2

A bank is liable for the fraud or mistakes of its cashier or clerk in the entries in its books, and in the false accounts of deposits,' and for improperly refusing, by its directors, to permit an individual to subscribe for, or to transfer stock. And where, by contract made through its president or agent, a corporation, established for the purpose of pressing cotton, agreed to unload a boat, and the company's slaves took possession of it for that purpose, and carelessly sunk it, the corporation was held responsible for the damages. And generally a corporation is civilly responsible for damages occasioned by an act, as a trespass, or a tort, done at its command, by its agent, in relation to a matter within the scope of the purposes for which it was incorporated. It is not, however, responsible for unau

R. 497; Ward v. The Sea Insurance Company, 7 Paige (N. Y.) Chan. R. 294.

1 Salem Bank v. Gloucester Bank, 17 Mass. R. 1; Gloucester Bank v. Salem Bank, Ibid. 33; Foster et al. Ex'rs. v. The Essex Bank, Ibid. 479; Manhattan Company v. Lydig, 4 Johns. (N. Y.) R. 377; and see Chap. VIII. of Contracts, and Chap. XI. of Capacity of a Corporation to sue, and its liability to be sued.

2 Union Bank v. McDonough et al. 5 Louisiana R. 63; and see Ware v. Barataria and Lafourche Canal Company, 15 Louisiana R. 168.

⚫ Chap. X. § 8.

4

• Marlatt v. Levee Steam Cotton Press Company, 10 Louisiana R. 583. Duncan v. Surry Canal Proprietors, 3 Starkie, 50; Smith v. Birmingham Gas Company, 1 Adolph. & Ellis, 526; 3 Nev. & M. 771; Rex v. Medley et al. 6 C. & P. 292, Denmam; Maund v. The Monmouthshire Canal Company, 1 Carr. & Marsh. R. 606; S. C. 4 Mann. & Grang. R. 452, 455; Regina v. The Birmingham & Gloucester Railway Company, 2 G. & D. 236; 9 C. & P. 469; Hawkins บ. Dutchess and Orange Steamboat Company, 2 Wend. (N. Y.) R. 452; Beach v. Fulton Bank, 7 Cow. (N. Y.) R. 485; Kneass v. Schuylkill Bank, 4 Wash. C. C. R. 106; Lyman v. White River Bridge Company, 2 Aik. (Vt.) R. 255; Rabassa v. Orleans Navigation Company, 3 Louisiana R. 461; Goodloe v. City of Cincinnati, 4 Ohio R. 513; Smith v. Same, Ibid. 414; McCready v. Guardians, &c. 9 Serg. & Rawle (Penn.) R. 94; McKim v. Odom, 3 Bland's (Md.) Ch. R. 421; Humes et al. v. Mayor, &c. of Knoxville, 1 Humph. (Tenn.) R. 403; Whiteman, Ex. v. Wil. & Susque. Railroad Co. 2 Harrison (Del.) R. 514; Ten Eyck v. Del. & Rar. Canal Co.

thorized and unlawful acts even of its officers, though done colore officii. To fix the liability, it must either appear that the officers were expressly authorized to do the act, or that it was done bona fide in pursuance of a general authority, in relation to the subject of it, or that the act was adopted or ratified by the corporation.1

On the other hand, the officer or agent of a corporation is liable to the corporation for all damages, occasioned by his violation of the duties and obligations he owes to his principal, whether it consists in positive misconduct, or neglect, or omissions. The general rule is, that a suit, brought for the purpose of compelling the ministerial officers of a private corporation to account for breach of official duty or misapplication of corporate funds, should be brought in the name of the corporation, and cannot be brought in the name of the stockholders or some of them. Hence the treasurer of a corporation is not liable, in his individual capacity, to a stockholder for refusing to pay him a dividend, though there were funds in the hands of the treasurer sufficient for the payment thereof at the time of his refusal; the remedy of the stockholder in such case being against the corporation." The directors of a moneyed institution are responsible to it, in an action in the case, for improperly obtaining and disposing of the funds or property of the company.* They are liable, however, only individually and severally, and not jointly as directors, unless the act complained of be done by a majority of the board of directors, when by the act of incorporation, a majority only is competent to transact the busi

3 Harrison (Del.) R. 200; Underwood v. Newport Lyceum, 5 B. Monroe (Ky.) R. 130; Hamilton County v. The Cincinnati and Wooster Turnpike Company, Wright (Ohio) R. 603; Riddle v. Proprietors, &c. 7 Mass. R. 187; Thayer v. Boston, 19 Pick. (Mass.) R. 516, 517.

1 Thayer v. Boston, 19 Pick. (Mass.) R. 516, 517, per Shaw, C. J. Bayless v. Orne et al. 1 Freeman (Mississip.) Ch. R. 175, Buckner, Chan. See, however, Gratz v. Redd, 4 B. Monroe (Ky.) R. 197, 198. • French v. Fuller, 23 Pick. (Mass.) R. 108.

The Franklin Insurance Company v. Jenkins, 3 Wend. (N. Y.) R.

ness of the company.' And generally where there has been a waste or misapplication of the corporate funds, by the officers or agents of the company, a suit in equity may be brought by, and in the name of, the corporation, to compel them to account for such waste or misapplication. But as a court of equity never permits a wrong to go unredressed merely for the sake of form, if it appears that the directors of a corporation refuse in such case to prosecute, by collusion with those who had made themselves answerable by their negligence or fraud, or if the corporation is still under the control of those who must be the defendants in the suit, the stockholders, who are the real parties in interest, will be permitted to file a bill in their own names, making the corporation a party defendant. And if the stockholders are so numerous as to render it impossible, or very inconvenient, to bring them all before the court, a part may file a bill, in behalf of themselves and all others standing in the same situation. The jurisdiction of chancery, in such cases, proceeds in case of joint stock corporations, upon the same principles applied to charitable corporations in England. The directors are the trustees or managing partners, and the stockholders are the cestuis que trust, and have a joint interest in all the property and effects of the corporation; and no injury that the stockholders may sustain by a fraudulent breach of trust can, upon the general principles of equity, be suffered to pass without a remedy. But where an incorporated company had engaged in unauthorized and illegal transactions, a stockholder, who has acquiesced therein, by knowingly participating

1 Ibid.

* Robinson v. Smith, 3 Paige (N. Y.) Ch. R. 233, per Walworth, Chan. ; Bayless v. Orne, 1 Freeman (Mississip.) Ch. R. 173.

3 Ibid.

Ibid.; and see Hichens v. Congreve, 4 Russ. 562.

Robinson v. Smith, 3 Paige (N. Y.) Chan. R. 232, per Walworth; and see Wood's Inst. B. 1, ch. 8, p. 110; 11 Co. R. 98 b.; and Verplanck v. Mercantile Insurance Company, 1 Edwards (N. Y.) Chan. R. 34; Scott v. Depeyster, 1 Edwards (N. Y.) Chan. R. 513; Bayless v. Orne et al. 1 Freeman (Mississip.) Ch. R. 174.

in the profits of such transactions, will not be allowed to charge the directors personally for an eventual loss arising therefrom.' The managers or directors of a bank are not, it seems, considered in equity as trustees of the corporation in such sense that they cannot purchase and retain stock of the bank by them purchased of it, the stock having been in the first place bought up by the bank as a mode of employing its capital.2

3

The relation of cestuis que trust and trustees does not exist between the stockholders of an incorporated company and the corporation; nor are they in the relative situation of partners; nor are the stockholders creditors of the company. The company is the mere creature of the law, a politic, and not a natural body, made up by the compact entered into by the stockholders, each of whom becomes a corporator identified with, and forming a constituent part of, the corporate body.* Hence, when there is a fraudulent purchasing of the stock of a company by its officers with the company funds, the remedy is not against the latter in its corporate character, but against the directors, by whom the fraud may have been committed, or through whose management the loss has been sustained.

The officers and agents of a corporation are liable for losses and defalcations occasioned by their neglects, as well as by their positive misconduct. It should be observed, however, that though loss accrue to the funds of an incorporated company through a mere error on the part of the directors, they are not personally liable unless there has been negligence or fraud. No man, who takes upon himself an office of trust or

1 Scott v. Depeyster, 1 Edwards (N. Y.) Chan. R. 513. Hartridge et al. v. Rockwell, R. M. Charlton's (Ga.) Sup. Ct. R. 260. 3 Verplanck v. Mercantile Insurance Company, 1 Edwards (N. Y.) Chan. R. 87, per McCoun, Vice-Chancellor; Bayless v. Orne et al. 1 Freeman (Mississip.) Ch. R. 174, 175.

4 Ibid.

Ibid.

6 Percy v. Millauden et al. 3 Louisiana R. 568; Ponchartrain Railroad Company v. Paulding, 11 Louisiana R. 41.

confidence for another, or the public, contracts for anything more than a diligent attention to its concerns, and a faithful discharge of its duties. He is not supposed to have attained infallibility, and does not therefore stipulate that he is free from error. The directors of an incorporated company must take the same care, and use the same diligence, as factors or agents. They are answerable not only for their own fraud and gross negligence, but as they are usually interested in the stock, and act in relation to a bailment of the corporate funds to them, beneficial to both parties, they must answer for "ordinary neglect," or the omission of that care which every man of ordinary prudence takes of his own concerns. Upon these principles, it is evident, that, in the appointment of officers and agents for the company, as a secretary, they do not become sureties for their fidelity and good behavior. If they select persons to fill subordinate situations, who are known to them to be unworthy of trust, or of notoriously bad character, and a loss by fraud or embezzlement ensues, a personal liability rests upon them. But if this be not the case, they have a right to repose confidence in their secretary in everything within the scope of his duties. Accordingly, where the secretary of an insurance company embezzled its funds, by altering checks and keeping back money received to be deposited; and whenever information was required, produced forged bank books, the entries in the books of the company being regularly made, as if he had actually made the deposits, and had thus, from time to time, passed his accounts with committees appointed to examine them; and it appeared that the general conduct and investigation of the directors were the same pursued in other companies by prudent men; on a bill filed by a stockholder against the directors personally, it was held, that they were not liable on account of such fraud and embezzlement." But where it was the duty of the president of a railroad company to take a bond for the security of the company from the

1 Scott v. Depeyster, 1 Edwards (N. Y.) Chan. R. 513.

2 Ibid.