CHAPTER II.

QUALIFICATIONS, DUTIES, AND LIABILITIES OF DIRECTORS.

SEC. 5146. Every director must, during his whole term of service, be a citizen of the United States, and at least threefourths of the directors must have resided in the State, Territory, or District in which the association is located for at least one year immediately preceding their election, and must be residents therein during their continuance in office. Every director must own, in his own right, at least ten shares of the capital stock of the association of which he is a director. Any director who ceases to be the owner of ten shares of the stock, or who becomes in any other manner disqualified, shall thereby vacate his place.

SEC. 5147. Each director, when appointed or elected, shall take an oath that he will, so far as the duty devolves on him, diligently and honestly administer the affairs of such association, and will not knowingly violate, or willingly permit to be violated, any of the provisions of this Title, and that he is the owner in good faith, and in his own right, of the number of shares of stock required by this Title, subscribed by him, or standing in his name on the books of the association, and that the same is not hypothecated or in any way pledged as security for any loan or debt. Such oath, subscribed by the director making it, and certified by the officer before whom it is taken, shall be immediately transmitted to the Comptroller of the Currency, and shall be filed and preserved in his office.

SEC. 5239. If the directors of any National banking association shall knowingly violate, or knowingly permit any of the officers, agents, or servants of the association to violate any of the provisions of this Title, all the rights, privileges, and franchises of the association shall be thereby forfeited. Such violation shall, however, be determined and adjudged by a proper circuit, district, or territorial court of the United States, in a suit brought for that purpose by the Comptroller of the Currency, in his own name, before the association shall be declared dissolved. And in cases of such violation, every director who participated in or assented to the same shall be held liable in his personal and individual capacity for all damages which the association, its shareholders, or any other person shall have sustained in consequence of such violation. General Information as to Duties.

The oath which every director of a National bank is required to take before he is qualified to act in that capacity requires him, among other things, to swear or affirm "that he will, so far as the duty devolves on him, diligently and honestly administer the affairs of such association, and will not knowingly violate, or willingly permit to be violated, any of the provisions of this Title" (i. e., the National-bank Act).

As a director receives no compensation for his services, the extent to which the duty of administering the affairs of the bank devolves on him is a matter which his own conscience must decide, for the law imposes a penalty on him only for such

violations of the law as he "knowingly" commits, or "knowingly" permits any of the employés to commit.

This being the case, it would not be a difficult matter for a director to avoid incurring any legal liability by habitually absenting himself from meetings of the board and from the bank, and generally keeping himself out of the way of information with regard to the bank's affairs, and the only incentive such a director would have to restrain him from pursuing this course would be his interest in $1,000 of stock in the bank, which every director is compelled by law to own in his own right.

Such instances as this are, no doubt, extremely rare, yet, at the same time, it is certain that in a measure the same bad results are attained through indifference and carelessness on the part of directors, arising from a wrong conception of their duty to the stockholders, whose interests they are presumed to represent, and also from their ignorance of the law governing the bank whose affairs they are chosen to administer.

Directors do not, perhaps, always realize to what extent the stockholders are compelled to rely upon them for seeing that the capital they invest is used

profitably and honestly, but, as a matter of fact, outside of such information as the officers may be disposed to furnish them, the only reliable data as to the bank's affairs accessible to stockholders are those furnished by the sworn reports of condition, which are published in the newspapers five times a

year.

When this responsibility to stockholders is fully realized, it would seem that a prudent and conscientious man of business would hesitate to act as director, unless he intended to inform himself as to his duties, and, having done this, to "diligently and honestly administer the affairs of the bank."

Such a director will inquire how he may most readily, and without too much research, acquire such reliable information as will enable him to discharge his duties intelligently; and partly with a view to furnishing in concise form and plain terms some of the information needed this little work has been prepared, embracing only such subjects as most commonly present themselves to bank officers in the regular current of business.

The construction of law and rules of practice here given are those which at present seem to obtain in the Comptroller of the Currency's office as

the outcome of information and experience accumu. lated during a quarter of a century, from intimate and constant official intercourse with the banks, supplemented by careful examination of all legal decisions bearing on their operations. In this connection it is suggested that in all cases of doubt as to a proper construction of law, or as to correct and sound practice, directors or other bank officers should promptly apply for information to the Comptroller's office, as in doing so they obtain the benefit of a large experience gained in dealing with the affairs of over 3,300 banks.

How Directors should be Chosen.

The law relating to this subject is contained in sections 5145, 5148, and 5149, and is so explicit as to leave but little room for misunderstanding. Great care should be taken, however, to see that all the details therein prescribed are carried out with precision, as the failure to do this in any one particular might, under certain circumstances, permit the raising of some question as to the validity of acts performed by the directors capable of being decided by the courts adversely to the interests of such directors, or of the stockholders whom they repre

sent.