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buy, and paper on which no right to sue arises until the company has acquired it; their right to sue arising, and arising only, out of the fact that they have lent money upon it. Having lent money in disregard of the statute and by-law, the directors as a body are responsible for any resulting loss, for they knew and approved of the action of their committee in this regard. Citizens' Loan Assoc. v. Lyon, 29 N. J. Eq. 110; Williams v. McKay, 40 N. J. Eq. 189, 53 Am.

Rep. 775.

[2] I now come to the examining committee. Section 14 of the Trust Companies Act provides that

"The board of directors of each trust company shall from time to time appoint from its members, an examining committee, whose duties shall be to examine the condition of the company at least once every six months, or oftener, if required by the board; and such committee shall after each examination forthwith report to the board giving in detail all items included in the assets of the trust company which they have reason to believe are not of the value at which they appear on the books and records of the company, and giving the value in their judgment of each of such items; and the board shall cause said report to be recorded in the minute books of the company."

The statutory duty imposed upon them by their oath and by this section of the act was to examine diligently and honestly. The committee by accepting the task undertook to use as much diligence and care as the proper performance of their duty required. Campbell v. Watson, 62 N. J. Eq. 442, 50 Atl. 120. If its members were not already sufficiently familiar with the books to make an intelligent examination of them, it was their duty to become so. Not an examination such as an expert accountant would have made, but an ascertainment of the assets and liabilities, as far as ascertainable by careful work, such as they were able to do. The assets consisted chiefly: (1) Of cash in the vaults of the company; (2) of the negotiable paper, misnamed on the books "bills purchased"; (3) of collateral and other loans; and (4) of amounts that were due to the bank from other depository banks. The first three were tangible, and could be counted and examined. The amount due from other banks could be ascertained by inquiry of those banks. As to assets such as these, the object of the examination was to ascertain: First, whether they corresponded in amount with the statement of them on the books; and, second, whether the individual items

had the value attributed to them.

Pitney, V. C., himself an experienced banker, in Campbell v. Watson, supra, 62 N. J. Eq. 416, 50 Atl. 128, said, in making the examination:

"It is necessary to ascertain the amount of

which they are to be compared, and independent of the books. To rely upon the books alone for that purpose is simply absurd. The cash and the bills discounted and other tangible assets must each be seen, handled, inspected, and counted; and the amount due from other banks must be ascertained in some manner equally efficient."

The items must not only be handled and counted; they must, under the Trust Companies Act, be valued. Section 14 makes it the duty of the examining committee to report to the board, giving in detail all items included in the assets which they have reason to believe are not of the value at which they appear on the books, and giving the value in their judgment of each of such items. Unless the examination of the assets embraces all this, it is not "diligent."

As to the liabilities, the case is somewhat different. Here the books must be taken as they stand. There is nothing wherewith to compare them. They may be compared with each other, but the result of the most careful examination is not conclusive. The case in hand is an illustration. The evidence is that the treasurer, who not infrequently took the place of the teller, altered the deposit slips and credited the customer with less than he had handed in over the counter. Here, it is obvious, the books would fail to indicate the true amount standing to the depositor's credit. Then again the treasurer repeatedly cashed checks whose drawers had nothing or very little to their credit, and either made no note or a false note of the payment, keeping the checks in a receptacle to which no one but himself had access. The committee had no means of ascertaining what checks had been cashed except as the books showed, and no way of ascertaining the amount really due the depositor unless it communicated with him or called in his passbook. It may be doubted whether, in the absence of anything calculated to excite suspicion, this duty was imposed upon it. Mr. Cloran, the expert employed by complainant, says that the calling in of passbooks might have caused a run upon the company. The fault, in this particular, if fault it was, was rather one of system. One way of meeting the difficulty is that now adopted by many well-conducted banks and trust companies. They send to their customers at stated intervals an account of their balances.

In the case under consideration the committee handled and counted the assets, but did not report "the value of such as they had

reason to believe were not of the value at

which they appeared on the books." This was notably so in the case of the Scarlett note for $10,000, the Miele and Bruno notes of $27,000, the Federici notes of $1,235, and other notes mentioned in the banking com

(107 A.)

duty to report these notes, on which there were heavy losses, was, as I have shown, a statutory one, and inasmuch as the report was to be made to the entire board and entered on its minutes, not only the committee, but the board as a whole, was negligent in not requiring performance.

The examining committee was also negligent in its examination of the accounts of depository banks. Of these there were several, two in Newark, one in Albany, one in New York City, and one in Philadelphia, and they often held large balances to the credit of the trust company. These credits were a part of the assets, and often a large part. The trust company's general ledger stated the amounts. Smith made the entries, and it was the committee's duty to see that the entries were correct. To this end the chairman of the committee was in the habit of writing to the correspondent banks to find out what their balances were as of the day of the examination. Now it is evident that the balances given by the correspondent banks as of that day might not correspond with the balance appearing in the trust company's ledger under the same date; for checks in transit would cause a difference. These checks might be of two kinds: (1) Checks drawn by the cashier of the trust company upon the correspondent banks. These would diminish the apparent balances in the correspondent banks. (2) Checks or drafts held by the Roseville bank and sent for deposit to the correspondent banks. These would, when they reached their destination, increase the balances standing to the credit of the trust company.

The committee were negligent in this. They took Smith's statement as to what these two classes of checks or drafts were, instead of getting a statement of them from the correspondent banks, as they could have done by obtaining a statement, not only of the balance on the given day, but of the checks and drafts that might have come in three or four days afterward. To rely upon Smith's statements-the statements, written and verbal, of the man whose work they were verifying-was, to use the words of Pitney, V. C., in the case cited, speaking with reference to a precisely similar situation, absurd.

Now Smith, who was always present while the examination was going on, soon found out in what respect the committee's inquiry was defective. To cover up his abstractions or some of them, he entered a balance in the general ledger such as would, for the time being, serve to conceal them, and he then explained to the committee that the balance thus entered differed from the balance reported by the correspondent banks because of the checks in transit. It was here that the committee's examination failed. It did not verify his statement of checks in transit.

[3] It is next contended that the examining committee were negligent in not examining the paying teller's proof books. It is said that if they had done so they would have discovered an abnormal amount of cash items, so-called, and that their discovery would have led to the discovery of Smith's other methods.

Cash items, or as it is styled in the proof books, cash itemized, is a technical term, and means in banking phraseology, as I understand, notes, checks, or memoranda in the paying teller's possession at the close of the day's work, that he, for the time being, treats as cash. They may be items cashed after banking hours, or they may be items held for criticism or inquiry. They are of such importance that they are specially mentioned on the printed blank reports furnished by the banking commissioner, under the head, "Checks and Other Cash Items." They do not include the checks or bank bills deposited by customers in the ordinary course of business.

In the general ledger kept by Smith, both cash, properly so-called, and cash items were entered as cash. During the last year of the company's existence the cash items often exceeded $40,000. To any one casually consulting the general ledger, the book which gave a résumé of each day's work, the showing of cash on hand would therefore be misleading; in the case at hand, not only misleading, but false, for the cash items consisted very largely of worthless paper, paper which Smith had cashed, but not entered on the books, and which had therefore, for the time being, to be treated as cash by the teller in order to make his proof book balance. When the committee was expected-and Smith was usually informed in advance of its coming-he took these cash items, or such of them as were illegitimate, out of the cash, and then by false entries covered up the abstractions. One way of doing it was the way already referred to, a pretended remittance to a depository bank. When the committee counted the cash, the cash items had disappeared. They did not show on the teller's proof book for that day, because removed before it was balanced. But the committee did not examine the proof book; they compared their count of the money with the cash entry made by Smith in the general ledger after their arrival, and found it correct. It is claimed that their failure to look at the proof books was negligence. Whether it was or not depends on how far the committee should have gone in the examination of the books. It will be more convenient to discuss this in connection with what follows.

The examining committee are further charged with negligence in not detecting Smith's manipulation of the general ledger. Perhaps the most glaring instance of this occurred in the course of the examination of

already said, the [ noted that this case differs from most of the trial balance for reported cases to which my attention has been directed. In the Watson Case, for example, there was no attempt at supervision or examination. Here there was an honest effort on the part of the committees to do their duty. The executive committee met weekly. The examining committee met semiannually, and made an examination that seemed to it to be sufficient. They could hardly have anticipated that Smith would manipulate the cash items and alter the books in their very presence and while the examination was going on. At all events, I find difficulty in convicting them of culpable negligence when they assumed that he would not. The observation of Pitney, V. C., in Campbell v. Watson seems to apply. He says:

"No one, I presume, will go so far as to suppose that any system of supervision practicable at this day will absolutely prevent a dishonest cashier who has charge of the cash of the bank from stealing some of it, and stealing it in such a manner that not a shadow of ground would exist for holding the directors liable for the loss."

December 14, 1912. As general ledger showed a each day's work. It gave the total of the different kinds of assets and of the different kinds of liabilities in separate columns so arranged as to balance. The committee verified the figures by comparing them with the assets as actually counted and with the liabilities as they were stated in books of original entry. At the time when the December examination began, the collateral loans were truly stated at $51,438, but before the committee had completed the addition of the column which contained the various assets, Smith put the figure "1" before the other figures, thus making the collateral loans appear to amount to $151,438. This covered up a deficit of $100,000 and made the debit and credit columns balance. The act was a bold one, for had the committeeman who performed the addition happened to observe the figures and their connection with the words "collateral loans" it would at once have occurred to him that the collateral loans were overstated, and this would have led to the discovery of the trick. The contention is that the committee's failure to observe this alteration, and their failure in the case of It would answer no useful purpose to disthe other examinations to notice erasures cuss, in detail, the alleged neglect of the commade with similar intent, was gross negli-mittee to examine the other books and comgence. Judging by the result, it would have been better to have taken the books into their exclusive custody while the examination was going on, or, as counsel suggests, to have used their own figures in computing the totals, comparing them, after the computation, with the figures in the ledger. But I doubt very much whether they could be called overconfiding when they assumed that Smith would not be guilty of the crime of altering the books in the short space of time that it took to make the examination. It was suggested that they ought to have compared the figures in the trial balance of December 14th with the figures in the balances of previous days. This too, as in the case of their failure to observe the cash items in the proof books, brings up the question as to how far they should have proceeded in the examination of the books generally. The task of the committee, as they understood it, was to ascertain the assets and liabilities at the time of the examination. To have examined the figures in all the books for the whole, or even a part, of the preceding six months would have been the work of an expert accountant, and, if not an impossible undertaking for the committee, would have occupied more of its time than any examining committee could reasonably have been called upon to give. It is difficult for one without knowledge of practical banking to say how far such a committee in a wellconducted institution ought to go. There is no evidence on the subject, and perhaps none

pare them with the general ledger. The observations above made apply to their acts in this respect as well; and, whether their examination should have extended to them or not, their liability and that of the directors, as I have found it, would remain unchanged.

[4] Thus far I have discussed this case as it bears upon the liability of those of the directors who were such from the beginning. One of the directors, Mr. Dunn, was elected to the board in January, 1912, and again in 1913. He was an architect and real estate agent. On the day of his election he was made a member of the examining committee. The examination of April, 1912, was the only one that he took part in. The work was divided up among the different members. To Dunn was assigned the task of examining the so-called "bills purchased" in amounts varying from $5 to $5,000, and aggregating, at that time, about $500,000. These he examined and checked up with a typewritten list furnished by Mr. Sexton, the chairman. Then he examined a bundle of mortgages, and found that they were regular in point of form and accompanied with proper policies of insurance. A few days after he went to the Fidelity Trust Company's vault, and with other members of the committee counted the collateral loans. He heard Mr. Sexton read letters received from the depository banks, whose figures tallied with those they had. This completed his part of the work. He did not examine the general ledger or the other books. He was young and inexperienced,

(107 A.)

their own examinations, the examination of the state bank examiners, and their general knowledge of the course of business, and they relied upon them as the basis of their action, I do not think that, under the cases, there was a lack of ordinary care on their part because they went no farther.

the work assigned to him by the chairman, | had before them Smith's weekly statements, Mr. Sexton. In so far as I have been unable to convict the other and more experienced members of the committee of negligence, I cannot convict Mr. Dunn. And I do not think that he, as a member of the committee, could at that time, inexperienced as he was, be charged constructively with the negligence of Mr. Sexton, who had not required from the correspondent banks such a statement as has been mentioned. Besides, it does not satisfactorily appear that at that time (April, 1912) Smith was using the correspondent bank accounts to cover up his frauds. There were discrepancies ($826.74 in the case of the Union Bank and $597.09 in the case of the Irving Bank), but I am unable, on Mr. Cloran's evidence alone, to conclude that, while small in amount, they were part of an effort to deceive. They might have been susceptible of explanation on grounds consistent with honesty. At that early stage of his abstractions Smith had better and safer ways of covering them up.

Mr. Dunn is liable for loans made contrary to the by-laws and the statute, after he became a director, if any loss resulted therefrom, for the reasons heretofore mentioned. I do not think it necessary to consider how far the president was in fault in signing the reports prepared by Smith and made to the banking commissioner without examination as to their correctness. He has been released. The attesting witnesses have been held on other grounds. At farthest, the evidence does no more than show an additional instance of lack of diligence on the part of the president.

[6] The insistence of the defendants is that they have all been released by the legal operation and effect of the releases given to some of their number. On the application to strike out the bill (La Monte v. Lurich, 86 N. J. Eq. 26, 100 Atl. 1031), the same defense was set up, but on an allegation that did not fully and fairly state the facts. It would indeed have been unfortunate for the parties concerned if, after this prolonged, complicat

Two other examinations were made before the company failed, but Dunn did not take part in them. Sickness prevented him from attending one and a wedding trip the other. [5] It is insisted that Mr. Dunn is liable because as a member of the examining committee he with the others, failed to perform his statutory duty to report to the board such assets as in the opinion of the commit-ed, and costly litigation, it should have turntee ought to have been carried at less than ed out that these releases had the effect now their face value. That there were such as- contended for. The real question ought to sets and that they did not report them is in- have been determined in advance, and to that disputable. That any loss resulted directly end the pleader ought to have set forth the from the failure to report is not proven. The facts as they are. The allegation passed up. entire board knew that the Scarlett and some on was this: That Odell and others made other loans ought not to have been carried partial restitution "pursuant to an agreeon the books at their face value, and if the ment duly made with said directors on Deexamining committee had reported the fact, cember 10, 1913, and pursuant to the express and the report had been entered in the min-provisions of the statute, but without prejuutes, the board would not have been inform-dice to the causes of action against the other ed of anything they did not know before. The failure to comply with the statute is evidence of negligent conduct on the part of the committee and of the board, but does not necessarily increase their liability.

The evidence shows that after Mr. Dunn became a director loans were made when the reserves were depleted and dividends were declared when there was no surplus. It does not show that the directors knew this. The argument is that examination would have shown it. But here, as before, we are met with the fact that there was, on the part of directors and committeemen, an honest effort to perform their duties. The examining committee, as has been said, met half-yearly, and made what they regarded as a sufficient examination. The executive committee met once a week and the directors once a month. There was no such "supine neglect" as appeared in Campbell v. Watson, supra. When they lent money and declared dividends, they

directors as herein alleged." The decision was that the alleged agreement was a covenant not to sue, and not a technical release. It now appears that a technical release was in fact given by the commissioner of banking, and the insistence made on his behalf is that other contemporaneous documents so qualify the effect of the release as to make it operative only on those to whom it was given. The facts are as follows:

On December 10, 1913, the commissioner of banking entered into a written agreement with the Mutual Bank of Roseville, a corporation that had been organized to take over the property of the insolvent company, wherein it was agreed that, "subject to the approval of the Court of Chancery," compromises would be made with nine of the directors, the proceeds of which were to be included among the assets to be sold to the new bank, but that there was excluded from the sale "any right to recover from officers and

directors of said Roseville Trust Company on [ show that its operation is to be limited to the account of the negligence or improper conduct of said officers and directors exclusive of" those with whom the settlements were to be made. The agreement also provided that the commissioner would institute suits against those not settled with, to recover for losses suffered by their negligence.

An application was then made to the Court of Chancery upon notice (inter alios) to all the directors to obtain its approval of the agreement pursuant to the provisions of section 22 of the Act concerning Trust Companies. Laws 1913, p. 283. The provision reads as follows:

"For the purpose of executing and performing any of the powers and duties hereby conferred upon him, the commissioner may, in the name of such trust company, prosecute and defend any and all suits and other legal proceed ings and may, in the name of such trust company, execute, acknowledge and deliver any and all deeds, assignments, releases and other instruments necessary * * * to effectuate any sale of real and personal property or sale or compromise or compound authorized by the Court of Chancery as herein provided."

releasee only. I know of no rule of law which will prevent the expressed intent of the parties from being carried out. Contemporaneous documents are frequently read together and construed as one harmonious whole. If the order, contract and releases be so read, it is apparent that the scheme was that the releases were to affect the releases only. Such being the case, there is no reason why this court should now say that the defendants are entitled to an immunity that the court did not intend and that the commissioner had no right to give. The case of Murphy v. Penniman, 105 Md. 452, 66 Atl. 282, 121 Am. St. Rep. 583, is very much in point.

[7] The briefs discuss at length the question of degrees of responsibility as it was formulated in Williams v. McKay, 46 N. J. Eq. 25, 18 Atl. 824. The contention on the part of the defendants Benjamin and others is that the president and committeemen were more negligent than they were, and stood in a higher grade of liability. The corollary drawn is that, if the president and commit. teemen were released, the others were, to the extent of their prior liability. In the view that I have taken of the case, the question does not arise. All the directors stood in the same degree of negligence when they retained Smith and when they lent money contrary to the statute and by-laws.

(90 N. J. Eq. 384) NEW JERSEY TITLE GUARANTEE & TRUST CO. v. ARCHIBALD et al. (No. 46/393.)

1919.)

JOINT

After a hearing the Court of Chancery a thorized the commissioner "to complete and carry out the compromise and settlements upon the terms and conditions set forth in the said contract." The commissioner thereupon gave to each director who settled with him a release which, as far as the present question is concerned, was, in terms, absolute. It does not refer to the above-mentioned agreement, and it cannot, on the face of it, be construed as a covenant not to sue. The question then is, Can it be regarded as such a covenant if taken in connection with the other contemporaneous documents? Perhaps a better way of putting the question (Court of Chancery of New Jersey. June 21, would be this: Considering the petition, the order, and the agreement, ought not the operation of the release to be restricted to the releasee, who alone is named therein? This question, at least in equity, seems almost to answer itself. If the construction contended for by the defendants should be adopted, the banking commissioner would be convicted of having deliberately disregarded the order of this court. It was a part of the scheme, and so represented to the court, that the other directors, not settled with, should be sued for their negligent acts. The commissioner had no authority to release them. By holding that he has not in fact released them no violence is done to the language of the release. It has full effect, as far as its language goes, for it does not, in terms, purport to extend to, or to give immunity to, any one but the releasee. If it extends to others, it is not because it so states, but by legal construction. The other documents rebut the wider effect ordinarily given to such a paper, and

1. BANKS AND BANKING 129
BANK ACCOUNT-RIGHTS OF SURVIVOR.
Where money was deposited in bank in the
joint names of mother and daughter, who sign-
ed and delivered to bank a writing that "this
account and all money to be credited to it be-
longs to us as joint tenants, and will be the
absolute property of the survivor of us, either
and the survivor to draw," they were joint ten-
ants, and upon mother's death daughter was
entitled to money deposited.

2. JOINT TENANCY

1-REQUISITES.

The requisites of an estate in joint tenancy are unities of interest, title, time, and possession, and creation of estate by act of the par

ties.

3. JOINT TENANCY 1

ERTY.

PERSONAL PROP

A joint tenancy may be created in personal property with the same incidents of joint control and survivorship as in real property.

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