Holmes v. McDonald

Mr. Justice Carter delivered the opinion of the court: From the facts shown by the record, as indicated by the above statement of the case, it is manifest that this decision depends very largely upon the construction to be given to article 5 of the agreement, heretofore set out verbatim. The society was created by these articles of agreement. Defendants in error, with others, were made trustees thereunder. Each of the plaintiffs in error signed the agreement and became a party to it. It is admitted that there is no evidence in the record that defendants in error were guilty of “willful, corrupt misconduct.” Did they carry out their agreement in article 5, wherein they pledged “themselves to an upright apd conscientious discharge” of their duties as trustees ? They knew that they had been elected as trustees. For over two years they evidently paid no attention to the business of the society or gave any thought as to whether the funds were properly looked after and invested. What was the responsibility with which they were charged ? The society was not incorporated. As we understand the arguments of defendants in error, in the capacity in which they were acting they claim they were not charged with as great responsibility as an ordinary trustee of a private fund, but rather with that which rests upon the directors and trustees of an incorporated company. In Briggs v. Spalding, 141 U. S. 132, the court held that bank directors, though often styled trustees, were not so in the technical sense, and the relation between the corporation and such directors was rather that of principal and agent. The opinion adds (p. 147) : “Undoubtedly under circumstances they may be treated as occupying the position of trustees to cestui que trust.” This same decision holds thafjthe degree of care required of such officers,depends upon the subject to which it is to be applied and that each case must be determined in view of all the circumstances; that they can rightfully commit the administration of the affairs of the corporation to certain officials, but they must do something more than act as mere figure-heads; that they cannot be absolved from the duty of reasonable supervision and that they must be held responsible for gross inattention to duty. It seems to be a well settled rule that directors, trustees and officers of a corporation are bound to manage the affairs of the corporation with at least ordinary care and prudence and are liable for loss occasioned by their failure to do so. In accepting such a position the trustee or director undertakes that he possesses and will exercise at least the ordinary knowledge, skill and judgment requisite tq the discharge of his duties and that he will be liable for gross negligence. (21 Am. & Eng. Ency. of Law,—2d ed.—874-876, and cases there cited; Warner v. Pennoyer, 61 U. S. App. 372.) In Perry on Trusts (vol. 1,—4th ed.—sec. 266,) that author states: “When trustees have accepted the office they ought to bear in mind that the law knows no such person as a passive trustee and that they cannot sleep upon their trust. If such trustee remains quiet for any reason and suffers some other to do all the business * * * he is answerable for the money as if he had conducted the business. * * * If a loss occurs from any want of attention, care or diligence in him after his acceptance, he may be held responsible for not taking such action as was called for.” A trustee will be held responsible for failure to do that which he ought to do as well as for his acts of positive misconduct. He must respond in damages for any neglect of duty, express or implied. (28 Am. & Eng. Ency. of Law,—2d ed.—1065, and cases there cited.) In our judgment the duties and responsibilities of the trustees herein partake more of the character of ordinary trustees than of bank directors or of any other officer of an incorporated company. Whatever the responsibility, it must depend, as has been stated, largely upon the subject under consideration and be determined in view of all the circumstances surrounding the transactions. Defendants in error were men of large business experience and standing. They must have known, in permitting the use of their names as trustees of this savings society, that their reputation and standing in the community would cause business to b.e given to it for the very reasons that were suggested to plaintiff in error Holmes,—that is, that they were men of “business ability,” and thereby would cause people who otherwise would not do so, to deposit with the society. They were charged with far greater responsibility as to the affairs of this society than were the ordinary depositors, such as plaintiffs in error here. The fact that at the time the banking firm of' Moulton, Lathrop & Co. failed the society had on deposit only a little more than the aggregate sum of the three deposits here in question does not in any way excuse them for not looking after the investment of those funds. While they apparently knew nothing about the straitened financial condition of Moulton, Lathrop & Co., one of them did know that this banking firm had gone into the stock brokerage business, and his testimony shows that he thought, and told them, it was unwise for them thereafter to remain in the banking business. Had these men of business sagacity been actively attentive to their duties they might all have known, long before the failure, as to the condition of Moulton, Lathrop & Co. and withdrawn their deposit. The rules of the society were violated in leaving this money on deposit and not investing it. In view, of all the facts we are constrained to hold that the defendants in error wholly failed to perform their duties as trustees, and are therefore guilty of such negligence that they are jointly and severally liable to plaintiffs in error for the amount of their respective deposits. ' The judgment of the Appellate Court is accordingly reversed and the decree of the superior court affirmed, Judgment reversed.