holder. As a general rule there is no wrong or fraud which directors of a company can commit which can not be redressed by appropriate and adequate remedies. But a complaint by stockholders against the directors of a ditch and canal company, which alleges that the company "is incorporated under and by virtue of the laws of the state of California" for the purpose of constructing a water-ditch for irrigating purposes, and that defendants have fraudulently distributed the water gratuitously, without alleging that the corporation was ganized for profit or for the purpose of selling water, does not state a cause of action, since it shows no misconduct on the part of defendants." orf § 251. Liability upon contracts.-The liability of directors upon contracts entered into on behalf of the company is governed by the same principles as that of other officers. The common law as to them on this point is declared in the English Companies Clauses Act of 1845, which enacts that no director, by being party to or executing in his capacity of director any contract or other instrument on behalf of the company, or otherwise lawfully executing any of the powers given to the directors, shall be subject to be sued or prosecuted, either individually or collectively, by any person whomsoever, and the bodies or goods or lands of the directors shall not be liable to execution of any legal process by reason of any contract or other instrument so entered into, signed, or executed by them, or by reason of any other lawful act done by them in the execution of any of their powers as directors. Being agents and trustees, the directors are entitled to be indemnified by the company from all losses and expenses in good faith sustained and incurred by them in the exercise of the trust imposed on them. There is considerable conflict on the 1 Halstead v. Dodge, (1884) 51 N. Y. re Court Grange Manuf. Co., 2 Jur. Supr. Ct. 169. N. S. 494. This rule is enacted by the Companies Clauses Act of 1845, which provides that the directors, their heirs, executors and adminis 2 Cross v. Sackett, 16 How. Pr. 62; Robinson v. Smith, 3 Paige, Ch. 222; s. c. 24 Am. Dec. 216. 3 Applegarth v. McQuiddy, (1888) trators, shall be indemnified out of 77 Cal. 408. 48 Vict. ch. 16, § 100. the capital of the company for all payments made or liability incurred 52 Lindley on Partnership, 760; In in respect of ary acts done by them, question as to whether directors and agents are entitled to any indemnity from the corporation in respect of unauthorized expenditures.1 $252. Mistakes of law.-Mistakes of law will not render the directors liable for a loss resulting therefrom, if they act with reasonable care and diligence and in good faith, even though they might have avoided such mistakes by taking legal advice. Thus in a Tennessee case, the directors of an insurance company re-elected their secretary, but took no new bond, supposing that the bond first given was a continuing security. They took no legal advice, but in other respects. were good business men and stockholders in the company. It was held that as they acted in good faith they could not be made personally liable for the secretary's defalcation. In another case, the managers of a building and loan association. were held not to be personally liable for losses resulting from an honest mistake in estimating the value of stockholders' lands on which they lent money, nor for a defect in the acknowledgment of a mortgage, which rendered it worthless. But they were held liable for losses from loans made on personal security of the stockholders, in violation of a by-law limiting the amount of such loans. § 253. Frauds, misrepresentations and torts.- An agent is personally liable to third persons for his own misfeasances and for all losses, costs and damages which they may incur in the execution of the powers granted to them; and the directors for the time being of the company may apply the existing funds and capital of the company for the purposes of such indemnity, and may, if necessary for that purpose, make calls of the capital remaining unpaid, if any. 8 Vict. ch. 16, § 100. 1 One line of cases holds that they are not: In re National Building Soc., L. R. 5 Ch. 309; In re Worcester Corn Exchange Co., 8 De Gex, M. & G. 180; Ex parte Cropper, 1 De Gex, M. & G. 147. Cf. 2 Lindley on Partnership, 765. And on the contrary it has been held that they were: Ex parte Chippendale, 4 De Gex, M. & G. 19, followed by Hoare's Case, 30 Beav. 225: Troup's Case. 29 Beav. 353; Baker's Case, 1 Drew. & S. 54; Ex parte Bignold, 22 Beav. 143. 2 Vance v. Phoenix Ins. Co., 4 Lea, 385. 3 Vance v. Phoenix Ins. Co., (1881) 4 Lea, 385. 4 Citizens' Building &c. Assoc. v. Coriell, (1881) 34 N. J. Eq. 883. and positive wrongs, but he is not in general liable to them for mere non-feasance or omissions of duty in the course of his employment. His liability in these cases is solely to his principal, there being no privity between him and outsiders. The party injured must in the latter event look to the principal. Such is the general doctrine of respondeat superior!' These familiar principles applicable in the case of positive torts committed by servants and ordinary agents must be applied to the misfeasances of directors also. It has never been held that "the actual active perpetration of a wrong to the rights or property of another can find protection under the charter of a corporation any more than in the command or authority of a natural superior." Directors of a corporation, in the management of its affairs, are the power which gives expression to its will, but it is no part of their duty to perpe 1 Kent's Com. (10th ed.) 878; Parson's Contracts, (5th ed.) 66; 1 Blackstone's Com. 413. 2 Salmon v. Richardson, (1862) 30 Conn. 360; s. c. 79 Am. Dec. 255, 258. Directors are individually responsible for intentionally issuing spurious stock and securing loans thereon, nor is it necessary to bring an action first against the corporation, and the existence of the corporation does not come into issue. Exchange Bank v. Sibley, 71 Ga. 726. In a late case the trustees issued stock in payment for property, which was worth much more than the par value of the stock, to one who sold it for several times its par value; the trustees not being in any way interested in the transaction, except to authorize the issue. They also, in good faith, conveyed all of the property of the corporation to another corporation, which transfer was authorized and ratified by a large majority of the stockholders. No case was shown for the interference of the court. People v. Ballard, (1889) 3 N. Y. Supl. 845. Conn. 360; s. c. 79 Am. Dec. 255, 258. Damages may be recovered against the directors of a corporation, who have placed in the hands of an agent for sale bonds indorsed falsely and intentionally "first mortgage bonds," by bona fide purchasers who have been injured by relying on the indorsement. Clark v. Edgar, 84 Mo. 106; s. c. 54 Am. Rep. 84. That the action is in tort against an officer who acted on his own responsibility in alienating corporation property, and signed the instrument individually, and not as trustee, does not alter his liability, as whatever damage plaintiff sustained was caused by defendant acting officially,. and if he was not acting officially his act was nugatory. Stronmeyer v. Combes, (1888) 18 N. Y. St. Rep. 154. The president of a company. which is a common carrier of persons, is personally able for the ejectment and injury of persons. whom he has ordered to be excluded, a class, from carriage, even though an action might lie against the company also. Peck v. Cooper. as 3 Salmon v. Richardson, (1862) 30 112 Ill. 192; s. c. 54 Am. Rep. 231. trate crimes or frauds in its name or for its benefit; and whatever the liability of the corporation may be, the individuals who, under cover of their office, commit these frauds, ought to be and are, upon the clearest principles of law and justice, accountable for their conduct in a civil action at the suit of the injured party. Thus misrepresentations by directors as to some material matter unknown to the injured party, relied upon by him, and such as to induce him to refrain from an examination of the records when accessible, are a fraud which will render them liable to the person injured.2 Directors who enter into contracts which they have power to make in a certain way, impliedly represent that the necessary steps have been taken, and may be made personally liable if they have not perfected their powers. Thus, directors borrowing money 1 Salmon v. Richardson, (1862) 30 Conn. 360; s. c. 79 Am. Dec. 255, 257, per Sanford, J.; Clark v. Edgar, 84 Mo. 106; s. c. 54 Am. Rep. 84; Peck v. Cooper, 112 Ill. 192; s. c. 54 Am. Rep. 231; Robinson v. Smith, 3 Paige Ch. 222; s. c. 24 Am. Dec. 212; Hodges v. New England Screw Co., 1 R. I. 312; s. c. 53 Am. Dec. 624; Bolz v. Ridder, 12 Daly, 329; Exchange Bank v. Sibley, 71 Ga. 726; Wyandotte v. Corrigan, 35 Kan. 21; Peck v. Gurney, L. R. 6 H. L. 377. 2 Clark v. Edgar, (1884) 84 Mo. 106; s. c. 54 Am. Rep. 84, 86, where Black, J., said further that "the fact that this information was at hand and could have been ascertained by an inspection of the records, is entitled to its weight in determining whether the representations were such as would impose on one of ordinary prudence, but it does not constitute a full answer to the charges made in the petition." Where the capital stock of a corporation is not paid, but directors represent that it is fully paid up, and plaintiff, relying on such representation, purchases the note of such corporation, the lia bility of the directors must be determined in an action of deceit, and they can not be joined as defendants in an action to recover of the makers and indorsers of the note and others liable for its payment. National Bank v. Texas Investment Co., (1889) 74 Tex. 421. Where directors, who had no power to bind the company, stated to a bank that the manager had authority to draw checks on account of the company, they were held personally liable to repay the bank. Browne & Theobald's Railway Law, 110, citing Cherry v. Colonial Bank, L. R. 3 P. C. 24, where the account of the company was overdrawn to the knowledge of the directors. But instructions given by directors to the bankers of the company to honor its checks drawn in a certain manner, at a time when there was a balance at the bank in its favor, have been held not to impose any liability upon the directors to repay checks subsequently drawn upon the bank when the account of the company was overdrawn. Beattie v. Lord Ebury, L. R. 7 H. L. 102. Browne & Theobald's Railway Law, 110; Lakeman v. Mountstephen, after the company's powers are exhausted, impliedly represent that they have power to borrow, and may be made personally liable.1 § 254. Joint and several liability. Each director is answerable only for his own acts and not for those of his associates. Nor is he responsible for those of his predecessors, unless he continue the same default begun by them. Therefore in order to charge directors with joint liability it must be shown that they acted together as a board. A director is of course not liable for a breach of trust or improvident act committed by his co-directors, when he was not present when it was decided upon, took no part in it and had no knowledge of it, unless it appears that he might have prevented it by ordinary attention to his duties. For directors are not partners nor guarantors of each other's conduct; but where all concur in a wrongful act forbidden by a statute or are guilty of neg lecting some duty enjoined by it, all may be proceeded against in one action, just as several joint-feasors may. So those who know of and sanction a breach of trust, although not actively taking part therein, are equally liable.' Directors present at a meeting when certain loans not unusual in amount or char L. R. 7 H. L. 17; Beattie v. Lord Browne & Theobald's Railway 2 Cargill v. Bower, 10 Ch. Div. 302; Hargraves v. Chambers, 30 Ga. 580, 590; McMaster v. Kohner, 12 Jones & S. 253; Irvine v. McKeon, 23 Cal. 472; Weir v. Bell, 3 Ex. Div. 238; Weir v. Barnett, 3 Ex. Div. 32. But the contrary has been held under a particular statute in Georgia. Banks v. Darden, 18 Ga. 318, 334. Thus directors failing to account for prof its improperly received by them, are only severally liable each for his own receipts. Parker v. McKenna, L. R. 10 Ch. 96; General Exchange Bank v. Horner, L. R. 9 Eq. 180. 3 Moses v. Ocoee Bank, 1 Lea, 398. 4 Franklin Ins. Co. v. Jenkins, 3 Wend. 130. 5 Spering's Appeal, 71 Pa. St. 11; Ashhurst v. Mason, L. R. 20 Eq. 225; In re Montrotier Asphalt Co., 34 L. T. N. S. 716; Maisch v. Saving Fund, 5 Phila. 30; Cargill v. Bower, lù Ch. Div. 502; Joint Stock Discount Co. v. Brown, L. R. 8 Eq. 381. Cf. Lindley on Partnership, 596. 66 So. L. Rev. 411. Article by S. D. Thompson. 7 Land Credit Co. v. Fermoy, L. R. 5 Ch. 763; 2 Lindley on Partnership, 595. |