a fiduciary relation than if they are mere mandataries. If their responsibility to the corporation is to be considered as based upon the capacity in which directors act for the legal entity, the corporation, as that of agent or mandataries, their liability will not be so strict as if they were trustees, because what might be a breach of trust may not be negligence on the part of an agent or mandatary. A learned writer, however, has observed with reference to this point of difference, that "it cannot be that, in respect of a matter which so vitally concerns the interests of men engaged in mercantile pursuits, there is one rule of right in a court of law, and another rule of right in a court of equity."89

In respect of the duties of directors there has been much discussion, with resulting multitude of expres sions of opinion, the question of their relation always entering into the matter. It must be acknowledged that in all corporations with the single exception of savings banks, that they are mandataries,90 though they are a class of mandataries peculiar to themselves, and demanding, it would seem, a special governing rule of care. No other class of mandataries have such implicit confidence placed in them concerning the management of important business interests. And being themselves interested as stockholders, they do not occupy the usual position of a mandatary.

But it is contended by very respectable authority that being thus mandataries, giving their services without compensation, that with respect to their

89 Id., sec. 4102.

90 Briggs v. Spaulding, 141 U. S. 132, 11 Sup. Ct. Rep. 924; Spering's Appeal, 71 Pa. St. 11, 10 Am. Rep. 684; Swentzel v. Penn Bank, 147 Pa. St. 140, 30 Am. St. Rep. 718, 23 Atl. 405, 415; Shea v. Mabry, 1 Lea, 319; Hughes v. Brown, 88 Tenn. 578, 13 S. W. 286.

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responsibility to stockholders, they should not be held personally, except when they have been guilty of some fraud, or have known or connived at some fraud in others, or where such fraud might have been prevented had they given ordinary attention to their duties; that they can only be held for negligence when it is so gross that it amounts to fraud. In so considering their liability the courts regulate their duty according to the relation of a mandatary, the degree of care required of them depending upon the subject to which it is applied; being, as they are, mere gratuitous servants, they should not be held to that high degree of responsibility of bailees for hire, or expected to devote their whole time and attention to their duties; and that hence they are not, in the absence of any element of positive misfeasance, and solely on the ground of passive negligence, to be held liable, unless their negligence is gross, or they are fairly subject to the imputation of a want of good faith; that they are not liable, in the absence of fraud or intentional breach of trust, for negligence or mistakes of judgment. It is argued that were a more rigid rule to be applied, it would be difficult to get men of character and pecuniary responsibility to fill such positions.93 There is no controversy over their nonliability for mere mistakes of judgment.' Considering the directors as mandataries, the measure of care is slight, being liable only for gross neg

91 Spering's Appeal, 71 Pa. St. 11, 10 Am. Rep. 684.

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92 Swentzel v. Penn Bank, 147 Pa. St. 140, 30 Am. St. Rep. 718, 23 Atl. 405, 415.

93 North Hudson Mut. Bldg. Assn. v. Childs, 82 Wis. 460, 33 Am. St. Rep. 57, 52 N. W. 600. For gross negligence and intention: Williams v. Hilliard, 38 N. J. Eq. 373; Henry v. Jackson, 37 Vt. 431; Neall v. Hill, 16 Cal. 145, 76 Am. Dec. 508.

94 Id.; Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 24 Am. St. Rep. 625, 15 S. W. 448; 3 Thompson on Corporations, sec. 4103.

lect. But the authorities holding, in effect, this view do not thus express the measure of care, but, on the contrary, say that the degree of care depends upon the conditions and circumstances and the subject to which it is applied, although they do hold that they are not to be held to the degree of responsibility of bailees for hire.95 This is contrary to what many other courts hold with respect to this question, viz.: The diligence required of directors of corporations in the discharge of their duties is that exercised by prudent men in their own affairs, being that degree of diligence characterized as ordinary. This leads to a different rule of responsibility, and is the key to the conflict of authority. But few cases have been decided outside banking corporations which have been cited in this and the previous section, the most of the litigation arising with reference to bank directors, which is next considered.

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97

$134. Relation of Bank Directors to Those Interested. A banking corporation ought to be (if it is not) viewed in a different light than the ordinary mercantile, manufacturing, or transportation company, so far as concerns the relation of the directors to the parties in interest. In the latter class of companies the parties primarily interested in its affairs, if it is solvent, are its stockholders or bondholders, and ordinary creditors may be interested therein. But creditors have no more right to call in question the management of the business of such corporation than has an ordinary creditor the right to complain of the methods of his debtor. Stockholders in such corporations, however, are its owners and interested

95 Ante, note 82.

96 Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 24 Am. St. Rep. 625, 15 S. W. 448. See sec. 136, post, where other cases are cited. 97 Ante, sec. 132.

in the success of the business, and though there is a recognized distinct legal corporate entity, it exists for the benefit of the stockholders, and the directors placed in charge of the corporate management are selected from among the body of stockholders, and are to conduct its affairs, so that there will be a return in the way of dividends to the stockholders. Directors, while in a legal sense agents for the corporate entity, sustain an entirely different relation toward the stockholders, and, indeed, a relationship peculiar to itself, unlike and not to be compared with any relationship existing under the admitted head of trusts, but one which, in parity of reason, is similar to other direct or implied trusts, and sufficiently analogous thereto to warrant courts, as many of them do, in so considering them. This reasoning applies alike to all classes of corporations, including banks, of which it is our purpose now to especially speak. Banking corporations transact an entirely different kind of business than do the class above mentioned. It is true that stockholders invest their money in the stock of banks for profit, and the bank is organized for engaging in the banking business, which consists largely in receiving upon deposit money of its depositors, and its principal business is in loaning the money so deposited, the amount of their loans, if a national bank, being limited by federal law, which is in the interest of the depositors.

While it is universally conceded among the decisions that the relation of debtor and creditor arises or exists between a depositor and bank, other than purely savings institutions,98 yet it would seem that because of the character of the business there ought to be a special rule of care applied to those placed in the management of such banks for the purpose of 98 See note 99, post.

handling people's money though it may be merely a variation of that degree of care designated as ordinary.

Directors of banking corporations occupy one of the most important and responsible of all business relations to the general public. Ordinarily, the character of the directory for integrity and business capacity is the measure of the degree of confidence reposed in the corporation by the public. The doctrine as almost universally supported by the authorities is to the effect that bank directors are not mere agents like cashiers, tellers and clerks, but that they sustain a further relation to the stockholders of trustees.99

99 California.-In Oakland Bank v. Wilcox, 60 Cal. 140, the question was involved, and seems to be resolved into a relation of trust.

Connecticut.-"The directors of a corporation occupy a position of the highest trust and confidence, and the utmost good faith is required in the exercise of the powers conferred upon them": Mallory v. The Mallory-Wheeler Co., 61 Conn. 131, 23 Atl. 708 (this was a manufacturing corporation).

English Rule.-"The directors of a company are trustees, and they have attached to them for the benefit of the shareholders all the liability and duties which attach to a trustee or agent": Great Luxembourg Ry. Co. v. Magnay, 25 Beav. 589; In re Coalbrook Ry. Co., 18 Beav. 339.

Illinois.-"We cannot concede that directors of banks are no more than servants and agents. They are this, it is true, but they are more. They are trustees of the bank, the stockholders and depositors, and to each they owe duties, for a violation of which the law will hold them liable. . . . . The depositors, when intrusting their entire fortunes to be informed that the directors upon whose honor and careful watchfulness they are relying, owe them no duty, were under no obligations to take at least reasonable precautions to guard their money from the itching fingers of dishonorable officials, they would certainly hesitate long before surrendering upon such terms, etc. For gross negligence or incompetency as shows a reckless disregard of their duties to care for and protect funds committed to their charge, we think they are directly