pany does not in fact own, where he did not employ the lawyers and is not responsible for them as his agents.54 And directors who merely employ one to give a fireworks exhibition on the corporate grounds are not personally liable for the negligent acts of the exhibitor 55 § 2537. Liability as joint and several. Liability of officers for torts, where they act together, is joint and several.56 The rule is the same as in case of any other tort, and is so elementary as not to require further consideration, except to state that one director is not always liable merely because another director who has committed a tort is liable. For instance, where part of the directors had no knowledge of any misappropriation of moneys held by the corporation as the proceeds of a sale as a commission merchant, and no fair opportunity to discover it, they cannot be held individually liable although other directors are liable.57 § 2538. Assault. Of course, the corporate officer who actually commits an assault is liable therefor.58 And where the president of a corporation gave orders to the drivers of vehicle of the company to exclude colored persons from traveling therein, he was held liable to a colored person who was forcibly ejected from one of such vehicles.59 § 2539. Conversion-In general. So an officer or agent of a corporation is liable for conversion of property belonging to a third person, notwithstanding that, in disposing of it or otherwise dealing with it, he was acting for the corporation; 60 since "any person who, however innocently, obtains possession of the goods of a person who 54 Slater Trust Co. v. Gardiner, 183 Fed. 268, where suit was brought by bondholders who were misled by the description of the property and suffered loss because thereof. 55 Bianki v. Greater American Exposition, 3 Neb. (Unoff.) 656, 92 N. W. 615. 56 Cone v. United Fruit Growers' Ass'n, 171 N. C. 530, 88 S. E. 860; Solomon v. Bates, 118 N. C. 311, 24 S. E. 478. 57 Cone v. United Fruit Growers' Ass'n, 171 N. C. 530, 88 S. E. 860. 58 See Brokaw v. New Jersey R. & Transp. Co., 32 N. J. L. 328, 90 Am. Dec. 659. 59 Peck v. Cooper, 112 Ill. 192, 54 Am. Rep. 231. 60 California. Swim v. Wilson, 90 Cal. 126, 13 L. R. A. 605, 25 Am. St. Rep. 110, 27 Pac. 33. See also Vujacich v. Southern Commercial Co., 21 Cal. App. 439, 132 Pac. 80. Kentucky. United Society v. Underwood, 9 Bush 609, 15 Am. Rep. 731. Maine. Kimball v. Billings, 55 Me. 147, 92 Am. Dec. 581. has been fraudulently deprived of them, and disposes of them, whether for his own benefit or that of any other person, is guilty of a conversion." 61 Thus a corporate officer is jointly liable with the corporation where, acting as agent of a third person, he paid over to his corporation negotiable paper belonging to the principal, although he retained none of the fruits of his wrong.62 § 2540.- Funds held in trust by the corporation. A general manager is liable for wilfully applying private funds, in the hands of the corporation, to the debts of the corporation.63 So knowingly permitting funds belonging to another to be appropriated to the use of the corporation, makes the directors personally liable. And directors are liable for the misapplication of funds held in trust by the corporation, where they knew, or ought to have known, thereof.65 So a director of a business corporation who presumably had knowledge that it was receiving deposits of money for safe-keeping, and that it was being misappropriated, is personally liable where he acquiesced therein.66 Directors who mingle money collected for another with the funds of the corporation, in violation of the instruc Michigan. Hempfling v. Burr, 59 Mich. 294, 26 N. W. 496. New York. Spraights v. Hawley, 39 N. Y. 441, 100 Am. Dec. 452; Passaic Falls Throwing Co. v. VilleneuvePohl Corporation, 169 App. Div. 727, 155 N. Y. Supp. 669; McCrea v. McClenahan, 131 App. Div. 247, 115 N. Y. Supp. 720. Liability of agents in general for conversion, see 1 Mechem, Agency (2nd Ed.), § 1457. Officers are liable for conversion of property of another corporation. Bluefields S. S. Co. v. Lala Ferreras Can gelosi S. S. Co., 133 La. 424, 434, 63 So. 96. A corporate officer who is guilty of funds misappropriating the of a stranger for the benefit of his corporation may be held liable personally for such wrongful acts. Sweet v. Montpelier Sav. Bank & Trust Co., 69 Kan. 641, 77 Pac. 538. If the injury is solely to the creditor suing, as in case where the corporate officers convert property belonging to complainant and appropriate the proceeds to the use of the corporation, the creditor may sue the officers in his own name, and if the corporation is insolvent need not join as defendants either the corporation or receiver. Virginia-Carolina Chemical Co. V. Floyd, 158 N. C. 455, 74 S. E. 465. 61 Hollins v. Fowler, L. R. 7 H. L. 757. 62 Messer-Moore Insurance & Real Estate Co. v. Trotwood Park Land Co., 170 Ala. 473, Ann. Cas. 1912 D 718, 54 So. 228. 63 Rauch v. Brunswig, 155 Mo. App. 367, 137 S. W. 67. tions of the owner, or who knowingly permit their subordinates to do so, whereby the fund is lost, are personally liable therefor.67 § 2541. Misapplication of proceeds of goods consigned for sale. When the proceeds of a sale of goods consigned to a corporation to be sold on commission, have been intentionally misapplied, the officers in control of the fund who have knowingly participated in the wrong are individually liable.68 So where directors knowingly appropriated the proceeds of cotton owned by a third person and held by the corporation, or knowingly permitted the corporation to do so, or if they are chargeable with knowledge of such appropriation, they and the corporation were held to be jointly and severally liable for the loss.6 69 § 2542. Fraud or deceit-In general. A corporate officer or agent is personally liable for damages caused by his fraud or deceit, to the person directly injured thereby.70 Thus, a corporate officer who transfers to a creditor worthless securities in payment of a debt is personally liable to the creditor for the fraud practiced.71 So directors are personally liable for issuing bonds falsely reciting that they are first mortgage bonds.72 However, if recovery is sought on Michigan. Getchell v. Dusenbury, 145 Mich. 197, 108 N. W. 723, 13 Det. L. N. 511. New Jersey. Vreeland v. New Jersey Stone Co., 29 N. J. Eq. 188, aff'd 29 N. J. Eq. 651. New York. O'Beirne v. Bullis, 158 N. Y. 466, 53 N. E. 211, false statement that bonds covered certain timber lands. Ohio. Cable v. Bowlus, 21 Ohio Cir. Ct. 53, 11 Ohio Cir. Dec. 526. "No one should be permitted to escape personal liability for fraud practiced by himself, or in connection with others, upon another, in his or their official character of president, director, or secretary of a private corporation, upon the ground that they were acting for the corporation. To claim exemption on the ground of official responsibility, or that the fraud was committed for the benefit of the corporation, is equivalent to claiming that the corporation is liable for the fraud of its officers, and the officers themselves not liable." Bank of Atchison County v. Byers, 139 Mo. 627, 659, 41 S. W. 325. 71 Donovan v. Purtell, 216 Ill. 629, 1 L. R. A. (N. S.) 176, 75 N. E. 334, aff'g 119 Ill. App. 116. 72 Bank of Atchison County v. Byers, 139 Mo. 627, 41 S. W. 325; Clark v. Edgar, 84 Mo. 106, 54 Am. Rep. 84, aff'g 12 Mo. App. 345. the ground of fraud, all the necessary elements going to make up fraud at common law or under a statute defining fraud, must appear,73 including reliance on the false statement 74 and injury therefrom.75 Negligence does not necessarily preclude the existence of fraud.76 A refusal to transfer stock to the name of a purchaser is not necessarily, nor even prima facie, fraudulent, and the purchaser cannot sue the directors therefor on the ground that he was thereby prevented from reselling the stock before the insolvency of the corporation.77 In a case in New Jersey, directors of a savings bank were held personally liable to a depositor, where the bank afterwards became insolvent, where they authorized the publication in a newspaper of an advertisement of the bank in which, preceding the names of the directors, the catch line "Directors and Stockholders Personally Responsible," was contained, and the depositor relied thereon.78 Fraud in procuring subscriptions to stock, or in inducing a purchase thereof, as actionable in general, has been fully discussed in a preceding volume.79 § 2543. Issuance of spurious certificates of stock. Officers who sign and issue fictitious or invalid certificates of stock are liable, on the ground of fraud and deceit, to purchasers or pledgees who are injured thereby.80 73 Hart v. Evanson, 14 N. D. 570, 3 L. R. A. (N. S.) 438, 105 N. W. 942, where statute defined deceit. 74 See, as to transfers of capital stock, § 624, vol. 2. 75 See, as to subscriptions to or transfers of capital stock, § 626, vol. 2. 76 Bell v. James, 128 N. Y. App. Div. 241, 112 N. Y. Supp. 750, aff'd 198 N. Y. 513, 92 N. E. 1078. 77 Penfold v. Charlevoix Sav. Bank, 140 Mich. 126, 103 N. W. 572. 78 Westervelt v. Demarest, 46 N. J. L. 37, 50 Am. Rep. 400. 79 See §§ 610-636, vol. 2. 80 Windram v. French, 151 Mass. 547, 8 L. R. A. 750, 24 N. E. 914; Bruff v. Mali, 36 N. Y. 200. "There is no doubt that, by thus IV Priv. Corp.-27 authenticating and issuing the certif- § 2544. Fraudulent representations as to financial condition of company-In general. False statements, made by or under the authority of directors or other corporate officers, as creating personal liability on the part of such officers, may be classified as follows: First, where the statement is in an official report made to some public officer, and falsity thereof creates liability because a statute so expressly provides. This phase of the subject is considered in a subsequent subdivision,81 and is further referred to in a subsequent chapter in this volume.82 Second, false statements not contained in official reports but also expressly made a ground of liability by statute, also treated of hereafter.83 Third, false statements forbidden by statute but where the statute creates no liability. Fourth, false statements as to which no provision is made by statute, and where the general rules as to fraud are applicable. The last two are the ones considered herein. Under the general rule that an agent is as much responsible as his principal for fraud perpetrated on a third person, in which the agent participated, false representations as to the financial condition of the corporation, made by corporate officers, makes the officers participating therein or consenting thereto liable to persons who are injured by reliance thereon,84 at least if the officer sought 81 See 2643, infra. 82 See infra, chapter on Reports. 83 See 2643, infra. 84 United States. Brady v. Evans, 78 Ted. 558. Connecticut. Salmon v. Richardson, 30 Conn. 360, 79 Am. Dec. 255. Georgia. Schley v. Dixon, 24 Ga. 273, 71 Am. Dec. 121. Illinois. Delano v. Case, 121 Ill. 247, 2 Am. St. Rep. 81, 12 N. E. 676. Iowa. Hubbard v. Weare, 79 Iowa 678, 44 N. W. 915. Kentucky. Pieratt v. Young, 20 Ky. L. Rep. 1815, 49 S. W. 964. Massachusetts. Hedden v. Griffin, 136 Mass. 229, 49 Am. Rep. 25. Michigan. Weber v. Weber, 47 Mich. 569, 11 N. W. 389. Missouri. Bank of Atchison County v. Byers, 139 Mo. 627, 41 S. W. 325; Clark v. Edgar, 84 Mo. 106, 54 Am. Rep. 84. Neb. 135, 46 L. R. A. 248, 78 N. W. 384. New Hampshire. Hammond v. Hussey, 51 N. H. 40, 12 Am. Rep. 41. New Jersey. Cowley v. Smyth, 46 N. J. L. 380, 50 Am. Rep. 432; Westervelt v. Demarest, 46 N. J. L. 37, 50 Am. Rep. 400; Vreeland v. New Jersey Stone Co., 29 N. J. Eq. 188. New York. Morgan v. Skiddy, 62 N. Y. 319; Rives v. Bartlett, 156 App. Div. 552, 141 N. Y. Supp. 561. North Carolina. Houston v. Thornton, 122 N. C. 365, 65 Am. St. Rep. 699, 29 S. E. 827; Solomon v. Bates, 118 N. C. 311, 54 Am. St. Rep. 725, 24 S. E. 478; Tate v. Bates, 118 N. C. 287, 54 Am. St. Rep. 719, 24 S. E. 482. Pennsylvania. Kroeger v. Pitcairn, 101 Pa. St. 311, 47 Am. Rep. 718. Texas. Seale v. Baker, 70 Tex. 283, 8 Am. St. Rep. 592, 7 S. W. 742. West Virginia. Zinn v. Mendel, 9 W. Va. 580. |