[§ 2491 are concerned, precisely those that exist between the stockholders of an ordinary bank of discount and its directors.52

Applying these rules, it was held that there was actionable negligence on the part of bank directors where the thefts of the cashier from a correspondent bank could have been discovered by an examination and comparison of the balance sheet or transcript of account of the correspondent bank, with the books of the insolvent bank, although the theft could not be discovered by an examination of the books of the insolvent bank.53

§ 2491. Negligence as proximate cause. In a federal case, where certain directors were sought to be held liable for failure to attend meetings of the board, the court said that it was not a necessary or legitimate inference that the omission was a contributory cause of the loss, and held that "before they can be made responsible for losses which have occurred through the mismanagement or dishonesty of the cashier, it must appear that such losses resulted as a consequence of the omission of some duty on their part. If, in all probability these would have occurred just the same, notwithstanding they had been ordinarily diligent and vigilant, there is no justice in shifting them upon the directors, and no principle of law to justify it." 154 An apparently just criticism of this holding, however, has been stated as follows: "These neglectful defendants were under a sworn duty to exercise an active supervision over the affairs of the bank. Great losses had been incurred by the 'superficial' attention of the directors as a body and here were two who had not even taken the pains to attend the stated meetings of the board. Yet the court would impose the duty on the complainant of proving that they would have prevented the frauds by attendance! Of course, taking up the directors one by one, it would be impossible to prove that the absence of any one was a proximate cause of the loss. Would it not be the better rule to hold that in the case of such frauds by an officer, all the directors guilty of negligence were, prima facie, personally liable and the burden be placed on each one to show such facts as would

52 Campbell v. Watson, 62 N. J. Eq. 396, 50 Atl. 120.

53 The work of comparing them was no greater or more difficult than that performed by most, if not all, ordinary business men in checking off their individual bank accounts and comparing the vouchers. The mere

clerical work could be done by a clerk." Campbell v. Watson, 62 N. J. Eq. 396, 50 Atl. 120.

54 Warner v. Penoyer, 91 Fed. 587, 591, 44 L. R. A. 761, followed in Wallach v. Billings, 277 Ill. 218, 115 N. E. 382.

exculpate him?" 55 In Kansas, it has been held that a director of an insolvent bank is not excused because the insolvency was caused by misconduct of the cashier which an examination of the books would not have revealed, where the director made no examination.56

§ 2492. Nonresident directors. In a decision in Illinois the liabilities of one elected as a nonresident director of a bank for illegal loans by the president was in question, and it was said that it would be manifestly unjust to hold him, under the facts alleged, "to the same degree of attention to the bank's affairs as the resident directors, whose duty it unquestionably was to supervise the local loans and the management of the bank." 57

§ 2493. Liability for acts of co-directors-In general. It is generally the rule that a director is not liable for the misconduct of codirectors where he has not participated therein,58 unless the loss is the result of their own neglect of duty.59 Stated in another way the rule is that a director is not liable for the acts or omissions of co-directors unless (1) he connives at or participates therein; or (2) he is negligent in not acting. In 1887, it was stated in a federal decision, that "there is no case which has been cited or observed in which it has been decided that a director of a corporation was liable to make good a loss occasioned by the fraud or misconduct of a codirector, in which he had no part, and which was perpetrated without his connivance or knowledge." 60 And on appeal the Supreme Court of the United States said that "it should be observed that even trustees are not liable for the wrongful acts of their co-trustees un

55 Article by Frederick Dwight in 17 Yale Law Journal 33, 40.

56 Forbes v. Mohr, 69 Kan. 342, 76 Pac. 827.

57 Wallach v. Billings, 277 Ill. 218, 115 N. E. 382. But see § 2467, supra.

58 Warner v. Penoyer, 91 Fed. 587, 44 L. R. A. 761; Fisher v. Graves, 80 Fed. 590; Witters v. Sowles, 31 Fed. 1; Movius v. Lee, 30 Fed. 298; Com-. mercial Bank of Bay City v. Chatfield, 121 Mich. 641, 80 N. W. 712.

59 Dodd v. Wilkinson, 42 N. J. Eq. 647, 9 Atl. 685, aff'g 42 N. J. Eq. 234, 7 Atl. 327; Smith v. Cornelius, 41 W. Va. 59, 70, 30 L. R. A. 747, 752, 23 S. E. 599.

Since a director is not liable for the misconduct of his co-directors, not participated in by him as a wrongdoer, a bill which seeks to fix upon a director liability for negligent acts of the board, but which does not charge him personally with any neglect, charging neglect only by the board of directors, without mentioning him, and alleging that information showing the character of their acts was accessible to all the directors, is insufficient. Fisher v. Graves, 80 Fed. 590.

60 Movius v. Lee, 30 Fed. 298, 307.

less they connive at them or are guilty of negligence conducive to their commission." 61

In New York, "the rule still is and must be, however, that each director is only liable for his own acts or omissions, and that one is not liable for the acts or omissions of another unless he participated therein to the injury of the corporation, or had some knowledge, by which, in the exercise of reasonable care, he could have prevented the loss, or connived at it, or failed to perform his duty of exercising the authority he possessed to prevent losses which should, in the exercise of reasonable care and skill, have been foreseen and guarded against." 62 But if directors permit a portion of their number to divert corporate funds to an unauthorized purpose, they are equally liable.63

un

It has been held that directors who vote for a resolution to pay an officer a salary to which he is not entitled, but who do not participate in a subsequent resolution that such salary be paid by the issuing of negotiable notes of the corporation, are not liable to the corporation for the damages caused by issuing the notes, for the reason that the original "act, although wrongful, was harmless, til supplemented by further action in which they did not participate, and for which, * they cannot be held responsible."64 But it has been held that where the conduct and practice of certain directors, when present at a meeting, encouraged and led to the illegal acts of their associates when they were absent, they are equally liable.65

The president is almost universally a director and hence the liability of directors for acts of the president are in reality more or less to be governed by the rules as to the liability for acts of co-directors, although it may be said in such a case that the director is acting as a president and not merely as a director and hence not governed by the rules as to co-directors. A director of a bank may be liable for loss accruing to the bank through another director who is the president, although the mismanagement of the president was not known to or participated in by the directors sought to be charged, where they were negligent in not supervising or in any way examining his management of the bank.66 An individual director is not 61 Briggs v. Spaulding, 141 U. S. 132, 159, 35 L. Ed. 662.

62 People v. Equitable Life Assur. Soc. of United States, 124 N. Y. App. Div. 714, 109 N. Y. Supp. 453.

63 Miller v. Denman, 49 Wash. 217, 16 L. R. A. (N. S.) 348, 95 Pac. 67.

64 Metropolitan El. Ry. Co. v. Kneeland, 120 N. Y. 134, 8 L. R. A. 253, 17 Am. St. Rep. 619, 24 N. E. 381.

65 Dodd v. Wilkinson, 42 N. J. Eq. 647, 9 Atl. 685.

66 Gibbons v. Anderson, 80 Fed. .345.

personally liable to the corporation for unauthorized loans of its funds made by its president, merely because the director knew of and consented to such loans, where such consent was not an official act, since his individual consent would not be an act of the corporation.67

§ 2494. - Directors who are mere figureheads. Directors who confide their duties to the other directors and take no part in the management of the corporation are liable, ordinarily, for misconduct of the other directors.68 Similarly, a director is liable for the wrongful acts of a co-director, where the former neglects his duties. and trusts to the judgment of co-directors, and when he learns of such acts acquiesces therein and takes no steps to protect the rights of the corporation.69

§ 2495. — Directors not present at meeting of board. It is held that misconduct of the board does not make a director liable where he was not present at the meeting,70 but the nonattendance may be so continuous as to amount to a practical abdication of the duties of a director so as to make him liable for misconduct of the co-directors.71 And a director who intentionally and without excuse absents himself from directors' meetings for a long time is liable for the negligence of his co-directors.72 Whether absentee directors can be held liable for acts of the board of directors under a statute creating liability of directors for "assenting" to certain acts, is considered hereafter.73 § 2496.

Excuses for failure to attend meetings. A temporary illness is an excuse for the period it lasts,74 but necessary absences in

67 Hirsch v. Jones, 115 N. Y. App. Div. 156, 100 N. Y. Supp. 687.

68 Folsom v. Smith, 113 Me. 83, 92 Atl. 1003; 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.

69 Folsom v. Smith, 113 Me. 83, 92 Atl. 1003.

70 Re Montrotier Asphalte. Co., 34 L. T. (N. S.) 716. See also In re Cardiff Sav. Bank, [1892] 2 Ch. 100.

71 Mutual Bldg. Fund & Dollar Sav. Bank v. Bossieux, 3 Fed. 817; Charitable Corporation v. Sutton, 2 Atk. 400. 72 Bates v. Dresser, 229 Fed. 772,

792.

"The rule is that an absent director may be held equally responsible with his associates, in case of extreme neglect of duty in omitting to attend the board meetings, or where the wrongful acts of his associates have come to his knowledge, and he acquiesces, and takes no steps to avert their injurious consequences, when, by due diligence, he might have prevented the wrongful acts from being done." Schout v. Conkey Ave. Saving Aid & Loan Ass'n, 11 N. Y. Misc. 454, 32 N. Y. Supp. 713.

73 See § 2632, infra.

74 Rankin v. Cooper, 149 Fed. 1010, 1016.

connection with other business is no excuse.75 This matter is further considered elsewhere.76

§ 2497. - Director who has been granted leave of absence. Where a director who was also the president of the bank was given a leave of absence by the board for one year, on account of ill health, it was held by the Supreme Court of the United States that he was not liable for acts or omissions of the board during his absence. This was agreed to even by the four dissenting judges in the dissenting opinion of Justice Harlan. The contentions ruled against were (1) that the leave referred to absence as president and not as director; (2) that no power existed to allow leave of absence to a member of the board; (3) that the leave was an excuse for nonattendance at the bank but not for absence from the city; and (4) that if he wished to be absolved from responsibility while absent in search of restored health he should have resigned.77

§ 2498.- Necessity for interference on obtaining knowledge of misconduct. If a director wishes to escape liability for acts of a co-director not participated in by him, he should, on learning thereof, notify the other directors and thus give them an opportunity to approve or disapprove of the acts.78 A fortiori, a director is liable for the acts of a co-director where, although not actually participating therein, they are for their joint benefit as partners and he did not repudiate the acts when brought to his knowledge.79 It would seem, however, that a co-director who does not participate need not, on learning of the acts of the board, take legal proceedings to set aside the executed contract.80

In England, the rule is stated as follows: "Even a director who is aware of the intention of his fellows to make such an illegal application of the company's funds [payment of dividends from capital] is also liable, unless he takes the steps necessary to exonerate himself from liability. By sec. 34 he may do that by inscribing a