acter were reported by the executive committee, when in fact no loans had been made, but the money was drawn to buy in shares of the corporation for the purpose of raising the price of its stock, are not to be held liable therefor merely on account of neglect to inquire whether the security for the pretended loans was good.' Conversely, directors who are actually implicated in a breach of trust in misapplying the corporate funds are jointly and severally liable therefor, although they only sign checks prepared by others. Only those directors are liable that were in office at the time the fraudulent acts were committed. But those have been held liable who knew of the breach of trust and took no steps to prevent it, beyond writing a letter of disapproval.

5

§ 255. To whom liable(a) In general.- Directors are responsible to those only to whom they owe the duty of diligence. Thus from the fiduciary relation which directors hold to the corporation, to its stockholders and creditors they are liable either to the corporation, or in a proper case to the shareholders or creditors for a fraudulent breach of trust or misapplication of corporate funds, whereby a loss or injury results to the corporate assets. They are responsible to the corporation itself either at law or in equity; for they are its agents and trustees. For wasting the assets of the corporation and rendering the shares worthless, a shareholder can

22 Lindley on Partnership, 595; Land Credit Co. v. Fermoy, L. R. 5 Ch. 763.

1 Land Credit Co. v. Fermoy, L. R. Paige Ch. 222; s. c. 24 Am. Dec. 5 Ch. 763. 212; Bank of St. Marys v. St. John, 25 Ala. 611; Smith v. Poor, 40 Me. 415; Peabody v. Flint, 6 Allen, 56; Citizens' Loan Assoc. v. Lyon, 29 N. J. Eq. 110; Att'y-Gen. v. Utica Ins. Co., 2 Johns. Ch. 389; Cunningham v. Pell, 5 Paige, 607; Greaves v. Gonge, 69 N. Y. 154; Spering's Appeal, 71 Pa. St. 11; Hazard v. Durant, 11 R. I. 195; Shea v. Mabry, 1 Lea, 319.

3 Schley v. Dixon, 24 Ga. 273, 279; Bank of Mutual Redemption v. Hill, 56 Me. 385.

42 Lindley on Partnership, 595, citing Joint Stock Discount Co. v. Brown, L. R. 8 Eq. 381.

56 So. L. Rev. 389.

6 Angell & Ames on Corp. § 314; Charitable Corp. v. Sutton, 2 Atk. 400; Kohler v. Black River &c. Co., 2 Black, 721; Gindrat v. Dane, 4 Cliff. 260; Robinson v. Smith, 3

7 Godbold v. Branch Bank of Mobile, 11 Ala. 191; Simons v. Vulcan Oil & Min. Co., 61 Pa. St. 20; Spering's Appeal, 71 Pa. St. 11.

not sue the directors at law, for the duty of the director is to the corporation and not to the shareholder. In the case of the shareholder, it is a matter of trust not cognizable at law.? Directors are not liable to creditors at law or in equity without the aid of a statute.3 The directors of a bank have been held to be trustees for depositors and bound to the observance of ordinary care and diligence and liable to a general depos itor for their non-observance. In an action to enforce an equitable lien against a corporation, no fraud being charged against the directors nor relief sought from them, it was held that they could not be joined with the corporation as defendants. And in cases in which the directors or other officers and agents of a corporation are made co-defendants, a decree for an injunction and accounting will not issue against them

1 Smith v. Hurd, 12 Metc. 371.

Smith v. Poor, 40 Me. 415; Allen v. Curtis, 26 Conn. 456; Faurie v. Millaudon, 3 Mart. N. S. 476. But Kimmel v. Stoner, 18 Pa. St. 155, holds otherwise.

36 So. L. J. 390. Under a provision in the charter of a trust company, that the "directors shall be liable to the creditors and stockholders "for loss occasioned by remissness in the discharge of their official duties, a creditor can not maintain a suit at law, but must bring a bill in equity. Crown v. Brainerd, (1884) 57 Vt. 625.

from directors for negligence in allowing a bank to be held out as solv. ent. Delano v. Case, (1887) 121 Ill. 247; s. c. 2 Am. St. Rep. 81. It may be said as Judge Thompson, in 6 So. L. Rev. p. 390, says, there are American cases in which directors of a savings bank have been held liable to depositors in equity for negligence; (Maisch v. Saving Fund, 5 Phila. 30; Leffman v. Flanigan, 5 Phila. 155) but as the plan on which the corporation was organized is not set out in the reports, we are left at liberty to conclude that it may have been similar to that of a mutual insurance company, the depositors being members. There is also a case where directors were held liable for negligence in suffering the ministe rial officials of a corporation to convert to the use of a corporation certain special deposits; (United Society of Shakers v. Underwood, 9 Bush, 609; s. c. 13 Am. L. Reg. (N. S.) 211) but the case, so far as we know, stands alone, and can not be supported upon principle.

♦ Delano v. Case, (1887) 121 Ill. 247; s. c. 2 Am. St. Rep. 81. The court in this case cited and relied on Percy v. Millaudon, 8 Mart. N. S. 68; United Society of Shakers v. Underwood, 9 Bush, 609; Morse on Banks and Banking, (2nd ed.) 133; Thompson on Liability of Officers and Agents, 395; Shea v. Mabry, 1 Lea, 319; Hodges v. New England Screw Company, 1 R. I. 312: Wharton on Negligence, § 510. Two judges dissented. In the principal case it was 5 Norwood v. Memphis & Charlesheld that depositors may recover ton R. Co., (1883) 72 Ala. 563.

individually where the corporation is solvent, and where they have not as individuals violated, and are not threatening to violate, any rights of the complainant.1

§ 256. (b) To the corporation. It can hardly be said that there is an exception to the doctrine that for any breach of official duty, through which a private corporation suffers, it may recover in an action for such default against its directors or officers. Even where there is no remedy in favor of individual members or creditors of the corporation against defaulting officers or unfaithful trustees, one will be found to exist in favor of the company itself. And where there is no remedy provided by statute in the first instance in favor of individual members or creditors of the corporation against officers or directors for breaches of official duty, an action for any infringement of the rights of the corporation lies primarily in favor of the corporate body. And generally the failure or refusal of the corporation itself to demand redress is a condition precedent to the right of the shareholders to sue or to appear as plaintiffs. A stockholder can not sue an officer for injury to corporation property, caused by his misfeasance in office, unless the corporation refuses to sue, and in that case the corporation must be made a party defendant. Suit may be brought by stockholders, however, when demand upon the cor

1 Howard v. St. Paul Plow-Works, (1888) 35 Fed. Rep. 743.

2 W. P. Wade in 6 So. L. Rev. 164, citing Smith v. Poor, 40 Me. 415; Smith v. Hurd, 12 Metc. 371; Hensey v. Veazie, 24 Me. 9.

36 So. L. Rev. 161; Wilson v. Rogers, 1 Wyom. 51; Abbott v. Merriam, 8 Cush. 588; Ryan v. Leavenworth &c. R. Co., 21 Kan. 365; Denny v. Manhattan Co., 2 Den. 115; United Soc. v. Underwood, 9 Bush, 609; s. c. 15 Am. Rep. 731; Stevens v. Davidson, 18 Gratt. 819; s. c. 98 Am. Dec. 692; Amisiana v. Goldthwaite, 34 Tex. 125; Bedford R. Co. v. Bowser, 48 Pa. St. 29; Citizens' Building Assoc. v. Coriell, 34 N. J.

Eq. 383; Williams v. Riley 84 N. J. Eq. 398; Oakland Bank v. Wilcox, 30 Cal. 126.

4 Kennebec &c. R. Co. v. Portland &c. R. Co. 54 Me. 73, 181; Hersey v. Veazey, 24 Me. 9; Greaves v. Gonge, 69 N. Y. 154; Memphis City v. Dean, 8 Wall. 64, 73; Dodge v. Woolsey, 18 How. 331, 345; Brewer v. Boston Theater, 104 Mass. 378.

5 Code Civil Proc. N. Y. § 452, providing that the court may determine the controversy, as between the parties, where it can do so without prejudice to the rights of others, or by saving their rights, does not apply. Nor does section 1782, allowing a creditor, trustee, director, manager,

3

not sue the directors at law, for the duty of the director is to the corporation and not to the shareholder. In the case of the shareholder, it is a matter of trust not cognizable at law.2 Directors are not liable to creditors at law or in equity without the aid of a statute. The directors of a bank have been held to be trustees for depositors and bound to the observance of ordinary care and diligence and liable to a general depositor for their non-observance. In an action to enforce an equitable lien against a corporation, no fraud being charged against the directors nor relief sought from them, it was held that they could not be joined with the corporation as defendants. And in cases in which the directors or other officers and agents of a corporation are made co-defendants, a decree for an injunction and accounting will not issue against them

1 Smith v. Hurd, 12 Metc. 371. Smith v. Poor, 40 Me. 415; Allen v. Curtis, 26 Conn. 456; Faurie v. Millaudon, 3 Mart. N. S. 476. But Kimmel v. Stoner, 18 Pa. St. 155, holds otherwise.

36 So. L. J. 390. Under a provision in the charter of a trust company, that the "directors shall be liable to the creditors and stockholders" for loss occasioned by remissness in the discharge of their official duties, a creditor can not maintain a suit at law, but must bring a bill in equity. Crown v. Brainerd, (1884) 57 Vt. 625.

from directors for negligence in allowing a bank to be held out as solv. ent. Delano v. Case, (1887) 121 Ill. 247; s. c. 2 Am. St. Rep. 81. It may be said as Judge Thompson, in 6 So. L. Rev. p. 390, says, there are American cases in which directors of a savings bank have been held liable to depositors in equity for negligence; (Maisch v. Saving Fund, 5 Phila. 30; Leffman v. Flanigan, 5 Phila. 155) but as the plan on which the corporation was organized is not set out in the reports, we are left at liberty to conclude that it may have been similar to that of a mutual insurance company, the depositors being members. There is also a case where directors were held liable for negligence in suffering the ministerial officials of a corporation to convert to the use of a corporation certain special deposits; (United Society of Shakers v. Underwood, 9 Bush, 609; s. c. 13 Am. L. Reg. (N. S.) 211) but the case, so far as we know, stands alone, and can not be supported upon principle.

Delano v. Case, (1887) 121 Ill. 247; s. c. 2 Am. St. Rep. 81. The court in this case cited and relied on Percy v. Millaudon, 8 Mart. N. S. 68; United Society of Shakers v. Underwood, 9 Bush, 609; Morse on Banks and Banking, (2nd ed.) 133; Thompson on Liability of Officers and Agents, 395; Shea v. Mabry, 1 Lea, 319; Hodges v. New England Screw Company, 1 R. I. 312; Wharton on Negligence, § 510. Two judges dissented. In the principal case it was 5 Norwood v. Memphis & Charlesheld that depositors may recover ton R. Co., (1883) 72 Ala. 563.

individually where the corporation is solvent, and where they have not as individuals violated, and are not threatening to violate, any rights of the complainant.1

§ 256. (b) To the corporation. It can hardly be said that there is an exception to the doctrine that for any breach of official duty, through which a private corporation suffers, it may recover in an action for such default against its directors or officers. Even where there is no remedy in favor of individual members or creditors of the corporation against defaulting officers or unfaithful trustees, one will be found to exist in favor of the company itself. And where there is no remedy provided by statute in the first instance in favor of individual members or creditors of the corporation against officers or directors for breaches of official duty, an action for any infringement of the rights of the corporation lies primarily in favor of the corporate body. And generally the failure or refusal of the corporation itself to demand redress is a condition precedent to the right of the shareholders to sue or to appear as plaintiffs. A stockholder can not sue an officer for injury to corporation property, caused by his misfeasance in office, unless the corporation refuses to sue, and in that case the corporation must be made a party defendant." Suit may be brought by stockholders, however, when demand upon the cor

1 Howard v. St. Paul Plow-Works, (1888) 35 Fed. Rep. 743.

2 W. P. Wade in 6 So. L. Rev. 164, citing Smith v. Poor, 40 Me. 415; Smith v. Hurd, 12 Metc. 371; Hensey v. Veazie, 24 Me. 9.

36 So. L. Rev. 161; Wilson v. Rogers, 1 Wyom. 51; Abbott v. Merriam, 8 Cush. 588; Ryan v. Leavenworth &c. R. Co., 21 Kan. 365; Denny v. Manhattan Co., 2 Den. 115; United Soc. v. Underwood, 9 Bush, 609; s. c. 15 Am. Rep. 731; Stevens v. Davidson, 18 Gratt. 819; s. c. 98 Am. Dec. 692; Amisiana v. Goldthwaite, 34 Tex. 125; Bedford R. Co. v. Bowser, 48 Pa. St. 29; Citizens' Building Assoc. v. Coriell, 34 N. J.

Eq. 383; Williams v. Riley 34 N. J. Eq. 398; Oakland Bank v. Wilcox, 30 Cal. 126.

4 Kennebec &c. R. Co. v. Portland &c. R. Co. 54 Me. 73, 181; Hersey v. Veazey, 24 Me. 9; Greaves v. Gonge, 69 N. Y. 154; Memphis City v. Dean, 8 Wall. 64, 73; Dodge v. Woolsey, 18 How., 331, 345; Brewer v. Boston Theater, 104 Mass. 378.

5 Code Civil Proc. N. Y. § 452, providing that the court may determine the controversy, as between the parties, where it can do so without prejudice to the rights of others, or by saving their rights, does not apply. Nor does section 1782, allowing a creditor, trustee, director, manager,