Hun v. Cary, 82 N.Y. 65 (1880)

Trustees of a savings bank must exercise ordinary care and prudence in managing the bank’s affairs, exhibiting the same degree of diligence and skill that men of common prudence exercise in their own affairs.

Summary

This case addresses the standard of care required of trustees of a savings bank. The Central Savings Bank failed, and the receiver sued the trustees, alleging misconduct led to the bank’s collapse. The court held that the trustees breached their duty by investing in an expensive lot and building when the bank was already in a precarious financial state. The court found the trustees liable because their actions demonstrated a lack of ordinary prudence and care, not just a mere error in judgment. They were to act with the same level of care as they would with their own finances.

Facts

The Central Savings Bank was incorporated in 1867. By 1873, the bank was substantially insolvent, with expenses exceeding income. Despite this, the trustees decided to purchase a lot and erect a new banking house. The trustees purchased a corner lot for $29,250 and obligated the bank to erect a five-story building at a cost of $27,000. At the time the receiver was appointed in 1875, the bank’s assets primarily consisted of this lot and building, which were later lost to foreclosure.

Procedural History

The bank’s receiver sued the trustees to recover damages for their alleged misconduct. The trial court found in favor of the receiver. The defendants appealed, arguing the case was improperly tried before a jury and that their discharges in bankruptcy were a valid defense. The General Term affirmed the trial court’s judgment. The Court of Appeals then reviewed the case.

Issue(s)

1. Whether the trustees of a savings bank are liable for losses resulting from investments made with a lack of ordinary prudence and care.
2. Whether the action was properly tried before a jury.
3. Whether the trustees’ discharges in bankruptcy constituted a valid defense to the action.

Holding

1. Yes, because trustees must exercise the same degree of care and prudence that men of common prudence exercise in their own affairs, and the trustees’ investment lacked such prudence.
2. Yes, because the action sought a money judgment for damages caused by the trustees’ misfeasance, making it a proper action at law.
3. No, because the claim was for unliquidated damages resulting from a tort, which was not provable in bankruptcy and therefore not discharged.

Court’s Reasoning

The court reasoned that trustees of a savings bank owe a duty to depositors to exercise ordinary care and prudence in managing the bank’s affairs. They are not held to the highest degree of care, nor can they get away with only “slight care”. The court stated, “When one deposits money in a savings bank…he expects, and has the right to expect, that the trustees or directors…will exercise ordinary care and prudence in the trusts committed to them—the same degree of care and prudence that men prompted by self-interest generally exercise in their own affairs.” Investing a substantial portion of the bank’s assets in a building project when the bank was already struggling financially was a breach of this duty. The court emphasized that it was not a mere error in judgment but a reckless act. Even though the trustees may have paid a fair price for the lot, they were still liable because the *purchase itself* was imprudent given the bank’s financial condition. The court also noted, “It is not legitimate for the trustees of such a bank to seek deposits at the expense of present depositors. It is their business to take deposits when offered. It was not proper for these trustees…to take the money then on deposit and invest it in a banking-house, merely for the purpose of drawing other deposits.” The court also held that a jury trial was proper because the action sought monetary damages for the trustees’ misconduct, which is a legal remedy. Finally, the court determined that the trustees’ bankruptcy discharges did not shield them from liability because the claims were based on tortious conduct and thus not dischargeable in bankruptcy.