payment to a creditor or to concern themselves with the disposal of the money when the debt is paid.

The only distinctions in case of trust deposits would seem to be that where a bank has actual knowledge that a breach of trust is intended, it would be chargeable with loss occasioned by its connivance in the breach, and that in such a case it would be the right and the duty of the bank to refuse to pay the moneys for the unlawful purpose.

There apparently is no principle of law requiring a depositary to go out of the usual course of business to detect the possibility or probability of a misappropriation of funds represented by checks drawn upon the depositor. If there were, it would be necessary for a depositary, before paying any check drawn by a trustee, to inquire into the circumstances under which the check was drawn, and to learn the consideration for the check and the intended or probable application of the proceeds.

It may be well, before closing, to mention one peculiarity of the statute law, which may seem to have some bearing on the matter now under discussion, so far as trust companies are concerned. In New York and New Jersey, at least, trust companies are specially authorized "to receive deposit of trust moneys, securities, and other personal property."

1

Why trust moneys? Without discussing this question at length, it seems safe to conclude that the express power to receive such deposits is conferred upon trust companies in order that there may be no doubt that trustees, in depositing with them, will be protected in the event of unsuspected insolvency.

For the foregoing reasons, among others, it would seem that a depositary may properly receive and act upon a power of attorney from a trustee authorizing another, as attorney, to draw checks upon the account of the trust estate; provided, however, that the instrument creating the trust, or the decree appointing the trustee, has not forbidden him to act by attorney in that particular.

In conclusion, let me caution you to see that this power to delegate authority is not denied to the person executing the power of attorney, should you ever be called upon to consider such an instrument purporting to be the act of a trustee.

1New York Banking Law, Sec. 156; New Jersey P. L. 1899, p. 453

DUTIES OF TRUSTEES OF FINANCIAL

CORPORATIONS

ADDRESS DELIVERED BY WILLIS S. PAINE, EX-PRESIDENT OF THE CONSOLIDATED NATIONAL BANK OF NEW YORK, BEFORE THE AMERICAN BANKERS' ASSOCIATION, AT RICHMOND, VA., OCTOBER, 1900.

It is a remarkable fact that while the largest trust companies of the United States are located in the city of New York, such institutions were not examined by the superintendent of the Banking Department until the year 1874. Indeed, previous to that time there were no general laws applicable to such corporations. All trust, loan, mortgage, security, guarantee, or indemnity companies or associations were operated under the provisions of their respective charters. Some of these charters required reports to be made to the Supreme Court, others to the Comptroller of the State. It was not until the year mentioned that these corporations were placed under the supervision of the Banking Department and required to make full reports in writing to it, verified by the oaths of the officers of such corporations, and containing such statements as to the condition of their affairs and business as the superintendent might require. Under the law which I have mentioned the superintendent was required to examine such corporations personally, or to appoint competent persons to make the same, to the end that inquiry be made as to the condition of these corporations, the manner of managing their affairs, as well as the security afforded to those by whom its engagements were held.

Perhaps it is not irrelevant to state that during the first examination the examiners, of which the speaker was one, reported the condition of three of the trust companies located in the city of New York to the bank superintendent, and those corporations ceased doing business. Fortunately the depositors of these institutions, to whom there was owing over six million dollars, were paid in full. During the year 1875 two examiners, appointed by the Banking Department, of which the speaker also was one, found the trust companies in a materially improved condition by reason of recommendations made by the department to such corporations during the preceding year.

Experience has shown that seldom has a trust company failed whose last published statement has not indicated a large surplus

fund or undivided profits. The reason is that its trustees have not had the moral courage to charge off bad debts as soon as their collection is shown to be practically impossible. One thought ought always to be borne in mind-that the possession of ample cash or its equivalent is a sign of prudent banking. While the interest upon idle capital may be wholly lost, a trust company that is never embarrassed by an unexpected demand for money from its creditors, and which is always prepared to aid its depositors, must obtain a highly desirable prestige.

Trustees should not rely upon the researches of examiners rather than their own investigations. Between the visits of the examiners there may be large embezzlements or misapplications, and in the limited time afforded them it is oftentimes impossible to discover wrong-doing, especially in cases of collusion between several employees. If trustees were all well informed as to their duties and performed them thoroughly, failures would be exceedingly rare. The examinations should be without notice, and be for the condition of the institution at the close of business of a particular day, the examination commencing either after the close of business of that day or before the commencement of business of the next business day, thereby giving no opportunity for manipulation of the accounts, or borrowing assets for the occasion, and a constant watchfulness should be observed that this is not done during the examination.

The statement of a trust company to the Bank Superintendent of the State of New York is in the following form:

Bonds and mortgages.

Stock investments.

Amount loaned on collaterals.

RESOURCES

Amount loaned on personal securities, including bills purchased.
Overdrafts.

Due from directors of the institution.

Due from banks.

Due from brokers.

Real estate.

Cash on deposit in banks or other moneyed institutions.

Cash on hand.

Amount of assets not included under any of the above heads (accrued Interest receivable, etc.).

LIABILITIES

Capital stock paid in.

Surplus fund.

Undivided profits.

Deposits in trust.

General deposits by individuals, associations, and corporations, payable on demand.

Other liabilities not included under any of the above heads, (accrued interest payable, etc.).

Every trust company should have a by-law requiring its board of trustees to appoint an examining committee at least once in six months, whose duty it should be to make a general examination of its affairs, not only to count the cash on hand, but, what is of much greater importance, to examine into the amounts stated to be due from various sources, and to compare its liabilities and resources with the balance on the general ledger. The details of the books tributary to the general ledger should be examined and footed, and the balances compared with the balance representing the account in the general ledger. Failure to compare the amount due depositors as shown by the individual ledger with that account in the general ledger, has been a serious omission in many cases, and thereby defalcations of years' standing have remained undiscovered. The items which make up the cash on hand in the drawer of the institution should be carefully scrutinized, a fictitious item sometimes being taken out at the time of the examination and sent for collection, to be returned worthless after the examination is over. The original credits for items said to be in transit and the letter-press copies of the letters remitting the same should be examined, and their receipt and payment or non-payment ascertained by correspondence. Indeed, correspondence should be had with every bank and trust company for verification of amounts alleged to be due from or to it.

The general ledger should represent the true condition of the company; yet there are many cases where it has not shown such condition. A case in point is that of a prominent institution which suffered a serious loss. In this instance the general ledger showed a much smaller amount due depositors than the individual ledger, certain amounts deposited not having been entered in the cash-book, but appropriated by the employee taking certain deposits and mak

ing the entries direct on the individual ledger, the pass-book and ledger agreeing. This state of affairs would be revealed by comparisons as before indicated, and shows the error of the common supposition that if the pass-books and ledger agree, nothing further is requisite, as far as such accounts are concerned. After these necessary verifications of the accounts in detail with the accounts in the general ledger, the books being in balance in every particular, there yet may be concealed some irregularity; for instance, where an officer of an institution charged a large sum to profit and loss, crediting the same to bills receivable, the authority for which could not be shown, nor the bills receivable produced. All entries to the profit and loss account, and the classifications of the profit and loss account, such as interest, commissions, expenses, etc., should be examined and their validity tested. So many adjudications have been made from time to time that trustees have their duties plainly defined. If, for instance, notice of illegal transactions is brought to their knowledge, and the same are allowed to continue, they may be compelled to make good any deficiency caused by such illegality. While it is true that the higher qualities of banking, the skillful management of its affairs, are of much greater importance than the constant scrutiny into details, each may be valueless without the other. A constant inquiry should be made as to the conduct and habits of all the employees of the company.

In conclusion: The custodian of the property of others should welcome the most careful inquiry as to the condition of his trust, that the result may inure to his credit, confirming the fact that integrity and ability are necessary adjuncts to the capital of a financial institution, co-ordinate with the capital itself.

ESSENTIALS REQUIRED BY TRUST COMPANIES TO BE PUT IN MORTGAGES AND OTHER PAPERS

ADDRESS DELIVERED BY ANDREW SQUIRE, OF CLEVELAND, OHIO, BEFORE THE AMERICAN BANKERS' ASSOCIATION, AT RICHMOND, VA., OCTOBER, 1900. WITHIN the last twenty years trust companies have increased very rapidly, and probably within the next twenty years will increase in numbers still faster. In many of the states, as in the state of