ance ordinarily and reasonably demand," and that an agent is liable for failure to perform such duty whereby the principal naturally and proximately suffers loss or injury; 51 and it has been stated that "there is no general rule of liability for wrongful neglect in the exercise of such agency, applicable to directors as a class by themselves, independently of the law which prescribes and defines the duties and liabilities of agents." 52 If considered as a trustee, then the rule governing trustees in general, that a trustee is liable for want of reasonable care, is applicable 53-the same rule applicable to agents.

The only question is what constitutes negligence. In determining whether directors are liable for negligent mismanagement, the courts have been prone to use fine sounding phrases in defining the duties of directors, and then proceed to decide the case without reference thereto the rules laid down being such glittering generalities that the case could be decided either way thereunder without violating the rules. For this reason, it is almost impossible to say that there is any considerable conflict of opinion. All that can be said is that (1) the rule is stated more explicitly and as imposing greater duties to some extent in some cases than in others, and that (2) in the final analysis each case is determined upon the particular facts appearing in the case at bar. As to whether the negligence must be gross in order to be actionable, there is some apparent conflict in the authorities, more apparent than real, although it is now the general rule that want of ordinary care creates liability.54 Moreover, there is some conflict of opinion as to whether the degree of care is that of an ordinarily prudent man in his own business or that of an ordinarily prudent man under like circumstances.55 The fact remains, however, that, except as already stated, the courts are practically unanimous in their general statements that directors and other corporate officers must be diligent and careful in performing their duties; that the directors must be something more than mere figureheads, etc.56 In the application of these rules, however, some, if not most, of the

51 Rule applicable to agents in general, see 1 Mechem, Agency (2nd Ed.), § 1275 et seq.

52 New Haven Trust Co. v. Doherty, 75 Conn. 555, 96 Am. St. Rep. 239, 54 Atl. 209.

53 See textbooks relating to Trusts and Trustees for rules governing trustees in general.

54 See 2448, infra.

55 See §§ 2450, 2451, infra.

56 Perhaps the best, or at least the most exhaustive, review of the decisions in this country relating to negli gence of directors is found in the opinion of Vice Chancellor Pitney, now one of the justices of the United States Supreme Court, delivered while a vice chancellor of the Court of Chancery of New Jersey, in 1901, in the case of Campbell v. Watson, 62 N. J. Eq. 396, 50 Atl. 120.

courts, have been very lenient in favor of corporate directors; and additional legislation is necessary to protect stockholders and creditors who are injured by the negligence of the directors. It has been suggested that "business reorganization may be capable of developing directors of different classes, those directly charged with the management of the business, quasi managers, and those standing in an advisory capacity merely. Heretofore men have felt justified in undertaking more directorships than they could possibly understand or give their attention to. The consequence is that the investing public, stockholders and creditors, have often lost their money and have not been reimbursed. Before this problem can be satisfactorily solved the courts must be assisted with some well considered legislation and business reorganization." 57

§ 2443. Negligence as question of fact. Whether officers have been guilty of mismanagement in a particular case is largely a matter of fact dependent upon the circumstances of each case.58 The Supreme Court of the United States has stated that "the degree of care required depends upon the subject to which it is to be applied, and each case has to be determined in view of all the circumstances.'' 59 Admitting that reasonable care is the test, and this is undoubtedly true according to the great weight of authority, the question of "what is reasonable in any given case," to use the language of Professor Mechem in his work on Agency in stating the rule as to agents in general, which seems to be equally applicable to corporate officers in this respect, "is not one which can ordinarily be measured by any pre-established inflexible standard. There are cases, it is true, where a limit must be fixed, and one so fixed, though purely arbitrary, is to be observed. But there is a growing tendency on the part of courts, and it is in furtherance of justice, to measure each case by the more flexible standard of its own facts and circumstances. 60 Thus it is stated in a leading work on the law of negligence that "in very many cases the law gives no better definition of negligence than the want of such care as men of ordinary prudence or good men of business

would use under similar circumstances. Of course, this raises a question of fact as to what men of this character usually do under the same circumstances. This is a point upon which a jury have a right to pass, even though no evidence of the usage were given; for they may properly determine the question by referring to their own experience and observation. Indeed, they must do so; since expert evidence on such points is usually not admissible. Consequently a case of this kind must be left to the jury, even if there is no conflict of evidence, unless, indeed, there is evidence enough to decide this point as well as all other questions in the cause." 61 And in the same work, the reverse side of the rule is stated thus: "When the facts are clearly settled, and the course which common prudence dictated can be so clearly discerned that only one inference can be drawn, it is not only the duty of the court to set aside a verdict contrary to such inference, but to take the case away from the jury and direct a verdict or a nonsuit, as the case may require. The question is then one of law, for the court to decide." 62 Negligence, in this connection, has been said to be "the want of care according to the circumstances, and the circumstances are everything in considering this question." 63 Whether a given statement of facts constitutes negligence is commonly a question to be determined by a jury, or by a court exercising the functions of a jury; and it is difficult, and in many cases impossible, to decide in advance, or to formulate tests for deciding as a matter of law, whether directors or other officers have been guilty of that degree of negligence which will render them liable.64

It has been said in New York that "the degree of care required depends upon the subjects to which it is to be applied"; 65 and that "what would be slight neglect in the care of a quantity of iron might be gross neglect in the care of a jewel," and further that "what would be slight neglect in the care exercised in the affairs of a turnpike corporation, or even a manufacturing corporation, might be gross neglect in the care exercised in the management of a savings bank intrusted

611 Shearman & Redfield, Negligence (6th Ed.), § 53.

621 Shearman & Redfield, Negligence (6th Ed.), § 56.

63 Swentzel v. Penn Bank, 147 Pa. St. 140, 15 L. R. A. 305, 30 Am. St. Rep. 718, 23 Atl. 405.

As said in New Hampshire, "the question of negligence, being here regarded as one of fact, is to be determined in the light of all the circum

stances peculiar to the particular case. A certain fact, set in the midst of one kind of surroundings, may have a very different probative effect from what it would have with different surroundings." Ricker v. Hall, 69 N. H. 592, 45 Atl. 556.

99.

64 See note in 17 Am. St. Rep. 95,

65 Hun v. Cary, 82 N. Y. 65, 37 Am. Rep. 546.

with the savings of a multitude of poor people, depending for its life upon credit and liable to be wrecked by the breath of suspicion." 66 However, it may be said that in such a case the degree of care remains the same, i. e., ordinary care as exercised by reasonably prudent men, but that what is in fact such reasonable care in a particular instance depends upon the circumstances.

It is common for courts to look at the liability of directors from two different viewpoints. In the one case, the question is looked at from the viewpoint of the director, and the fact of his receiving no compensation, or his absence or inability to attend meetings of the directors, or the existence of other important business is dwelt upon. In the other case, the question is looked at from the public side, and the rights of stockholders or depositors are considered. And the following from a leading textbook writer on the law of Banking is found to be so true after careful examination of the decisions that attention is specially directed thereto, viz.: "Doubtless every court looks from both sides; but it is just as certain that its judgment is often deflected from the rules to the inculpated directors. The evidence against them is examined, an opinion is formed of their guilt or innocence, and then a color or modification, if necessary, is given to the rule, to fit it properly to the facts. The numerous penumbra that surround the rules above given are unquestionable proof of the working of the judicial mind in these controversies.'' 67

In determining whether there was negligence, it has been pointed out that it must be kept in mind "that the facts must be viewed and considered as they then presented themselves, and not from the illumined viewpoint of subsequent events." 68 Furthermore, the fact

that the directors owned all or most of the stock of the corporation, or were heavy stockholders is to be considered; 69 and it has been said that "as the directors are themselves stockholders, interested as well as all others that the affairs and business of the corporation should be successful, when we ascertain and determine that they have not sought to make any profit not common to all stockholders, we raise a strong presumption that they have brought to the administration their best judgment and skill."' 70

66 Hun v. Cary, 82 N. Y. 65, 37 Am. Rep. 546.

671 Bolles, Modern Law of Banking, p. 279.

68 Bailey v. Babcock, 241 Fed. 501, 514.

69 Bailey v. Babcock, 241 Fed. 501, 514.

70 In re Spering's Appeal, 71 Pa. St. 11, 10 Am. Rep. 684.

§ 2444. Effect of officers receiving no compensation. Liability of corporate officers for their mismanagement exists although they receive no compensation for their services.71 But the fact that the services of directors are gratuitous, when this is true, may, however, have some weight.72 However, at the present day, directors are usually compensated, to a greater or less extent, for the time and labor; and therefore what is said in some of the decisions about the care required of directors who receive no compensation is not applicable in so far as it is based on the fact that they served without pay; and in a New Jersey case decided in 1901 this is referred to as follows: "That at one time and in some instances bank directors were unpaid servants, who were not expected to spend much time or to give much attention to the affairs of the institution, and on that account were dealt with leniently by the courts; but at this day such officers are not expected to work gratuitously, and are usually paid a fair compensation; and, whether paid or not, they are entitled to no indulgence on that account."73 As stated by the late A. C. Freeman in a note in the American State Reports, "in some instances the salary paid them [directors], taken in connection with other circumstances, shows that the corporation was entitled to all or a greater proportion of their time and attention, while in others it is. clear that they have not undertaken, nor been understood as undertaking, to give to the affairs of the corporation any more than occasional attention, consisting chiefly of attendance at meetings of the board of directors, and investigating and voting upon such matters as are there presented for their action. In the latter class of cases, directors may doubtless, without rendering themselves liable, be ignorant of many matters affecting the corporate interests, of which

71 Virginia-Carolina Chemical Co. v. Ehrich, 230 Fed. 1005, 1016; Union Nat. Bank v. Hill, 148 Mo. 380, 71 Am. St. Rep. 615, 49 S. W. 1012; Williams v. McKay, 46 N. J. Eq. 25, 18 Atl. 824, 40 N. J. Eq. 189, 53 Am. Rep. 775; Michelson v. Pierce, 107 Wis. 85, 82 N. W. 707.

"It is true that the defendants were unpaid servants, but the duty of bringing to their office ordinary skill and vigilance was none the less on that account; for, to this extent, there is no distinction known to the law between a volunteer and a salaried