bank, or takes stock in a corporation, thus divesting himself of the immediate control of his property, he expects, and has the right to expect, that the trustees or directors, who are chosen to take his place in the management and control of his property, will exercise ordinary care and prudence in the trusts committed to them-the same degree of care and prudence that men prompted by selfinterest generally exercise in their own affairs. When one voluntarily takes the position of trustee or director of a corporation, good faith, exact justice, and public policy unite in requiring of him such a degree of care and prudence, and it is a gross breach of duty-crassa negligentia not to bestow them.

"It is impossible to give the measure of culpable negligence for all cases, as the degree of care required depends upon the subjects to which it is to be applied. (First Nat. Bank v. Ocean Nat. Bank, 60 N. Y. 278.) What would be slight neglect in the care of a quantity of iron might be gross neglect in the care of a jewel. What would be slight neglect in the care exercised in the affairs of a turnpike corporation or even of a manufacturing corporation, might be gross neglect in the care exercised in the management of a savings bank intrusted with the savings of a multitude of poor people, depending for its life upon credit and liable to be wrecked by the breath of suspicion. There is a classification of negligence to be found in the books, not always of practical value and yet sometimes serviceable, into slight negligence, gross negligence, and that degree of negligence intermediate the two, attributed to the absence of ordinary care; and the claim on behalf of these trustees is that they can only be held responsible in this action in consequence of gross negligence, according to this classification. If gross negligence be taken according to its ordinary meaning-as something nearly approaching fraud or bad faith-I cannot yield to this claim; and if there are any authorities upholding the claim, I emphatically dissent from them.

"It seems to me that it would be a monstrous proposi

tion to hold that trustees, intrusted with the management of the property, interests and business of other people who divest themselves of the management and confide in them, are bound to give only slight care to the duties of their trust, and are liable only in case of gross inattention and negligence; and I have found no authority fully upholding such a proposition." [Held that the trustees were not guilty of a mere error of judgment, but improvidence, and reckless extravagance and therefore liable to the receiver.]

Question 687: What degree of care must a director show! Does the nature of the business help to determine? Suppose the director does not act in bad faith, is that alone enough to save him? Is a director always liable for errors of judgment?

Case 688. Dawson v. National Life Ins. Co. et al., 176 Iowa, 362, 157 N. W. 929, L. R. A. 1916 E. 878.

"Appellant (Dawson) requested the Court to instruct the jury in the language following: 'You are instructed that a director and managing officer of a corporation doing business as a life insurance company stands in a relation of a fiduciary to all the stockholders who are not themselves engaged in the active management of the company, and before any such director and officer of the company who is acquainted with its condition and affairs, can rightfully purchase the stock of such company from stockholders who are not actively engaged in the management and operation of the corporation, such managing officer and director must inform such stockholders of the true condition of the company and its affairs and assets, and must give to such stockholders all the information affecting the value of the stock which such officer himself possesses; and a purchase from a stockholder who is not acquainted with the condition and affairs of the company, of his stock in such company, by one of the directors and managing officers, without having first informed such stockholder of the true condition of the company and value of its assets is a fraud

This [instruction] was refused.

"The debate as to whether technically a fiduciary relation exists [between director and stockholder] may and doubtless will go on, but a knowledge of the law is not required to enable one to appreciate the moral wrong perpetrated by a corporate officer with knowledge acquired by virtue of his position in profiting on the ignorance of a stockholder. Stockholders, other than directors and officers stand on an equal footing and deal with each other at arm's length. But power akin to that of an attorney, priest, agent or copartner is conferred on the directors and officers by those selecting them to manage corporate affairs." [Held, that court erred in not putting the case to the jury on question of constructive fraud.]

*

(Note: The authorities are in sharp conflict as to whether a director in purchasing stock from a stockholder owes any duty to make full disclosure. The weight of authority is contrary to the above case and holds that while a director occupies a fiduciary relationship toward the corporation he owes no such duty toward a stockholder in the acquisition of his stock and therefore is within the protection of the rule that mere silence on the part of a contracting party is not fraud. See to that effect: Shaw v. Cole Mfg. Co., 132 Tenn. 210, 177 S. W. 479 L. R. A. 1916 B 706 and collection of authorities in note L. R. A. 1916 B. p. 708. It seems to the editor of this case book that the view of the case above that there is a duty to disclose material facts materially affecting value is sound, and that that view will be more generally adopted.)

Case 689. Morgan v. Skiddy et al., 62 N. Y. 319.

Facts: Certain directors sanctioned the circulation of a prospectus known to contain false statements of material facts in respect to the assets and condition of the corporation, the natural tendency of which was to induce subscriptions. Plaintiff relying thereon bought stock. He sues the directors for fraud.

Point Involved: Whether a director is personally liable who sanctions false statements to induce subscrip

"The representations made in the prospectus as to the exploration made on the land of the company were false. But two or three shafts had been sunk upon this property. Very little work had been done upon it, and the presence of valuable ores in any considerable quantities had not been discovered. * The false statement

in the prospectus related to an existing fact which materially affected the value of the shares; it was prepared for the purpose of circulation and to induce investments in the stock of the company. If the plaintiff purchased his stock relying upon the truth of the prospectus, he has a right of action for deceit against the persons who, with knowledge of the fraud and with intent to deceive, put it in circulation. The representation was made to each person comprehended within the class of persons who were designed to be influenced by the prospectus; and when a prospectus of this character has been issued no other relation or privity between the parties need be shown, except that created by the wrongful and fraudulent act of the defendants in issuing or circulating the prospectus, and the resulting injury to the plaintiff. (Clark v. Dixon, 6 C. B. [N. S.], 453; Central Railroad Co. v. Kish, Law Rep. [2 Eng. and Irish App.], 100.)”

Question 689: In what way were the false statements made in this case? Did the directors know the statements were false? Were they held liable?

(Note: Statutes extend or declare the liability of a director. Thus a director may be made liable for knowingly making false financial statements, allowing the debts to exceed the capital stock, etc., allowing the corporation to proceed to business without having complied with certain statutes, etc.)

C. Powers of Directors.

§ 726. (Corporations, Sec. 90.) Various powers of directors considered.

Case 690. Cook on Corporations (5th Ed.), Vol. 2,

Sec. 512.

"The board of directors have the widest powers. All the various acts and contracts which a corporation may enter into are entered into by and through the board of directors. The board of directors make or authorize the making of notes, bills, mortgages, sales, deeds, liens and contracts generally of the corporation. They appoint the agents, direct the business and govern the policy and plans of the corporation. The directors elect the officers and in this connection it may be added that at common law there is no limit to the number of offices which may be held simultaneously by the same person, provided that neither of them is incompatible with the other.

Question 690: If a corporation under its charter has power to do a thing, has its board of directors the power to do it?

(Note: Generally speaking, whatever the corporation may do the directors of that corporation may do. Statutes may modify this, for instance, may provide that bond issues shall not be authorized without the approval of the stockholders. And of course, such things as charter changes must be voted by the stockholders.)

D. Directors' Meetings

§§ 727-729. (Corporations, Secs. 91-93.)

Case 691. Doernbecher v. Columbia City Lumber Co. et al., 21 Oregon, 573.

Facts: The facts are stated in the opinion.

Point Involved: Whether a directors' meeting held without notice to all the directors (and not participated in by all the directors notwithstanding such lack of notice) is void, where a majority of the directors attend and such majority all vote in favor of the act in question. BEAN, J.:

"The company being largely indebted to William Lowe prior to the fourteenth day of May, 1889, Lowe assigned his claim to plaintiff, who on that day duly commenced an action against the company to recover the amount due thereon, which finally resulted in a judgment in