to the depositors, and to the stockholders, and they are not permitted by law to acquire any interest adverse to the stockholders of the bank.

As previously stated they cannot make a profit out of the business and withhold, a division from the other stockholders. The rule of law relating to the duties of a trustee is well established, that he cannot in any manner make a profit from property held by him in trust.

The law will not permit a trustee to prove "an honest intent."

The Supreme Court of the State of California, in the case of the Farmers and Merchants National Bank of Los Angeles v. John G. Downey, 53 Cal. 466, where it was shown that one of the directors of a bank loaned the moneys of the bank, and took from the borrowers a note running to the bank for the principal sum loaned, but at the same time and as a part of the same transaction, made an agreement with the borrowers, that they should permit him to participate with them in the profits of a purchase and sale of certain lands, held that the director could not be permitted to retain for himself the profits thus contracted for, but must surrender them to the bank to be participated in by all the stockholders. The court in discussing their relationship to the bank, says "He was its trustee." The court again says, The court again says, "The directors are the trustees and are 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 a Court of Equity, be suffered to pass without a remedy."

§ 104. Misappropriating bank funds.

A director of a bank cannot use or appropriate any of the funds of the bank, to retain or pay an attorney to defend him in a suit brought by a stockholder against him.20

§ 105. Rights of directors.

May borrow money from bank.

The law does not, unless by special provision, refuse to a director the privilege of borrowing money from the bank over

20 Percy v. Millandon, 3 La. 568.

which he presides. The statutes of many States have, however, enacted inhibitive provisions, upon this subject, in so far

savings banks are concerned, and will not permit a director either directly or indirectly to borrow from his own bank. The National Banking Law permits a director to borrow as any other customer, but specifically provides, that no person shall be permitted to borrow to exceed one-tenth of its capital actually paid in.

Where there is no prohibition to borrow, his application must be treated as the application of a stranger, and he is excluded from using his influence to secure the loan with the other members of the board; and from voting upon the application. It is not necessary that he should withdraw his presence from the room, but he must take no part or action relating thereto.

When the law prohibits a loan to a director, and one is made in violation of the charter or statute, the bank may collect the same.

In the case of Britain v. Oakland Bank of Savings, 134 Cal. 282, the court in discussing this question says:

*

*
*

The

"At the time of the transaction between Bowman and the bank he was a director in the bank. The Civil Code declares that no director or officer of any savings and loan corporation must directly or indirectly for himself or as the partner or agent of others, borrow any of the deposits or other funds of such corporation. And declares that the office of any director or officer, who acts in controvention of this provision of the law, shall immediately thereupon become vacant. obvious purpose of this section of the code invoked and relied upon was to protect savings banks and their depositors. To hold therefore, that if the deposits or funds of such a bank should be borrowed by any of its officers, directly or indirectly, no action could be maintained by the bank to recover the money, would often work a great injustice and wrong. The bank therefore could have sued Bowman to recover back the money loaned.”

If a loan or discount is knowingly made for the benefit of a director of a bank or of a firm with which he is connected in interest or as a co-partner, it is held to be a loan or discount. to such director within the intent and meaning of the statute

limiting the amount of loans and discounts to directors of banks.21

Some of the States have enacted laws limiting the amount which may be loaned by a bank to any one person, firm, or corporation; and many of the States have enacted laws prohibiting officers and directors of savings banks from directly or indirectly borrowing any of the funds of such bank.

The statute of California is silent upon the rights of directors to borrow from commercial banks over which they preside.

A director has the right to examine the books of the corporation at any time, and cannot be excluded by a by-law which may deny this right to him. The right is a personal right, belonging to his office; and a by-law, which may attempt to fix a time for the examination of the books of the corporation in so far as it affects the rights of a director is unconstitutional, and invalid. If the right is denied him by the other directors, or officers of the bank, to examine the books, he may apply to the court for a writ of mandamus.22

§ 106. Notice to the board.

The general rule as to what constitutes notice to the board. may be stated as follows:

The board as such is charged with notice of a matter when assembled at a meeting, and a member or other person discloses or mentions a matter. The fact that they, as a board, do not at such meeting discuss the matter presented to them, makes no difference. The matter has been sufficiently presented when mentioned at a meeting and they are bound by such a notice.

If they have received notice of a matter which should be immediately acted upon, and they fail to act, and a loss occurs to the bank through such failure, they are liable.

The rule above stated, is fully supported by the court in the case of Bank of Pittsburgh v. Whitehead, Sproul & Co., 10 Watts (P. A.) 397, where the court in discussing the question says:

"Publication of dissolution in a newspaper, taken by the officers, and paid for by the bank, may not be constructive notice to a bank which had, as in this instance, previously

21 Bank Commissioners v. Bank of

Buffalo, 6 Paige, Chy. (N. Y.) 497.

22 People . Throop, 12 Wend. (N. Y.) 183.

dealt with the firm; but when the fact of dissolution, gleaned from that, or any other source, is stated before the board by a member of it, and made a subject of conversation during the very transaction, it is impossible to doubt that the bank is to be affected, because knowledge of the fact material to be known is a part of the res gesta. There cannot be a question, therefore, that knowledge imparted to the board, as was done here, by a director at a regular meeting, is notice to the bank."

§ 107. When the law imputes knowledge.

It is held by the Court of Appeals of the State of Missouri, that where directors have had, for many years, complete management of a bank, they are imputed by law to know of its condition and are therefore charged with knowledge of its insolvency.

The Supreme Court of the United States, in the case of Martin v. Webb, 110 U. S. 7, says:

"Directors cannot, in justice to those who deal with the bank, shut their eyes to what is going on around them. It is their duty to use ordinary diligence in ascertaining the condition of its business and to exercise reasonable control and supervision of its officers. They have something more to do than, from time to time, to elect the officers of the bank, and to make declarations of dividends. That which they ought, hy proper diligence, to have known as to general course of business in the bank, they may be presumed to have known in any contest between the corporation and those who are justified by the circumstances in dealing with its officers upon the basis of that course of business."

$108. Notice to a director.

The general rule is that the bank has notice if the director receives or acquires the notice in his official capacity, or if acting as agent, or attorney in charge of a matter for the bank. His knowledge is, then, knowledge to the bank.

The Supreme Court of the State of Massachusetts holds that if a director of a bank, who acts for a bank, in discounting a note, has knowledge that the note was procured by fraud, the bank is affected with his knowledge. The court says:

"But if the director who has such knowledge acts for the bank in discounting the note, his act is the act of the bank and

the bank is affected with his knowledge. A bank, or other corporation, can act only through its officers, or other agents. As in other cases of agency, notice to the agent, in the course of a transaction in which he is acting for his principal, of facts affecting the nature and character of the transaction, is constructive notice to the principal." 23

Where, however, a note is discounted by a bank, the mere fact that one of the directors knew the fraud, or illegality, will not estop the bank from recovering."

24

It is held in the case of National Bank v. Norton, 1 Hill (N. Y.) 572, that notice of dissolution, published in a newspaper, and thus accidentally reaching a bank director, is not equivalent to actual notice to the bank, especially where, by the provisions of the charter a director has not power to act for the institution, save in conjunction with others. In discussing the question of notice, the court says:

"He happened to know the fact of dissolution, as a director or other corporator may do, without perhaps being aware that the bank could be prejudiced by it. Not having any intimation that it was material, it is too much, even if the point were in the case, to insist on a presumption that he ever communicated the fact to the board. Not having acquired his knowledge as director, there is no room for presumption either on the ground of duty or interest. In The Fulton Bank v. Benedict, 1 Hall (N. Y.) 480, 497, 557, the judge told the jury that notice to a director who appeared to have had charge of the business to which it related was not notice to the bank, unless communicated to the board, or to the officers of the bank. Oakley, J., said the charge was too narrow for the case; adding, 'I think that under some circumstances, notice to a director ought to charge the corporation, as where the director acts in any particular business as the special agent of the bank, as in the case of Rathbone. He was one of a committee to inquire as to this very notice,' etc. The Washington Bank v. Lewis, 22 Pick. 24, 31, takes the same view of a director's agency. In the Hartford Bank v. Hart, 3 Day, 491, 5, the court said, 'The

23 Suit v. Woodhall, 113 Mass. 391; Bank of U. S. v. Davis, 2 Hill 451.

24 Commercial Bank v. Cunning.

ham, 24 Pick. (N. Y.) 270; Washington Bank v. Lewis, 22 Pick. (N. Y.) 24.