41 ing loans or investments of money, especially in case of bank officers; 42 but in determining the wisdom of a loan or investment it must always be remembered that the conditions at the time it was made are the important ones and that the deal is not to be viewed merely from its after effects.43 Directors of a building and loan association are not liable for losses resulting from an honest mistake in estimating the value of a stockholder's land on which they loaned money.44 § 2455. Degree or amount of care as dependent upon kind of corporation. In the leading New York case on the subject under discussion, it was said that "it is impossible to give the measure of culpable negligence for all cases, as the degree of care required depends upon the subjects to which it is to be applied," and that "what would be slight neglect in the care exercised in the affairs of a turnpike corporation, or even of a manufacturing corporation, might be gross neglect in the care exercised in the management of a savings bank intrusted 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." 45 This liability of directors or trustees of savings banks, as involving an especially high amount of care, has also been commented on in other decisions.46 § 2456. Degree or amount of care as dependent upon residence or standing of director. Under some circumstances, at least, a less amount of care and attention is required of nonresident directors than of resident directors.47 But while the high character and 41 Excelsior Water & Mining Co. v. Pierce, 90 Cal. 131, 27 Pac. 44; Cullerne v. London & S. General Permanent Bldg. Society, L. R. 25 Q. B. Div. 485. See also § 2432, supra. 42 Wheeler v. Aiken County Loan & Sav. Bank, 75 Fed. 781; Witters v. Sowles, 31 Fed. 1; Jones v. Johnson, 86 Ky. 530, 6 S. W. 582; Williams v. McDonald, 42 N. J. Eq. 392, 7 Atl. 866. 43 Wheeler v. Aiken County Loan & Savings Bank, 75 Fed. 781. 44 Citizens' Building, Loan & Savings Ass'n v. Coriell, 34 N. J. Eq. 383. 45 Hun v. Cary, 82 N. Y. 65, 71, 37 Am. Rep. 546. 46 Lippitt v. Ashley, 89 Conn. 451, 94 Atl. 995. Thus, in Massachusetts it was recently held that such officers "are held to the same duty as ordinary trustees of a direct trust," and that "they cannot excuse themselves from the consequences of their misconduct or of their ignorance or negligence by averring that they have failed merely to exercise ordinary skill, care and vigilance." Greenfield Sav. Bank v. Abercrombie, 211 Mass. 252, 39 L. R. A. (N. S.) 173, Ann. Cas. 1913 B 420, 97 N. E. 897. 47 Wallach v. Billings, 277 Ill. 218, 115 N. E. 382. But see § 2467, infra. standing in business of directors in a community enhances the credit of the corporation, it has been said that the "degree of care in the discharge of their duties imposed upon them was no higher for that § 2457. Standard of diligence as that of business man rather than that of judge. In regard to loans of money by bank officers, the Tennessee court has said that "among business men, there is found a degree of trust and reliance upon moral character, business integrity, and thrift justifying to a business man the soundness and prudence of a transaction which, to judges and lawyers engaged in applying the hard and fast rules of law, would seem indefensible and reckless. The standard of diligence and prudence by which bank officers and bank directors should be tried is that which business men have erected for themselves." 49 § 2458. Nonobservance of duties prescribed by statute. Now the duties of directors, or at least directors of banks, are sometimes expressly enumerated, more or less in detail, by a statute. Thus, in Missouri, boards of directors of banks are required to meet at least once a month, pass on the business of the bank, record their approval or disapproval of loans, etc., and also to approve bonds of the cashier and other like officers. In such a case, it was held that the failure of the directors "to comply with the aforesaid statutory duties was negligence in and of itself as a matter of law, and rendered them liable for all losses thereby caused, independently of the neglect on their part of the non-statutory duty to exercise in the governance and control and watchfulness of the business of the bank, ordinary care and diligence or that degree of care, diligence and skill demanded by the particular nature of the business intrusted to their management-in other words, care equal to the occasion.'' 50 And it was held that where there would have been no loss had the statutory requirements been complied with, the failure to so comply rendered the directors liable for defalcations of the cashier. § 2459. Liability as limited by charter. If the charter provides that no director shall be liable for damage "which shall happen in 48 Virginia-Carolina Chemical Co. v. Ehrich, 230 Fed. 1005, 1016. 49 Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 24 Am. St. Rep. 625, 15 S. W. 448. 50 Lyons v. Corder, 253 Mo. 539, 162 S. W. 606. the execution of the duties of his office or in relation thereto, unless the same happen through his own dishonesty," a director is not liable for negligence where no dishonesty is shown.51 § 2460. Particular acts as negligence-In general. Whether particular acts constitute negligence is difficult to state because so much depends upon the circumstances of the particular case. Certain acts, however, as to which reasonable minds could not differ, have been held actionable or the contrary.52 Thus, a president who has willingly or unintentionally, by culpable negligence, received forged municipal bonds in exchange for its stock, is personally liable for the loss.53 So the president and general manager of a bank has been held liable for loss sustained by the bank from his purchase with corporate assets of a large amount of commercial paper affected with a patent infirmity which was liable, if not certain, to destroy its value.54 But the vice president of a bank is not, by virtue of his office alone, charged with the duty of seeing that notice of the dishonor of commercial paper is given to the person entitled thereto, nor personally liable in any manner if he fails to do so.55 § 2461. Failure to attend directors' meetings. Mere failure of a director to attend a meeting of the board is not necessarily negligence.56 "We are not willing," said Justice Boyd in a well considered case in Maryland, "to give our approval of any doctrine that would require directors to attend every regular meeting of the board, much less every special meeting We do not mean to intimate that directors should be free from liability simply because they were not present at a meeting of the board when some unlawful or improper act was done, which resulted in loss to the company, if it was their duty to be there, and their absence in any way caused the loss, nor do we mean to say that there may not be cases in which the burden would be on the directors to allege and prove 51 In re Brazilian Rubber Plantations & Estates, Ltd., [1911] 1 Ch. 425, 440. 52 Acceptance by the president of a bank of doubtful securities in payment of good debts is negligence, and renders him liable for the resulting loss. Lawrence v. Stearns, 79 Fed. 878. 53 Fidelity & Deposit Co. of Maryland v. Wiseman, 103 Tex. 286, 126 S. W. 1109, 124 S. W. 621. 54 Stearns v. Lawrence, 83 Fed. 738, 746, aff'g 79 Fed. 878. 55 First Nat. Bank of Louisville v. Bickel, 154 Ky. 11, 156 S. W. 856. 56 Williams v. Brady, 221 Fed. 118; Warner v. Penoyer, 91 Fed. 587, 594, 44 L. R. A. 761; Murphy v. Penniman, 105 Md. 452, 121 Am. St. Rep. 583, 66 Atl. 282. See also §§ 2466, 2467, infra. sufficient excuse for non-a 1957 -attendance.' "Neglect or omission to attend meetings is not," said Justice Stirling in a case decided in England, "the same thing as neglect or omission of a duty which ought to be performed at those meetings," although if a director has knowledge or notice that no meetings of directors are being held or that "a duty which ought to be discharged at those meetings was not being performed, it might be right to hold that he was guilty of neglect or omission of the duty."58 On the other hand, "it is not open to doubt," said Justice Haight in a recent federal decision, "that a wilful and continued failure on the part of a director to attend meetings of the board at which the business of the bank is conducted, and to familiarize himself, to some extent with the bank's affairs, is a violation of the duty which the common law imposes upon directors, and, if loss results therefrom, that he is liable, because such action is, in itself, a failure to exercise the ordinary care and prudence in the administration of affairs of the bank which the law imposes upon directors." 59 § 2462. Failure to keep property insured. Directors are not in duty bound to keep the corporate property insured, nor liable in damages to the company where the uninsured property burns, in the absence of any special circumstances.60 § 2463. Permitting large debt for goods sold. It has been held that the president of a company is liable to it, on the ground of negligence, for the loss resulting from a sale of its products to a firm in which he was interested where, instead of requiring payment, he permitted a large debt to accumulate which was lost by the insolvency of the firm.61 § 2464. Excuses-In general. Imprudent acts of directors or other corporate officers cannot be excused, ordinarily, because of their (a) ignorance,62 or (b) inexperience,63 or the honesty of their intentions.64 57 Murphy v. Penniman, 105 Md. 452, 121 Am. St. Rep. 583, 66 Atl. 282. 58 In re Cardiff Sav. Bank, [1892] 2 Ch. 100. 59 Williams v. Brady, 232 Fed. 740, 744. 60 Charlestown Boot & Shoe Co. v. Dunsmore, 60 N. H. 85. That agents in general are not bound to insure property of principal, see 1 Mechem, Agency (2nd Ed.), §§ 1297, 1298; 1 Clark & Skyles, Agency, 402b. 61 Doe V. Northwestern Coal & Transportation Co., 78 Fed. 62. 62 See § 2468, infra. 63 See § 2469, infra. 64 See § 2465, infra. Chief Justice Bartch of the Supreme Court of Utah, in a well considered decision, states the rule, as to directors of banks, that "when sued for losses which resulted from careless or unlawful acts and unfortunate transactions, they can never set up as a defense that they did not examine the books or accounts of the bank, knew nothing about the loans or discounts, were ignorant of banking business, or that they intrusted the management and supervision of the business to the executive officers, in whom they had confidence. The welfare of the public and the interests of banking institutions alike forbid this." 65 Continuing, he states that "the duties of directors are administrative, relate to supervision and direction, and when it is sought to hold them responsible for a dereliction of duty, because of which a loss occurred to stockholders and creditors, they cannot evade liability by pleading ignorance of the affairs of the institution, incompetency, or gratuitous service, or that the management of the banking business was in the hands of the cashier or other executive officer." 66 It is no excuse for the negligence of one officer that another officer or officers were also negligent.67 § 2465. Honesty and good faith. It is not enough to excuse a director that no actual dishonesty is shown, nor that he was influenced by other than disinterested motives.68 "Good faith alone will not excuse them [directors] when there is lack of the proper care, attention, and circumspection in the affairs of the corporation which is exacted of them as trustees." 69 § 2466. - Illness and age. Age and illness have been recognized as excuses for directors in the leading case of Briggs v. Spaulding." 70 It has been said that "a passing illness, temporary in character, is an excuse for the period it lasts, but, if a person becomes a confirmed invalid for a number of years and unable to attend to the duties of a director, he has no right to hold on to the position and at the same time decline its corresponding responsibilities. By do 65 Warren v. Robison, 19 Utah 289, 75 Am. St. Rep. 734, 57 Pac. 287. 60 Warren v. Robison, 19 Utah 289, 75 Am. St. Rep. 734, 57 Pac. 287. 67 It is no justification for a cashier, charged with having made a bad loan, to say that the directors of the bank did not do their duty, and that if they had they would have discovered the loan. San Joaquin Valley Bank v. Bours, 65 Cal. 247, 3 Pac. 864. IV Priv. Corp.-23 68 Commercial Bank of Bay City v. Chatfield, 121 Mich. 641, 80 N. W. 712; Marshall v. Farmers' & Mechanics' Sav. Bank, 85 Va. 676, 2 L. R. A. 534, 17 Am. St. Rep. 84, 8 S. E. 586. 69 Anthony v. Jeffress, 172 N. C. 378, 90 S. E. 414. 70 141 U. S. 132, 35 L. Ed. 662. |