President of Bank of Mutual Redemption v. Hill

Appleton, C. J. By R. S., 1857, c. 47, § 43, "those directors, by whose- official mismanagement a loss or deficiency of capital stock occurs, shall be liable therefor in their individual capacity,” &c. By § 47, " a creditor of a bank suffering loss as described in section forty-three, or a holder of unredeemed bills, as described in section forty-six, * * may avail himself of the liability of the directors and stockholders, as described in said sections, by a bill in equity.” By section 76, it is provided that the liability of directors and stockholders shall not be increased nor diminished by the other sections of c. 47 than those above recited. There is no question that the plaintiffs were creditors of the Sanford Bank for $6890,51. The respondents were chosen directors for the year 1861. Of those so chosen, Justin B. Merrill has not acted as such director, and is not responsible for the mismanagement of the bank. Oliver Hill has not answered, and as to him the bill is to be taken pro confesso. The statute makes the directors liable for " official mismanagement.” The persons who become directors of a corporation, place themselves in the situation of trustees. "In the civil law,” observes McCoun, V. C., in Scott v. Depeyster, 1 Edwards’ Ch. R., 547, "a rule prevails, which, I think, may, with great propriety, be applied here. It is this, that ' those who are named by companies and corporations, to have the direction of their affairs, are obliged to take the same care and diligence as factors or agents. They are answerable, not only for any fraud and gross negligence which they may be guilty of, but also for all faults that are contrary to the care required of them.’ Domat, 132, tit. 3, §2. * * The rule there is, that they must answer for ordinary neglect; and ordinary neglect is understood to be the [389] omission of that care which every mail of common prudence takes of his own concerns.” From an examination of the evidence, which is very voluminous, it fully appears that the directors discounted on a pledge of stock, — against the provisions of section 14; and that they loaned upon names utterly irresponsible, —as upon those of day laborers and clerks,—persons bankrupt in property. Indeed, it is difficult to imagine a more worthless set of notes and drafts, or a more uniform, continued, and flagrant disregard of the statutes of the State, and of the principles of common prudence than these directors have shown in the management of the bank. If they knew the character of the paper discounted, and its utter worthlessness, they were guilty of gross fraud upon the stockholders in discounting such paper. If they did not know its character, they were guilty of gross neglect in not making the inquiries, which they were bound officially to make. But the directors for the year are only responsible for the official mismanagement occurring during the year for which they were so chosen. They cannot be liable for the mismanagement of the directors of a preceding year. It follows, from this, that when the discounts are but the renewals of those of preceding years, that, if the notes or bills renewed were entirely worthless, their renewal could not have been productive of loss to the bank. But a careful examination of the discounts shows that the directors are responsible for an amount exceeding the plaintiffs’ claim. Bill sustained as against all but Justin B. Merrill, who is entitled, to his costs, and a decree must be entered against the other respondents. Walton, Dickerson, Barrows and Daneorth, JJ., concurred. Kent, J., concurred in the result.