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. § 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. 6 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. 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 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 5 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 in. fringement 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, poration to sue would be useless. But on the other hand it has been decided without qualification, that suit may be brought by a stockholder, on behalf of his corporation, against the directors and others, for frauds, wrongs, and breaches of trust, and for the recovery from them of money of which the corporation has been defrauded, and the corporation be joined as a defendant. Such suit may be brought by one or any num or other officer of a corporation, having general superintendence of its concerns, to bring an action against the officers to set aside an alienation of corporation property made by them contrary to law, or foreign to the business of the corporation, apply to a stockholder. Stromeyer v. Combes, (1888) 18 N. Y. St. Rep. 154. 1 As where the complaint alleges that the corporation is under the control of the defaulting directors. Moyle v. Landers, (1889) 78 Cal. 99. So where plaintiff wrote to one W., as president of a corporation in which he was stockholder, requesting that action should be taken against two of the directors for misconduct and neglect of duty. W. wrote that he had resigned the presidency two years before. There was no evidence that he ever had resigned, and there had been no meeting of the corporation since his election. The two directors were most active in the management of the company. These facts were sufficient to entitle plaintiff to sue as a stockholder in his own Averill v. Barber, (1889) 55 Hun, 636. But in an action on a note, defendant pleaded that stock in a corporation of which plaintiff was an officer was delivered to secure the note; that by plaintiff's negligence and misconduct as such officer the stock depreciated in value, to defendant's damage. But this defense was held not available, as it would in effect be an action against name. a corporate officer by a stockholder, to hold him responsible for his official misconduct, without request and refusal of the corporation to bring the action. Palmer v. Hawes, (1889) 73 Wis. 46. 2 Beach v. Cooper, (1887) 72 Cal. 99. And where plaintiff alleged that, as owner and lessee of certain valuable coal lands, he contracted with defendants to develop the same; that a corporation was formed, of which defendants and plaintiff were directors, and the lands deeded to the same, plaintiff receiving in exchange certain stock of the company; that defendants, as directors, undertook the development of the mines, expended about $15,000, and, after a period of four months, discharged the force employed, stopped the work, and sold the machinery to one of their number, whereby plaintiff had been damaged a certain amount by the depreciation of his stock, and also a certain amount by failure of the lands to increase in value as they would have done. The petition showed no fraud or oppression on the part of defendants, nor did it state that the work of development could have been accomplished by a reasonable expenditure, or that there 3 ber of stockholders. And the directors who are charged with having connived at such defaults are proper parties defendant in such action.2 An averment that the plaintiffs have been holders of the stock since a date several years prior to bringing the suit, sufficiently alleges ownership of the stock. Defendants can not deny upon information and belief, and when matters alleged in the complaint are all within the knowledge of the defendants, a denial upon information and belief is insufficient. Independently of statute, a court of equity in New York has no jurisdiction at the suit of the people to compel the officers of a private business corporation to refund property of the corporation illegally disposed of. And the fact that the action was brought on the relation of a trustee, is insufficient, where neither the complaint nor the title of the action shows that it was so brought. In an action by stockholders against the directors of a corporation for a loss incurred by their unauthorized acts, where the State court refuses to permit the receiver either to sue or to be made a party defendant, the jurisdiction of the federal court fails.® 257. (c) To creditors.-The directors of a corporation are the custodians of a fund which American courts of equity have impressed with the character of a trust fund for the security of creditors. The directors are not trustees for the 7 no such abuse of defendants' powers as directors was shown as would authorize a suit against them by an individual stockholder. Cates Sparkman, (1889) 73 Tex. 619. 99. 99. 99. v. v. Grant, 16 Mass. 9, 15; Baker v. Atlas Bank, 9 Metc. 192; Mumma v. Potomac Co., 8 Pet. 286; Curran v. Arkansas, 15 How. 304; Tarbell v. Page, 24 Ill. 46; Ogilvie v. Knox 1 Moyle v. Landers, (1889) 78 Cal. Ins. Co., 22 How. 387. Payson v. 2 Meyle v. Landers, (1889) 78 Cal. 298. Moyle v. Landers, (1889) 78 Cal. Stoerer, 2 Dill. 431; Sawyer v. Hoag, 17 Wall. 610; Burke v. Smith, 16 Wall. 390; New Albany v. Burke, 11 Wall. 96; Hightower v. Thornton, 8 Ga. 486; Robison v. Carey, 8 Loveland v. Garner, (1888) 94 Cal. Ga. 530; Reid v. Etonton Co., 40 Ga. 102; Slee v. Bloom, 19 Johns. 456; 5 People v. Ballard, (1889) 3 N. Y. Briggs v. Penniman, 8 Cow. 395; Supl. 845. Porter v. Sabin, (1888) 36 Fed. Rep. 475. 7 Wood v. Dummer, 3 Mason, 308; Vose v. Grant, 15 Mass. 506; Spear Mann v. Pentz, 3 N. Y. 422; Hurd |