaintiffs.

STANLEY, J., did not sit: the others concurred.