SOCIETY OF SHAKERS & DAVENPORT v. Underwood.

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The opinion of the court was delivered by

[No. 1.

LINDSAY, J. The first named appeal is prosecuted from the judgment of the Franklin circuit court, and the latter from that of the Warren court of common pleas; but as the questions involved are almost identical, they will, for convenience, be considered and determined together.

To each of the petitions a general demurrer was sustained, and the parties failing to plead further, judgments were rendered dismissing them absolutely, and we are now called upon to determine whether said petitions set out facts constituting causes of action.

From them it appears that in the year 1865 the Bank of Bowling Green went into operation under a charter approved June 2, 1865, and that during the time it continued in business the defendants were members of its board of directors; and further, that before the institution of these actions said bank, upon the petition of the defendants, or some of them, had been declared a bankrupt by proper legal proceedings, and was insolvent.

The Society of Shakers allege that on the 22d of February, 1869, its agent, U. E. Johns, deposited with the bank a special deposit of $72,450 in bonds, fully described in a memorandum incorporated into the petition, and that the bank had failed upon demand to return $55,660.40 of said bonds. Also that it had failed to account for $9,702.63 collected on interest coupons attached thereto.

Davenport alleges that on the 3d of March, 1866, he placed in the bank on special deposit nine Warren county bonds of $1,000 each, which, by reason of the premium for which they would sell in the market, were of the value of $11,500, and that the bank had failed upon demand to return all or any of such bonds. The Society of Shakers charge the conversion of their bonds in the following language:

"Plaintiffs state that all the aforementioned bonds, aggregating in value the sum of $55,660.40, were wrongfully taken from plaintiffs' package of special deposit by the officers of the Bank of Bowling Green, and by them converted to the use and emolument of said bank by sale as aforesaid, without right or authority from these plaintiffs or any of them, and of such wrongful conversion and appropriation defendants, and each of them had, or could have had, by the most ordinary diligence and investigation, ample notice."

Davenport alleges that his bonds had been "wrongfully appropriated by said Bank of Bowling Green, and converted to the use and emolument of said bank, forwarded to its regular correspondents and by them sold, and the proceeds of sale credited to the Bank of Bowling Green and paid on checks or drafts of said bank, of all of which defendants, and each of them, had notice, as well from the ledgers, books, and accounts of said bank as from its correspondents, reconcilements, and statements."

And further: "That said bonds were wrongfully appropriated as afore said to the use and benefit of said bank, and without authority from this plaintiff, and that of such wrongful conversion and appropriation defendants, and each of them, had or could have had, by the most ordinary diligence, ample notice."

It is also substantially charged in each petition that the defendants, acting as directors, "did, on various occasions, declare dividends when the

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SOCIETY OF SHAKERS & DAVENPORT v. UNDERWOOD.

[No. 1.

condition of the bank did not justify the same, and so appropriated to themselves, they being the largest stockholders, large sums of money actually realized from the conversion of the plaintiffs' property as aforesaid." Upon the facts as thus stated, this court must determine whether or not appellees or any of them are personally bound to make good the losses resulting to appellants from the unauthorized and wrongful conversion by the bank of their special deposits. In the adjudication of these causes, it is not necessary that we should critically inquire into the duties and obligations resting upon the bank directors to look after and protect the interest of special depositors from whom the corporation represented by the directory receives no compensation. It is sufficient to say that special deposits are mere naked bailments, and that the bank, nor its directory, undertake to exercise any greater care in their preservation than the depositor has the reasonable right to suppose is exercised in keeping the bank's property of like description. It cannot be doubted, however, that if the deposit is lost by reason of the gross negligence, or the wilful inattention of the directors, the bank is responsible therefor, upon the well established doctrine that a mere depositary is liable for gross negligence. And as the directory is the corporate government of the bank, and in the legal sense is the corporation itself, the negligence or inattention of its members can and ought to be imputed to the bank. But the liability of the bank in these actions is not made to turn alone upon the want of fidelity and care upon the part of the directory.

It is distinctly and clearly charged that the deposits were sold by the officers of the bank, and the proceeds of such sales converted to its use and emolument, and that this was done with the knowledge of the direc

tors.

This charge implies a conversion by the bailee of the bailors' goods, for which by the common law rules of pleading the bailors might maintain trover.

The question presenting itself in these actions is, whether the directors, who had knowledge of these alleged wrongful sales, are personally liable for the value of the deposits so converted? It is insisted by the appellees that these actions cannot be maintained, because of the want of privity between the depositors and the bank directors. They concede that if they have been guilty of gross mismanagement of the affairs of the bank, and that its insolvency and bankruptcy are the consequence of such mismanagement, they may be held to account to the corporation whose officers. and agents they were; but urge that inasmuch as their undertaking was to the bank, they can only be proceeded against by it, the party with whom they contracted, and that these appellants must look to the corporation and not to them.

This assumption is plausible, but it cannot be supported.

Bank directors are not mere agents like cashiers, tellers, and clerks. They are, in a certain sense, trustees for the stockholders; and as to mere dealing with the bank they not only represent it, but for all legal consideration are in fact the bank itself. Morse on Banking, page 76.

Their contract is not alone with the bank. They invite the public to deal with the corporation, and when any one accepts their invitation he has the right to expect reasonable diligence and good faith at their hands;

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SOCIETY OF SHAKERS & DAVENPORT v. UNDERWOOD.

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and if they fail in either, they violate a duty they owe not only to the stockholders but to the creditors and patrons of the corporation. Hodges v. New England Screw Company, 1 Rhode Island, 312.

An honest administration of the affairs of the bank, and slight diligence at least in preventing special deposits from being wrongfully converted to its use, were legal duties which the directors were under obligation to the special depositors to perform; and as these obligations grew out of their implied contract that they would perform such duties, there is a legal privity between the parties. This doctrine was recognized by this court in the case of Lexington and Ohio Road Co. v. Bridges, 7 B. Monroe, 556; in which case it was held that the directors of that corporation, by accepting their positions, assumed the discharge of certain duties not only to the company, but to persons dealing with it, and that if they misappropriated the funds intrusted to their control, and a creditor was damaged by the act, he had a right of action against them for the injury resulting from their illegal conduct. Whenever there exists a legal duty to perform or omit to do an act, the law will imply a promise by the person upon whom the duty rests that he will discharge it, and between him and all persons having the legal right to demand its performance a privity of contract exists. Chitty on Contracts, page 1.

These actions, however, are not based upon the contract of bailment to the bank, nor upon the implied contract of the appellants that they would not by gross negligence or tacit acquiescence permit the deposits to be converted to the bank's use. The appellants had the right to elect whether they would avail themselves of the remedies prescribed by law for the breach of contract, either upon the part of the bank or of these appellees; and they have elected to waive their right of action upon these contracts, and sue for the joint tort of the bank and the appellees, committed by the wrongful and unauthorized conversion of their deposits. Treating the bank as the bailee, and the directors as its mere agents, it is perfectly clear that, if they permitted the subordinate officers to sell the special deposits, and then, acting for the bank, assented to the money arising therefrom being used for the purpose of the bank, they are parties to the tort.

"To maintain trover, the defendant must have converted the property to his own use, or have done some other act with a wrongful intent, expressed or implied." Hilliard on Torts, section 8, chapter 16, Vol. I. p. 484 (2d edition).

"If one person dispose of the goods of another for the benefit of a third person, this is a conversion." Bacon's Abridgment, title Trover,

sub. B.

"Every unlawful intermeddling with the goods of another is a conversion, it being a disposition pro tanto of the goods of another as if they were the goods of the intermeddler." Ibid.; also Young v. Moore, 7 J. Š. Marshall, 646.

In the well-considered case of Pool v. Adkisson et al. 1 Dana, 110, it was held that the agent who disposed of the slaves of another in obedience to the instructions of his employer, acting in good faith and ignorant of the complainant's rights, was nevertheless liable to, the true owner: and in the learned dissenting opinion it was not argued that his liability would have been an open question if he had acted in the matter with

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SOCIETY OF SHAKERS & DAvenport v. UNDERWOOD.

[No. 1. knowledge of the fact that the slaves were the property of the party suing and not of his employer.

These appellants allege that their bonds were sold by the officers of the bank and the proceeds paid out in the satisfaction of claims against it, and in the payment of dividends to its stockholders, and that of all this appellees had notice.

Having such notice, it was their duty (and they had full power in the premises) either to prevent the sale of the deposits or to hold the proceeds for the benefit of their owners. Their failure to discharge this duty must be regarded as wilful; and the conclusion cannot be escaped that by permitting the sales to be made, and the proceeds to be paid out as alleged, they made themselves parties to the unauthorized acts constituting the conversion.

This conclusion is strengthened by the averment that they declared dividends when the condition of the bank did not justify it, and thus distributed to themselves portions of the moneys arising from the conversion of appellants' deposits. If such be the case, and they acted with notice of the wrongful sales, they not only participated in but derived profit from the tortious conduct of the subordinate officers of the bank.

It is objected that the allegation of notice is so far qualified as to destroy the sufficiency of the averment. It is alleged that the appellees, "and each of them, had, or could have had, by the most ordinary diligence and investigation, ample notice."

It is certainly the duty of bank directors to use ordinary diligence to acquaint themselves with the business of the corporation, and whatever information might be acquired by ordinary attention to their duties, they must in controversies with persons doing business with the bank be presumed to have. Public policy demands that they shall not be heard to say, that by reason of their gross negligence and wilful inattention they were not apprised of that which the ledgers, books, accounts, correspondence, reconcilements, and statements of the bank showed to be true. It is not necessary in actions like these to bring home to the directors actual knowledge of the fact that the special deposits held by the bank were being sold and converted to its use by the officers having them in custody. It must suffice to show that the evidences of the practice were such that it must have been brought to their knowledge unless they were grossly or wilfully careless in the performance of their duties.

It is further insisted in the case of the United Shakers that it is manifest that all the defendants are not liable, and that by reason of the misjoinder of parties defendant, the general demurrer was properly sustained.

An examination of section 120 of the Civil Code of Practice will show that the improper joinder of parties defendant is not a ground for general demurrer, and under the 144th section of the New York Code, which is similar to section 120 of our own, the courts of that State have so held. The People v. Mayor of New York, 28 Barbour, 240. The objection may be made available either by a rule requiring the appellant to elect which of the defendants it will proceed against, or by proper instructions by the court, when the cause goes to the jury.

The case of Hawkins v. Phythian, 8 B. Monroe, 515, does not authorize the deduction that, because there is a different and higher degree of dili

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N. Y. C. R. R. v. LOCKWOOD.

[No. 1.

gence required of the president than of the other directors of the bank, they cannot be jointly sued in these actions. In the case cited the declaration did not show that the injury complained of resulted from the joint act of the defendants, as is alleged in these cases.

The judgments sustaining the general demurrers and dismissing the two petitions must be reversed.

SUPREME COURT OF THE UNITED STATES.

[DECEMBER, 1873.]

RULE AS TO STIPULATION FOR EXEMPTION FROM DROVER TRAVELLING ON PASS ON STOCK TRAIN.

N. Y. C. R. R. v. LOCKWOOD.

Held: That a common carrier cannot lawfully stipulate for exemption from responsibility when such exemption is not just and reasonable.

That it is not just and reasonable for a common carrier to stipulate for exemption from responsibility for the negligence of himself or his servants.

That these rules apply both to carriers of goods and carriers of passengers for hire, and with special force to the latter.

That a drover travelling on a pass, such as was given in this case, for the taking care of his stock on the train, is a passenger for hire.

purpose of

Mr. Justice BRADLEY delivered the opinion of the court. The plaintiff in this case was a drover, injured whilst travelling on a stock train of the defendants, proceeding from Buffalo to Albany, and the suit was brought to recover damages for the injury. He had cattle in the train, and had been required, at Buffalo, to sign an agreement to attend to the loading, transporting, and unloading of his cattle, and to take all risk of injury to them and of personal injury to himself or whoever went with the cattle; and received what is called a drover's pass-certifying that he had shipped sufficient stock to pass free to Albany, but declaring that the acceptance of the pass was to be considered a waiver of all claims for damages or injuries received on the train. The agreement stated its consideration to be the carrying of the plaintiff's cattle at less than tariff rates. It was shown on the trial, that these rates were about three times the ordinary rates charged, and that no drover had cattle carried on those terms; but all signed similar agreements to that which was signed by the plaintiff, and received similar passes. Evidence was given on the trial tending to show that the injury complained of was sustained in consequence of negligence on the part of the defendants or their servants, but they insisted that they were exempted by the terms of the contract from responsibility for all accidents, including those occurring from negligence, at least the ordinary negligence of their servants; and requested the judge so to charge. This he refused, and charged that if the jury were satisfied that the injury occurred without any negligence on the part of the plain