responsible to their depositors. .... The directors of a bank are not trustees for the stockholders alone, but they owe even an earlier duty to the depositors. The law is, as it ought to be, very zealous in exacting the strict and thorough performance of these duties, and it is in the scrutiny of the possible breaches of them that the rigid rule governing trustees has been applied": Delano v. Case, 17 Ill. App. 531, affirmed in 121 Ill. 247, 2 Am. St. Rep. 81, 12 N. E. 676. Kentucky.-"Bank directors are not mere agents like cashiers, tellers and clerks. They are trustees for the stockholders": United Society of Shakers v. Underwood, 9 Bush, 609, 15 Am. Rep. 731. Massachusetts.-"There is no legal privity, relation, or immediate connection between the holders of shares in a bank, in their individual capacity, on the one side, and the directors of the bank on the other. The directors are not bailees, the factors, agents or trustees of such individual stockholders": Shaw, C. J., in Smith v. Hurd, 12 Met. 371, 46 Am. Dec. 690, where it was held that an individual stockholder could not sue the directors for their negligence. New Jersey.-"If it is a trust at all, it is .... ... a direct one, for it arises immediately upon placing of the funds under the control of this body of officers. . . . . The transfer of such money is nominally to the corporation, but with the intent to put it under the . . . . control of the managers in whose appointment the depositor takes no part, his sole reliance being in the honor and general trustworthiness of such officers, and such an affair, as it admittedly creates an equitable right on the one side and correlative obligation on the other, necessarily establishes a direct trust”: Williams v. McKay, 40 N. J. Eq. 197, 53 Am. Rep. 775. .... New York.-"The actual and real relation between them and the corporation is that of agents acting for their principal: O'Brien v. Fitzgerald, 143 N. Y. 337; Hun v. Cary, 82 N. Y. 63, 37 Am. Rep. 546. And the directors may be sued at law for any damages caused by their culpable misfeasance or nonfeasance. . . . . The relation between a savings bank and its trustees or directors is that of principal and agent, and that between trustees and depositors is similar to that of trustee and of cestui que trust”: Hun v. Cary, are trustees of 82 N. Y. 63, 37 Am. Rep. 546. "The directors . . . the stockholders, and in a certain sense of the creditors": Bliss v. Matteson, 45 N. Y. 23, 26. "When agents, . . . . acting in a fiduciary capacity, understand that these rules will be rigidly enforced, . . . . the honest will keep clear of all dealings falling within their prohibition": Bain v. Brown, 56 N. Y. 288. To same effect, Duncomb v. New York etc. R. R. Co., 84 N. Y. 190. .... yet they North Carolina.-"While directors are not insurers. are trustees, and as such liable for losses attributable to their bad faith, misconduct or want of care": Townsend v. Williams, 117 N. C. 330, 23 S. E. 461; Clark, J., said: "They are trustees for the company, for the stockholders, for the creditors and for the state." Ohio. The directors are trustees and are responsible to the depositors and stockholders: Miesse v. Loren, 4 Ohio N. P. 100; Id., 5 Ohio N. P. 307. Tennessee. "They are mandataries; they are agents; they are trustees in the sense that every agent is a trustee for his principal; . . . . they more nearly represent the managing partners in a business firm than a technical trustee. At most, they are implied trustees": Shea v. Mabry, 1 Lea, 319; Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 33 Am. St. Rep. 625, 637, 15 S. W. 448. Texas. "Directors of banking corporations occupy one of the most important and responsible of all business relations to the public. .... ... • . . They assume that they will supervise and give direction to the affairs of the corporation, and impliedly contract with those who deal with it that its affairs shall be conducted with prudence and good faith. Creditors, customers, and stockholders all ... have the right to expect that these duties will be performed with diligence and fidelity, and that the capital . . . . will be protected against misappropriation and diversion from the legitimate purposes of the corporation. . . . . Customers act upon representations that the institution is solvent. It is the duty of the directors to know the condition," etc.: Seale v. Baker, 70 Tex. 283, 8 Am. St. Rep. 592, 7 S. W. 742. "It will be apparent from what has been said that the relation not only of principal and agent exists between the corporation and the director, but also the relation of trustee and cestui que trust exists between them and the stockholders": Seale v. Baker, 70 Tex. 283, 8 Am. St. Rep. 592, 7 S. W. 742. United States Courts.-"The law makes them trustees, and makes them liable as such from the necessities of the case. And it holds them liable for frauds and embezzlements committed in person, so it is obliged to hold them liable for like delinquencies committed by others, when permitted by their negligence. It is true that in the latter case, where the breach of faith is only passive, and not positive, equity, which looks to the conscience, although holding them liable, will treat them with all the leniency in its power by requiring those primarily bound to make restitution before calling on them": Mutual Bldg. etc. Bank v. Bossieux, 4 Hughes, 387, 3 Fed. 817; citing Goldsmith's Equity, 6th ed., 274. "And they held it in a very legitimate sense as trustees. Certainly they were the trustees of the stockholders": Jackson v. Ludeling, 21 Wall. 616. They are trustees: Koehler v. Black R. F. I. Co., 2 Black, 715. The relation between the corporation and them is rather that of principal and In Pennsylvania, the courts are not inclined to attribute to them the relation of trustees, although no very decided position is taken, except to hold that they are to be regarded as mandataries and not technical trustees.100 With respect to the relation which bank directors sustain toward the depositors, the rule has not yet been definitely settled, although the right of depositors to sue the directors in tort, as we shall presently see, has been clearly recognized,101 which is an acknowledgment that there is a duty owing by the directors to the depositors, but which does not necessarily imply a trust relation. It will be conceded that the relation which a bank, other than a savings institution, that is, the corporate entity, sustains to the depositor, is that of debtor and creditor, in the absence of any agreement to the contrary. There are no elements of a trust in such case, the bank not assuming to become a fiduciary as to the money deposited, nor does it agree to hold it in trust for the depositor.102 The agent, certainly so far as the creditors are concerned, between whom and the corporation the relation is that of contract, and not of trust. But undoubtedly, under circumstances, they may be treated as occupying the position of trustees to cestui que trust: Briggs v. Spaulding, 141 U. S. 132, 11 Sup. Ct. Rep. 924. 100 Spering's Appeal, 71 Pa. St. 11, 10 Am. Rep. 684. Sharswood, Justice, says: "It is by no means a well-settled point what is the precise relation which directors sustain to stockholders. They are, undoubtedly, said in many authorities to be trustees, but that, as i apprehend, is only in a general sense, as we term an agent or any bailee intrusted with the care and management of the property of another. It is certain that they are not technical trustees. They can only be regarded as mandataries-persons who have gratuitously undertaken to perform certain duties, and who are, therefore, bound to apply ordinary skill and diligence, but no more." 101 See sec. 137, post. 102 Shipman v. Bank, 126 N. Y. 318, 22 Am. St. Rep. 821, 27 N. E. 371; Hawes v. Blackwell, 107 N. C. 196, 22 Am. St. Rep. 870, 12 S. E. 245. right of a person to sue is, in a measure, an index to the relationship existing between parties, as no suit can be sustained unless a duty is owing from one to another. There is abundant authority in recognition of the right of a depositor of a bank to sue the directors in tort for their mismanagement of its affairs, whereby its funds have been diverted and wasted.103 Though in all instances it seems to be the opinion that the suit should be by the corporation, and that an action either by a stockholder or depositor or both, must be for the benefit of the corporation, the reason for this being that recovery must first be for the benefit of all the creditors, and second, for the stockholders. To permit a depositor who is regarded as a mere creditor to maintain such an action, there must be a further principle called in aid than that of debtor and creditor. It is the recognition of a right, in the case of a depositor in a bank as against the corporation or its directors, of a different character than the rights of creditors in the ordinary corporation, born of the nature of the business, and because the general public, who commit their fortunes to the care of the directors of banks, place special trust and confidence in them. It is a recognition of a duty which such directors owe to the depositors to conduct the business of the bank so that it will be able to return to the depositors the funds by them placed in the bank. The bank, the debtor, is the corporation; the director is the officer of the corporation and the cor poration itself, so that the debtor and creditor relation can have but little to do with the obligation of the directors to the creditors-the depositors. It is true that the corporation acts only through its di 103 See cases cited, secs. 135, 137, post, where this is specially considered. rectors and officers, and that the directors must carry out, or see that the engagements, as between the debtor and creditor-depositor and bank—are carried out. As a guaranty that the duties of the directors to the creditors-the depositors-may be carried out, the theory may be advanced that the law creates a new relationship or duty, not between the corporation and the creditor, but between the credi tor and the director direct, which naturally springs from the confidence and trust placed by depositors upon the honor and integrity and business ability of the directors, which is of a fiduciary relation, though not direct, but a relation of trust and confidence, that the directors shall faithfully perform their duties, so as to keep the bank solvent, which relationship may be said to ripen into an express relation of trust, when the bank becomes insolvent, or when the directors do anything illegal, and which will cause a decrease or diversion of the assets which they hold and manage for the benefit of the depositors. Such a theory calls in aid the principle, elsewhere discussed,104 that the assets of a corporation is a trust fund in the hands of the directors for fulfillment of the corporate obligations. In savings societies or savings banks, with reference to funds placed in such institutions by depositors there is clearly a trust relation between the directors and depositors.105 104 Ante, sec. 131. 105 Miesse v. Loren, 4 Ohio N. P. 100; Wood v. Dummer, 3 Mason, 311, Fed. Cas. No. 17,944. "In the case of a savings fund incorporated for the purpose of receiving the money of persons of humble fortune, and keeping it safely against the day of old age, want or illness, there is, in the nature of things and of common right, a trust coupled with the obligation, a duty not only merely to pay on demand, but to keep safely, and invest wisely, in order that there may be the means of payment. . . . . Every departure from ... |