by them.36 So in Alabama, it is held that one induced to purchase stock by reason of false reports as to the prosperity of the corporation which were sent out "or authorized" by its directors, and by the unauthorized declaration of dividends, may sue the directors for the damages suffered.37 And it has been held that a director who at various times held the office of secretary, vice president and treasurer, and who knew or had means of knowing what appeared upon the corporate books, is liable for the value of goods sold the corporation by one who extended credit on the faith of false statements in such books.38 On the other hand, a director or other corporate officer is not liable for false statements made by another officer in which the former did not participate nor authorize nor sanction. The fraud must be brought home to him individually.39 The mere fact of being a di "The statute provides that 'the directors shall have general management of the affairs of the corporation.' R. S. art. 1159. The borrowing of money in conducting the business of the company and the means and methods by which the necessary loans could be obtained were certainly affairs of the corporation committed by the statute to the management of the directors, and the evidence in this case shows that the appellants so considered them as they yearly discussed and passed upon the financial statements issued for the purpose of obtaining credit. It goes without saying that the issuance of such statements under the names of the directors of the company would not be regarded by those to whom they were habitually sent as statements sanctioned and approved only by the subordinate employees who prepared them, and appellents must have known that it could not be so regarded. It is true that the directors were agents of the corporation, but an agent is as much responsible as his principal for fraud perpetrated on another in which he participated. We think it clear, upon both principle and authority, that having accepted the position and ex- 38 Milliken v. Richelieu Co., 175 N. Y. App. Div. 579, 162 N. Y. Supp. 561. 39 Arthur v. Griswold, 55 N. Y. 400; Wakeman v. Dalley, 51 N. Y. 27, 10 Am. Rep. 551; McFarland v. Carlsbad Hot Springs Sanitarium Co., 68 Ore. 530, Ann. Cas. 1915 C 555, 137 Pac. 209; Weir v. Barnett, 3 Exch. Div. 32. Compare Houston v. Thornton, 122 N. C. 365, 65 Am. St. Rep. 699, 29 S. E. 827. rector is not per se sufficient to render one liable for false representations of the active managers of a corporation or for like representations of an agent employed to market the stock.40 Likewise, a director is not liable for misrepresentations contained in a prospectus issued by his co-directors without his knowledge or consent. So one director is not necessarily liable for false representations of certain other directors acting as an executive committee.42 The mere fact that a person is the president of a corporation does not of itself make him personally liable for misrepresentations made by other directors to purchasers of corporate bonds as to their value.43 Thus, if the report, alleged to be false, is signed by only a part of the corporate officers, then those not signing are ordinarily not liable for false statements in the report.44 So directors of a corporation are not personally liable for false repesentations made by brokers employed on behalf of the corporation, not authorized or participated in by them.45 The fact that one's name is on the outside of a prospectus as a director does not show that he issued or circulated it.46 The president of a corporation who merely signs a letter prepared by another and incloses papers furnished by the latter does not make statements in such papers his own so as to make him personally liable where such statements are false.4 47 In a North Carolina case, it was held that the directors of a corporation are liable for negligently and through want of attention allowing the publication of false statements of the financial condition 40 See Downey v. Finucane, 205 N. Y. 251, 259, 40 L. R. A. (N. S.) 307, 98 N. E. 391. 41 See Rives v. Bartlett, 215 N. Y. 33, 109 N. E. 83, rev'g 156 N. Y. App. Div. 552, 141 N. Y. Supp. 561, explaining Downey v. Finucane, 205 N. Y. 251, 40 L. R. A. (N. S.) 307, 98 N. E. 391, as a case where director had been constituted and acted as agent for other directors. Directors or other officers who had no part in the issuance or circulation of the prospectus are not liable. MeFarland v. Carlsbad Hot Springs Sanitarium Co., 68 Ore. 530, Ann. Cas. 1915 C 555, 137 Pac. 209. 42 L. D. Garrett Co. v. McComb, 58 N. Y. App. Div. 419, 68 N. Y. Supp. 996. Fraud of the executive committee of a board of directors in issuing a false prospectus does not make personally liable therefor those directors who were not members of the committee and who had no knowledge of the issuance of the prospectus. Ottmann v. Blaugas Co. of Cuba, 171 N. Y. App. Div. 197, 157 N. Y. Supp. 413. 43 Horn v. Abbott, 100 Neb. 403, 160 N. W. 104. 44 Gerner v. Mosher, 58 Neb. 135, 46 L. R. A. 244, 78 N. W. 384. 45 Arthur v. Griswold, 55 N. Y. 400; Weir v. Barnett, 3 Exch. Div. 32. 46 McFarland V. Carlsbad Hot Springs Sanitarium Co., 68 Ore. 530, Ann. Cas. 1915 C 555, 137 Pac. 209. 47 Ray County Sav. Bank v. Hutton, 224 Mo. 42, 123 S. W. 47. of the corporation, by which persons are induced to purchase stock of the corporation, and are thereby injured; and that the liability. extends to nonresident directors who take no part in issuing the false statements, but who are guilty of mere negligence in not giving attention to the management of the corporation. The liability was based, not on the ground of participation in the fraud, but on the ground of negligence.48 And in Texas it was held that a director cannot escape liability on the ground that he resided in a distant state, to the knowledge of the person loaning the money.49 In this case the following instruction was given: The court erred in failing and refusing to give in charge to the jury this defendant's special requested charge, which reads as follows, to wit: 'If you believe from the evidence that the stockholders of the Slayden-Kirksey Woolen Mill knew at the time of the election of W. J. Slayden as a director thereof from year to year from 1902 to 1911, inclusive, that said W. J. Slayden did not reside at Waco, but at a point, or points, remote from Waco, and that said W. J. Slayden was so situated that he could not personally discharge the duties of a director, and that he would not do so, and you further believe from the evidence that said W. J. Slayden did not attend directors' or stockholders' meetings after the year 1902, and that he did not participate, or profess to participate, in the management of said mill by the active directors thereof; and if you further believe that he did not participate in the preparation of the financial statement of said mill for the year 1909, and that he did not personally authorize the presentation of the same, as a basis for credit, and if you further find that he did not know of the presentation of the same to this plaintiff by S. F. Kirksey, Jr., or authorize or participate in the same, and if you further believe from the evidence that the plaintiff, through its managing officers, had notice that said Slayden did not live at Waco, and that the same or any other facts known to them, if any, was sufficient to put them, as reasonably prudent men, on inquiry as to the residence of said Slayden, and his nonparticipation in the active management of said mill -then you will find for the defendant W. J. Slayden on all the issues presented to you for determination by the court in the charge submitted to you herein." The court said: "It is wholly immaterial where appellant Slayden resided. He accepted and continued to exercise the duties and responsibilities of director of the corporation, and knowingly allowed himself to be held out to the public, including appellee, as one of the governing officers of the corporation, and the mere fact that appellee knew that he resided in New York would not authorize a finding that it was negligent in relying upon the assumption that he sanctioned the issuance of the financial statement made under his name and with the apparent approval of all of the directors. It is apparent, as contended by appellee, that the jury might have found every fact stated in the charge to be true, and yet said appellant would be liable upon the facts found by the jury, as there would have been no inconsistency in the two findings, and the refusal of the charge could not there The fact that directors knew of other transactions of its manager which were fraudulent, but did not discharge him, does not, it seems, make them personally liable for his fraud where they did not participate in it or have any knowledge of it.50 A party cannot be held liable for misrepresentation as a director where he was not such at the time the misrepresentation was made.51 Thus, a director cannot be held liable for false representations contained in the articles of association, which were made before he became a director.52 § 2548. - Contracting debt or receiving deposits with knowledge of insolvency. It is fraud for officers of a bank to permit a deposit when they know, or ought to know, that it is insolvent,53 since the fore be held prejudicial to the appellant." Cameron v. First Nat. Bank of Galveston, Tex. Civ. App. 194 S. W. 469. 50 Northern Codfish Co. v. Stiberg, 96 Wash. 126, 164 Pac. 750. 51 Warner v. Thompson, 104 N. Y. App. Div. 630, 93 N. Y. Supp. 1152. A complaint against directors for making false representations by which plaintiff was induced to buy stock should show that the defendants named were directors or were in some way responsible for the false representations. Viner v. James, 92 N. Y. App. Div. 542, 87 N. Y. Supp. 257. 52 Mabey v. Adams, 3 Bosw. (N. Y.) 346. 53 Delano v. Case, 121 Ill. 247, 2 Am. St. Rep. 81, 12 N. E. 676; Wolfe v. Simmons, 75 Miss. 539, 23 So. 586; Cassidy v. Uhlmann, 170 N. Y. 505, 63 N. E. 554, aff'g 54 N. Y. App. Div. 205, 66 N. Y. Supp. 670; Miller v. Howard, 95 Tenn. 407, 32 S. W. 305. A general depositor may sue directors for permitting the bank to be held out to the public as solvent when in fact it was at the time insolvent. Delano v. Case, 121 Ill. 247, 2 Am. St. Rep. 81, 12 N. E. 676, aff 'g 17 Ill. App.. 531. creditors, who become such at a time when the bank is insolvent but they hold it out at the same time as worthy of credit and appropriate its assets to their own advantage. Wolfe v. Simmons, 75 Miss. 539, 23 So. 586. Where deposits were alleged to have been received by a bank director, with knowledge, after the bank had become insolvent, the lower court gave instruction that there could not be recovery unless defendant director was guilty of bad faith "amounting to fraud." The court refused a request to charge that if the officers permitted deposits when aware of the insolvency of the bank, that this was fraud. The instruction and refusal were held erroneous. Nathan v. Uhlmann, 101 N. Y. App. Div. 388, 92 N. Y. Supp. 13. But it has been held that directors are not personally liable because they conceal from creditors the financial embarrassment of the bank, where not such as to imperatively demand suspension. Robinson v. Hall, 59 Fed. 648, 650, rev'd on other grounds 63 Fed. 222. That director may testify as to his belief as to the solvency of a bank when deposits were received, see Cassidy v. Uhlmann, 163 N. Y. 380, 79 So directors of a bank are liable to fact that a bank keeps its doors open and transacts business is a continuing assertion of its solvency; and depositors may hold the bank officers who are responsible for, or actively participate in, keeping the bank open, for the damages sustained thereby. Thus, they may hold a single director liable, where he had knowledge of the insolvency, according to what is deemed the better authorities; 54 although in one case in North Dakota it was held that the mere fact that a director who knows that the bank is insolvent, takes no steps to close the bank, or announce its insolvency, does not make him liable for deceit to persons extending credit after the bank became insolvent, on the assumption that it was solvent.55 Moreover, liability therefor is often expressly imposed by statute.56 In Minnesota, where a statute makes a felony the acceptance of deposits by bank officers when they know, or ought to know, that the bank is insolvent, it is held that directors are personally liable to depositors for deposits made when they knew that the bank was insolvent, and that the liability is not limited to the officer who actually accepts and receives the deposits.57 But the purchase of goods for an insolvent company by its manager does not make him personally liable for the price although he knew of the insolvency.58 § 2549. Declaration of unearned dividend. The creation of a fictitious market value for stock, by the declaration of an unearned dividend for the purpose of enabling the directors to dispose of their stock at the inflated value, is an actionable fraud upon any purchaser of the stock.59 Am. St. Rep. 596, 57 N. E. 620, rev'g on this ground 27 N. Y. App. Div. 80, 50 N. Y. Supp. 318. 54 Cassidy v. Uhlmann, 170 N. Y. 505, 63 N. E. 554. 55 Hart v. Evanson, 14 N. D. 570, 3 L. R. A. (N. S.) 438, 105 N. W. 942, holding that two of the essential elements of actionable deceit, i. e., wilful misrepresentation, and intent thereby. to induce another person to alter his position, were absent; and that duty, if any, to disclose the insolvency, was one, owing only to the corporation and not to third persons. 56 Dodge v. Mastin, 17 Fed. 660; IV Priv. Corp.-28 Forbes v. Mohr, 69 Kan. 342, 76 Pac. 827; Utley v. Hill, 155 Mo. 232, 49 L. R. A. 323, 78 Am. St. Rep. 569, 55 S. W. 1091; Cummings v. Winn, 89 Mo. 51, 14 S. W. 512; Eads v. Orcott, 79 Mo. App. 511; Fischer v. Tamm, 13 Mo. App. 108; Cummings v. Spaunhorst, 5 Mo. App. 21. See also § 2646, infra. 57 Baxter v. Coughlin, 70 Minn. 1, 72 N. W. 797. 58 North American Smelting Co. v. Temple, 12 Pa. Super. Ct. 99. 59 Zimmern v. Blount, 238 Fed. 740, 744. See also Chesbrough v. Woodworth, 195 Fed. 875, 883. |