cannot place the officer in statu quo, neither it nor its subsequent creditors can attack the contract.32 And if a director or other officer of a corporation purchases its property at an execution or foreclosure sale, under circumstances entitling it to have the sale set aside, as explained in a former section,33 it must at least offer to redeem.34 On the other hand, a director who makes a contract with his corporation which he knows imposes a corporate liability in excess of the debt limit, cannot avail himself of the rule that a corporation cannot retain the benefit of an ultra vires contract and at the same time refuse to perform its part of the obligation imposed by its terms.35 XXVI. GENERAL DUTIES AND LIABILITIES OF OFFICERS CONNECTED WITH MANAGEMENT OF CORPORATION A. General Considerations § 2404. Scope of subdivision and method of treatment. This subdivision treats of duties and liabilities, in general, of directors and other corporate officers to the corporation and stockholders, and álso some more or less general matters relating to duties and liabilities which are applicable without regard to the party in whose favor' the duty is owed or the liability accrues. The duties of officers have also been incidentally treated of in the two preceding subdivisions in connection with the law as to the nature of the office of directors and other corporate officers,36 and the effect of contracts or other transactions between the corporation and one of its officers, or a party in whom the officer is interested, and of dealings by the officer with corporate property.37 In subsequent subdivisions of this chapter, there is treated the liability of officers to third persons upon corporate contracts,38 for torts where the injury is directly to the third person he could not demand that the corporation place him in statu quo before it should be granted relief. Gerry v. Bismarck Bank, 19 Mont. 191, 47 Pac. 810. Where through fraud of the officers the interest of a corporation in property held by it under conditional sale to it is lost, and one of the officers subsequently purchases the property from the vendor who retook it upon forfeiture, a receiver cannot recover the property without tendering the price paid therefor. Kidder v. Wit tler-Corbin Machinery Co., 38 Wash. 179, 80 Pac. 301. 32 Joseph v. Raff, 82 N. Y. App. Div. 47, 81 N. Y. Supp. 546, aff'd without opinion 176 N. Y. 611, 68 N. E. 1118. 33 See §§ 2291-2302, supra. 34 Harpending v. Munson, 91 N. Y. 650. 35 Croninger v. Bethel Grove Camp Ground Ass'n, 156 Ky. 356, 161 S. W. 230. 36 See 2261-2329, supra. and not to the corporation itself,c9 for acts or omissions where the injury is to the corporation as an entirety as well as its creditors, and a creditor sues to recover his debt from the officers who are wrongdoers at common law,40 for debts or otherwise where the right to su is specially authorized by a statute or constitutional provision, and the remedies and procedure to enforce the liabilities of officers.42 So in other subdivisions the liability of officers to individual stockholders, not as representatives of the corporation but as individuals, is fully considered,43 and also the criminal liability of officers.44 In this subdivision it is proposed to take up for consideration, in order, the following matters: general considerations as to duties and liabilities, the liability, in general, for breach of duty and what constitutes breach of duty,46 the liability for unauthorized or ultra vires acts, including those prohibited by statute or charter and those against public policy or otherwise malum in se,47 the liability for negligence and what constitutes negligence,48 liability for fraud resulting in injury to the corporation 49 and the liability for conversion or misappropriation of corporate assets.50 § 2405. Duties and liabilities stated generally. Like agents in general, a director or other corporate officer must be loyal to his trust,51 use ordinary and reasonable care,52 must not exceed the powers of the corporation nor his powers as an officer,53 and must otherwise act in good faith, and is liable for fraud 54 or misappropriation or conversion of corporate assets,55 and generally is liable for negligence,56 although there is some conflict where a creditor of the corporation seeks to hold officers for negligence.57 That directors or other corporate officers are liable to the corporation for their miscon 39 See $82534-2562, infra. 40 See $82569-2591, infra. 41 See $8 2591-2669, infra. 42 See §§ 2670-2723, infra. 43 See §§ 2534-2562, infra. 44 See §§ 2724-2732, infra. 45 See §§ 2404-2422, infra. 46 See $2423-2433, infra. 47 See §§ 2434-2441, infra. 48 See §§ 2442-2503, infra. 49 See $2504, infra. 50 See $2505-2518, infra. 51 See 1 Mechem, Agency (2nd Ed.), $$ 1188-1239 for rules governing agents in general, the application of which to directors and other corporate officers has been stated in §§ 22612404, supra, of this work. 52 See 1 Mechem, Agency (2nd Ed.), §§ 1274-1326 for rules governing agents in general, and see §§ 24422503, infra, this work, as to negli gence of corporate officers. 53 See 88 2423-2441, infra, and see also 1 Mechem, Agency (2nd Ed.), S$1240-1243, as to agents in general exceeding their authority. 54 See 8 2504, infra. duct, to a large extent, if not practically the same extent as agents for an individual, in case of fraud, misappropriation of corporate property to their own use, culpable negligence, the doing of ultra vires acts, etc., is too well settled to admit of controversy.58 58 United States. Briggs v. Spaulding, 141 U. S. 132, 35 L. Ed. 662; Cooper v. Hill, 94 Fed. 582; Lawrence v. Stearns, 79 Fed. 878; Doe v. Northwestern Coal & Transportation Co., 78 Fed. 62; Heath v. Erie Ry. Co., 8 Blatchf. 347, Fed. Cas. No. 6,306; Mutual Building Fund & Dollar Sav. Bank v. Bossieux, 4 Hughes 387, 3 Fed. 817; Combination Trust Co. v. Weed, 14 Phila. 422, Fed. Cas. No. 14,207a, 2 Fed. 24. Alabama. Perry v. Tuskaloosa Cotton-Seed Oil-Mill Co., 93 Ala. 364, 9 So. 217. California. Wickersham v. Crittenden, 106 Cal. 329, 39 Pac.. 603; Neall V. Hill, 16 Cal. 145, 76 Am. Dec. 508. Illinois. Green v. Hedenberg, 159 Ill. 489, 50 Am. St. Rep. 178, 42 N. E. 851; Ellis v. Ward, 137 Ill. 509, 25 N. E. 530; Delano v. Case, 17 Ill. App. 531, aff'd 121 Ill. 247, 2 Am. St. Rep. 81, 12 N. E. 676. Kentucky. Savings Bank of Louisville's Assignee v. Caperton, 87 Ky. 306, 12 Am. St. Rep. 488, 8 S. W. 885; Gratz v. Redd, 4 B. Mon. 178; United Society of Shakers v. Underwood, 9 Bush 609, 15 Am. Rep. 731; Pendleton v. Bank of Kentucky, 1 T. B. Mon. 171. Louisiana. Percy v. Millaudon, 8 Mart. (N. S.) 68, 3 La. 568. paper Co., 172 Mass. 201, 51 N. E. 1080. Michigan. Commercial Bank of Bay City v. Chatfield, .121 Mich. 641, 80 N. W. 712. Minnesota. Pencille v. State Farmers' Mut. Hail Ins. Co., 74 Minn. 67, 73 Am. St. Rep. 326, 76 N. W. 1026; Horn Silver Min. Co. v. Ryan, 42 Minn. 196, 44 N. W. 56. Mississippi. Wolfe v. Simmons, 75 Miss. 539, 23 So. 586. Missouri. Union Nat. Bank v. Hill, 148 Mo. 380, 71 Am. St. Rep. 615, 49 S. W. 1012. New Jersey. Baily v. Burgess, 48 N. J. Eq. 411, 22 Atl. 733; Wilkinson v. Bauerle, 41 N. J. Eq. 635, 7 Atl. 514; Williams v. McKay, 40 N. J. Eq. 189, 53 Am. Rep. 775; Citizens' Loan Ass'n of Newark v. Lyon, 29 N. J. Eq. 110. New York. In re Utica Nat. Brewing Co., 154 N. Y. 268, 48 N. E. 521; Mason v. Henry, 152 N. Y. 529, 46 N. E. 837; Bloom v. National United Ben. Savings & Loan Co., 152 N. Y. 114, 46 N. E. 166; Metropolitan El. Ry. Co. v. Kneeland, 120 N. Y. 134, 8 L. R. A. 253, 17 Am. St. Rep. 619, 24 N. E. 381; Brinckerhoff v. Bostwick, 88 N. Y. 52; Hun v. Cary, 82 N. Y. 65, 37 Am. Rep. 546; Seventeenth Ward Bank v. Smith, 51 App. Div. 259, 64 N. Y. Supp. 888; Dykman v. Keeney, 21 App. Div. 114, 47 N. Y. Supp. 352, 154 N. Y. 483, 48 N. E. 894; Sayles v. White, 18 App. Div. 590, 46 N. Y. Supp. 194; Scharf v. Warren-Scharf Asphalt Paving Co., 15 App. Div. 480, 44 N. Y. Supp. 491; Sayles v. Central Nat. Bank of Rome, 18 Misc. 155, 41 N. Y. Supp. 1063; Watkins v. Watkins & Turner Lumber Co., 17 Misc. 227, Maine. In re Brockway Mfg. Co., 89 Me. 121, 56 Am. St. Rep. 401, 35 Atl. 1012; Bank of Mutual Redemption v. Hill, 56 Me. 385, 96 Am. Dec. 470. Maryland. Davis & Co. v. Gemmel, 70 Md. 356, 17 Atl. 259. Massachusetts. Wineburgh v. United States Steam & Street Ry. Adv. Co., 173 Mass. 60, 73 Am. St. Rep. 261, 53 N. E. 145; Blair v. Telegram News [§ 2406 § 2406. Liability of officers other than directors as compared with that of directors. In most cases, it may be said, it is immaterial, so far as liability is concerned, whether the person sought to be held liable is a director, the president, the vice president, a general manager, the cashier, the secretary, the treasurer or other officer. The great majority of the cases which have been decided by the courts relate to the liabilities of directors rather than the liabilities of other officers. Occasionally, however, an officer other than a director is sued for misconduct in office. To a great extent the rules governing the liability are the same without regard to whether the officer sued is a director or some other officer such as the president, vice president, secretary, treasurer, general manager, cashier or the like. At the same time, the duties of active officers of a corporation who devote all, or the greater portion, of their time to the business of the corporation, and who receive a salary as such officers, are more extensive than those of a director who does not give the corporation his daily attendance and who receives either no compensation or a more or less nominal sum for attending directors' meetings; and it follows that the liabilities of officers other than directors, for mismanagement, may be, and often are, more extensive than those of directors. Where the fact is that the officer whose liability is in question is one other than a director, and that fact is deemed important, the nature of the office has been indicated in stating the law in the following pages of this subdivision. If the person sought to be held liable is a mere agent and not a 40 N. Y. Supp. 1042; Ilion Bank v. Carver, 31 Barb. 230; Austin v. Daniels, 4 Den. 299; Robinson V. Smith, 3 Paige 222, 24 Am. Dec. 212; Franklin Fire Ins. Co. v. Jenkins, 3 Wend. 130. Pennsylvania. Bank of Washington v. Barrington, 2 Pen. & W. 27. Rhode Island. Hodges v. New England Screw Co., 1 R. I. 312, 53 Am. Dec. 624. Tennessee. Vance v. Phoenix Ins. Co., 4 Lea 385; Moses v. Ocoee Bank, 1 Lea 398; Shea v. Mabry, 1 Lea 319. Texas. Screwmen's Benev. Ass'n v. Smith, 70 Tex. 168, 7 S. W. 793. Utah. Warren v. Robison, 19 Utah 289, 75 Am. St. Rep. 734, 57 Pac. 287. Vermont. First Nat. Bank of Bran don v. Brigg's Estate, 70 Vt. 599, 41 Atl. 586. Virginia. Marshall v. Farmers' & Mechanics' Sav. Bank of Alexander, 85 Va. 676, 2 L. R. A. 534, 17 Am. St. Rep. 84, 8 S. E. 586. West Virginia. Kyle v. Wagner, 45 W. Va. 349, 32 S. E. 213. Wisconsin. Cunningham v. Wechselberg, 105 Wis. 359, 81 N. W. 414; North Hudson Mut. Building & Loan Ass'n v. Childs, 82 Wis. 460, 33 Am. St. Rep. 57, 52 N. W. 600. England. Flitcroft's Case, 21 Ch. Div. 519; Joint Stock Discount Co. v. Brown, L. R. 8 Eq. 381; Cullerne v. London & Suburban General Permanent Bldg. Society, 25 Q. B. Div. 485. corporate officer, then of course the rules applicable to principal and agent govern, without regard to the fact that he is the agent of a corporation rather than of an individual or firm or other body not a corporation, and hence reference should be made to standard works on the law of agency in reference to such matters.59 Incidentally, it is well to note that when a director is specially engaged as an agent, his liability is to be measured as a mere agent rather than as a director in so far as acts or omissions in connection with such agency are concerned. Generally the president is also a director. As the chief executive officer of the corporation his liability is ordinarily more extensive than that of a mere director.60 When a director, his liability of course is as extensive as that of any other director, and hence whenever a director would be held liable the president may be held liable as director. On the other hand, the president may be held liable in some cases where an ordinary director would be held not liable. The liability of a general manager of a corporation is greater than that of a president who is merely a president and not by title or in effect a general manager. So a director may be especially employed as manager of the corporation, and in such case the time and attention required on his part cannot be judged by the standard applicable in ordinary cases.61 The powers of a cashier of a bank are broad, as already stated, 62 and his duties and liabilities are correspondingly great. However, he is governed by the same general rules applicable to other executive officers, so far as his duties and liabilities are concerned. Much of the law as applied to cashiers is stated hereafter in this chapter. But for greater detail as to his duties and liabilities, reference should be made to standard textbooks on the law of banking. § 2407. Liability as dependent upon injury to corporation. To render the officers of a corporation liable to it in an action for fraudulent or wrongful acts or negligence, it is necessary, of course, to show damage to the corporation as the direct result of such acts or negligence.6 So, ordinarily a stockholder cannot sue where the alleged 59 See 1 Mechem, Agency (2nd Ed ), §§ 1184-1353. 60 Brown v. Farmers' & Merchants' Nat. Bank, 88 Tex. 265, 33 L. R. A. 359, 31 S. W. 285, aff'g (Tex. Civ. App.), 31 S. W. 216, and see § 2444, infra. 61 Johnson v. Stoughton Wagon Co., 118 Wis. 438, 95 N. W. 394. 62 See §§ 2137-2158, vol. 3. 63 Kentucky. Jones v. Johnson, 86 Ky. 530, 6 S. W. 582. Massachusetts. Marlborough Ass'n v. Peters, 179 Mass. 61, 60 N. E. 396. |