first been obtained in the State enacting them. A judgment obtained under these laws merges all right of action of such creditor against the officer as a stockholder of the corporation. In a suit to enforce the penalty under the Massachusetts act, which makes the directors of a corporation personally liable for the corporate indebtedness, where the certificate as to the condition of the corporation is false, it must appear that the statements in the certificate were willfully made, with a purpose to deceive.3 261. For failure to make reports. There are statutes in some of the American States which subject the directors to personal liability for the debts of the corporation by way of penalty for failure to make annual reports. This annual Attrill v. Huntington, (1889) 70 Md. 191. 4 N. Y. Laws of 1890, ch. 564, § 30; N. Y. Laws 1848, ch. 40; 1875, 2 Attrill v. Huntington, (1889) 70 ch. 611; Chase v. Curtis, 113 U. S. Md. 191. 3 Felker v. Standard Yarn Co., (1890) 148 Mass. 226, construing Mass. Pub. Stat. ch. 106, § 60. In an action to recover from the trustee of a corporation the amount of a debt due the plaintiff on the ground that the defendant had been guilty of actual falsehood, in that he had signed a report required by the New York Manufacturer's Act of 1848, which stated that the capital of the corporation had been fully paid in, while in fact the defendant knew that the whole stock had been issued to one of the incorporators in payment of lands bought by him from another corporation, and by him conveyed to the defendant's company at a grossly exaggerated price, the books of the two companies are admissible in evidence, not only to prove the corporate acts of the companies, but also for the purpose of proving the defendant's knowledge of the circumstances under which the stock was issued. Blake v. Griswold, (1877) 103 N. Y. 429. 452. New York Laws, 1875, ch. 510, repeals 1848, ch. 40, § 12, and relieves the trustee of a manufactur. ing corporation from liability for its debts for failing to file the report, and it was so held as to failure to file the report due January, 1875. Victory Web Printing &c. Co. v. Beecher, (1881) 26 Hun, 48. Laws N. Y. 1848, ch. 40, § 12, provided that every corporation organized under that act should annually, within 20 days from the 1st day of January, make, publish, and file a verified financial report, and for a failure so to do imposed a joint and several liability upon all the trustees for all existing debts. This act was so amended by Laws 1875, ch. 510, in regard to preceding cases, as to require only that the report should be made within 20 days from the 1st of January of the year following the January of the year in which the company was incorporated; the word "annually" being omitted. The company of which defendant was trustee in January, 1867, was incorporated in 1865. It was held that by statement must be made without regard to whether there was or was not a stockholders' meeting. The fact that it is not actually filed within the twenty days, although made within that time, is immaterial if it is filed within a reasonable time.? An annual report of a corporation signed by two only of seven trustees is insufficient to satisfy the requirement of the law that a majority must sign the report. Only those in office at the time fixed for the statement were liable for failure to make it.1 6 § 262. For acts of appointees. It is a rule in the law of agency that an agent is not liable for the wrongs committed by a subordinate agent appointed and controlled by him, unless he authorized the wrong or participated in it. So ordinarily, directors are not liable for the misfeasance of officers and agents appointed and selected by them with due care, except such wrong-doing is in some way due to an omission of duty on the part of the directors. They are not sureties omitting the word "annually" shall be jointly and severally liable from the act of 1848, no liability was for all the debts of the company that left upon defendant, in a suit com- shall be contracted during the year menced after the passage of the act next preceding the time when such of 1875, for an omission to make, report should ... have been publish, and file a report in January, made and filed, and until such re1867; it not being shown that such port shall be made." Austin v. Berreport was not duly made in 1866. lin, (Colo. 1889) 22 Pacif. Rep. 433. Carr v. Risher, (1888) 50 Hun, 147. And the directors were made defendants because of their failure to comply with the statute requiring the publication of the articles of association, and it was held, that they were liable only for breaches within the time covered by their neglect to comply with the statute, and not for damages occasioned by the non-fulfilment of the contract. Cady v. Sanford, 53 Vt. 632. 1 Cooke v. Pearce, 23 S. C. 239. Pr. 204; s. c. 12 Daly, 450. 4 State v. Cox, (1883) 88 Ind. 254; Austin v. Berlin, (1889) 22 Pacif. Rep. 433, where the decision was that the directors of a corporation, whose terms of office began after an indebtedness had been created against the corporation, and after default had been made by the previous board in failing to file, as required by law, a report showing the amount of the corporate indebtedness, are not liable under Gen. St. Colo. $252, which provides "that all the directors or trustees of the company 5 Thompson on Liability of Officers and Agents, 355. 6 Batchelor v. Planters' National Bank, 78 Ky. 435, 446; Batcheller v. Pinkham, 68 Me. 253; Bath v. Caton, 37 Mich. 199; Hewitt v. Swift, 3 Allen, 420; Nicholson v. Mounsey, 15 East, 384; Stone v. Cartright, 6 2 to the corporation or its stockholders for the fidelity of a secretary or other subordinate officer appointed by them, so as to be liable for his embezzlement or defalcations, if they have acted prudently and in good faith, and had no knowledge that he was untrustworthy.' Directors of a bank, by the same rule, are not liable for the dishonesty or negligence of the bank cashier, or other bank officers, when they themselves are guilty of no negligence or dishonesty. The directors of a bank who receive no compensation for their services are not personally liable for the defalcations of their fellow director whom they have chosen as cashier, teller and bookkeeper of the bank, with no reason to suspect his fidelity to its interests, and whose past life as a business man, so far as known, was a guaranty of his honesty and capacity, and whose experience in banking, personal and financial character for integrity commended him to all business men as well quali fied for the position. But where directors sanction a breach of trust by a subordinate officer, or by negligence or inattention enable him to divert corporate funds, they will no doubt be liable. Circumstances may exist which will charge the directors, although they did not know of the fraud at the time it was committed, as where the directors personally and knowingly derived a benefit from the fraud, in which case the subordinate agents who committed the fraud become in a sense the agents of the directors. So where they remove Term Rep. 411. Cf. Weir v. Bell, Cargill v. Bower, 10 Ch. Div. 502; 3 Ex. Div. 238. Weir v. Barnett, 3 Ex. Div. 32; Weir v. Bell, 3 Ex. Div. 238. 1 Scott v. De Peyster, 1 Edw. Ch. 513. 2 Shering's Appeal, 71 Pa. St. 11; Godbold v. Bank of Mobile, 11 Ala. 191. Cf. United Soc. v. Underwood, 9 Bush, 609. 3 Savings Bank v. Caperton, (1888) 87 Ky. 306. In this case it was said the directors ordinarily need do no more than to see that his daily, weekly or monthly statements correspond with the general balance upon the books of the bank. 4 Angell & Ames on Corp., § 334; Att'y-Gen. v. Leicester, 7 Beav. 176; 5 As in a case where directors authorized brokers to issue a prospectus for the purpose of borrowing debentures, and the brokers issued a prospectus containing fraudulent statements, a director who was abroad at the time the prospectus was issued, and knew nothing of its contents, was held not liable. And one who received no personal benefit from the transaction was also held not liable. Weir v. Bell, 3 Ex. Div. 238; Browne & Theobald's Ry. Law, 110. The law on this point, say safeguards which the by-laws throw around such subordinate officer, and permit him and his assistants to act as brokers for persons borrowing money of the corporation, and to become borrowers themselves without adequate security, and by these and other acts the funds of the corporation are wasted.1 66 § 263. How liability is fixed.-- To constitute "assent" to the debt which the statute makes the ground of liability there must be something more than mere negligence on part of a director in not knowing what, in the exercise of proper care, he ought to have known. There must be some wilful or in· tentional violation of duty, assenting to it, knowing that the act is being, or about to be, done. But if, with such knowledge, he neither objects to nor opposes it when his duty requires, and when he has the opportunity of doing so, this is assent." 2 But an assent on the part of a trustee to contracting a debt in excess of the capital stock of a corporation is not implied by his neglect to enter his protest against it upon being informed thereof after it has been incurred. Neither can an assent be implied on the part of those trustees who are never present at the meetings, are never conferred with, and never take a more active part in the administration of the trust than to affix their signatures to the yearly reports. In an action to charge a trustee of a manufacturing corporation, organized under the New York statute, with its debts, be Browne and Theobald, is, perhaps, open to reconsideration, and it may be doubted whether the better opinion is not that a director who delegates his duty to another person is bound to see that no fraud is committed in carrying out the duty; so that, for instance, a director who authorizes brokers to issue a prospectus would be liable for a fraudulent statement contained therein. Browne & Theobald's Ry. Law, 110, citing Weir v. Bell, 3 Ex. Div. 328, Judgment of Cotton, L. J., and Peek v. Gurney, (Barclay's Case) L. R. 6 H. L. 377, p. 392. 1 Charitable Corp. v. Sutton, 2 Atk. 400. 2 Patterson v. Minnesota Manufg. Co., (1889) 41 Minn. 84; 42 N. W. 926. 3 Patterson v. Robinson, 36 Hun, 622; s. c. 116 N. Y. 193. 4 Patterson v. Robinson, 36 Hun, 622. It was decided that the following was evidence showing that the defendants assented to incurring the debt for the machinery mentioned: While defendants were directors, and both present at a meeting, an order was made authorizing one of the directors to buy machinery in the company's name, provided that two of the directors named were to "hold the company harmless." Defendants claimed that the action of cause of the failure to file a report, the trustee is not bound by a judgment obtained against the corporation.' Nor can such a debt be proved by the judgment roll in the action against the corporation. Whether the corporation belongs Where such to the class requiring such statement, is to be determined from its charter. A party, holding himself out as trustee, may be liable, even though it appear that he was never duly chosen, and that he owned no stock in the corporation. a law has been repealed, and when the corporation was organized prior to the repeal, the directors are not liable for a debt contracted after such repeal. These acts should be limited to debts to creditors to whom such excess is owing. The stat ute being mandatory as to the time when the account is to be made and posted, the penalty attaches on the failure to do so on the first Monday in the month; and a complaining stockholder may recover for the failure, though the account is made and posted before the beginning of the action. the board was in fact that said two directors should purchase the machinery on their credit, and, if it proved satisfactory, they were to receive a royalty from the company for its use. One of the defendants made an admission contradicting this theory. There was also proof that, though defendants at first objected, on the agreement of said two directors to pay for the machinery, they assented. The machinery was shipped in the company's name, used and sold by it, with the knowledge of defendants. Allison v. Coal Creek & N. R. Coal Co., (1888) 87 Tenn. 60. 1 Kraft v. Coykendall, 34 Hun, 285. 2 Chase v. Curtis, 113 U. S. 452; Brandt v. God win, (1889) 24 N. Y. St. Rep. 305. But it has been held that a record of a judgment obtained in another State against the corporation for the same cause of action was admissible in evidence. Cady v. Sanford, 53 Vt. 632. 3 Cook v. Pearce, 23 S. C. 239. Where 4 Halstead v. Dodge, 51 N. Y. Super. Ct. 169. 5 Slaymaker's Adm'r v. Jaffray & Co., (1888) 82 Va. 346. 6 Patterson v. Robinson, 37 Hun, 341. And it was held that Code Tenn., (Mill. & V.) § 1858, providing that if the indebtedness of a mining company shall at any time exceed the capital stock paid in, the directors assenting thereto shall be individually liable for such excess, applies only to unpaid creditors, to the making of whose debts the creditors assented, and not to other creditors whose debts were incurred to pay off former illegal indebtedness to which the directors had assented. Allison v. Coal Creek & N. R. Coal Co., (1888) 87 Tenn. 60. 7 Schenck v. Bandmann, (Cal. 1890) 22 Pacif. Rep. 654. Though it is admitted that they did not have the necessary information to make it, and the burden is on the directors to show exculpatory circumstances. |