McEwen v. Kelly

• Citation: 79 S.E. 777,140 Ga. 720
• Parties: McEWEN v. KELLY et al.
• Decision Date: 15 October 1913
• Court: Supreme Court of Georgia

79 S.E. 777

140 Ga. 720

McEWEN v. KELLY et al.

Supreme Court of Georgia

October 15, 1913

Syllabus by the Court.

Directors of a trading corporation must exercise ordinary care and prudence in the administration of its affairs. They may commit the active management of the business to authorized officers; but this will not relieve them from the duty of reasonable supervision.

A trustee in bankruptcy of such a corporation succeeds to any right which it may have to sue directors and officers for a breach of duty, resulting in loss.

In a solvent going concern directors are the agents and fiduciaries of the corporation rather than of its creditors but, under some circumstances, creditors of the corporation may have a cause of action against its directors on account of losses occurring from their maladministration and ultimately resulting in injury to the rights of such creditors.

The allegations of the petition considered, and held not to show a case for recovery against the directors of the corporation, except the one who was also secretary and treasurer.

After a judgment has been entered sustaining a demurrer to an action brought against three defendants and dismissing the entire case, and while the case is pending in this court on a bill of exceptions assigning error on such judgment, the judge of the trial court is without jurisdiction, even by consent of counsel, to enter another judgment reciting that it was intended to overrule the demurrer as to one of the defendants and altering the former judgment accordingly.

Error from Superior Court, Bartow County; A. W. Fite, Judge.

Action by C. McEwen, as trustee, etc., against W. M. Kelly and others. Judgment for defendants, and plaintiff brings error. Affirmed in part, and reversed in part.

J. T Norris, of Cartersville, for plaintiff in error.

Thos W. Milner & Son and Noel & Neel, all of Cartersville, for defendants in error.

LUMPKIN J. (after stating the facts as above).

1. Directors of a private corporation occupy a somewhat peculiar position. They have been variously classified as agents mandataries, bailees, and trustees; and it has been sought to define their duties and liabilities to the corporation and its stockholders on the basis of such relations. A great deal of learning has been expended, and perhaps some of it wasted in efforts to rigidly apply one or another of these analogies to facts to which it has not always been fully applicable. Directors are agents, but they are also agents clothed with a fiduciary character; and, while they are not express or technical trustees, they are selected to manage the affairs and property of the corporation for its benefit, and they bear to it and to its stockholders a relation which in many respects may he called a trust relation; and thus by numerous courts they have been called trustees. Aside from any express statutory liability, those who accept the position of directors impliedly undertake to exercise ordinary care and diligence in discharge of the duties thus committed to them. They may commit the active transaction of the business to duly authorized officers; but this does not absolve them from the duty of reasonable supervision. Some courts have declared that they are only liable for gross negligence or breach of duty resulting in injury. But in some, probably most, of the cases so declaring, it will be found that the failure of directors to use ordinary care in supervision has been treated as amounting to gross negligence. Thus in Hun v. Cary, 82 N.Y. 65, 37 Am.Rep. 546, it was said that, "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." In 2 Thompson on Corporations (2d Ed.) § 1268, it is said: "While they are not held responsible for ordinary mistakes or errors of judgment, they are liable for losses and waste of money and property occurring from neglect or inattention to the business or the willful violation of their duties. It is true that the degree of diligence is to be determined in each case in view of all the circumstances, such as the character of the corporation, the condition of its business, the usual method of managing such companies, as well as all other relevant facts." Breach of duty and loss or damage must concur to create liability. In Briggs v. Spaulding, 141 U.S. 132, 11 S.Ct. 924, 35 L.Ed. 662, the decision of the majority of the court was concurred in by five justices, while four strongly dissented. The justices differed as to whether the facts there involved showed a case for holding certain directors liable, and the discussions in the two opinions are interesting. We deem it unnecessary here to deal with the exercise of discretion by directors, or the ordinary rule as to it, or the question whether liability may arise from its gross or flagrant abuse. Unfortunately some directors appear to think that they have fully discharged their duties by acting as figureheads and dummies; but this is a mistake and a delusion from which some of them are now and then awakened by a judgment for damages arising from allowing the corporation to be looted while they sat negligently by and looked wise.

2. A trustee in bankruptcy succeeds to any right of the corporation to sue for damages resulting to it by a breach of duty on the part of its directors. 2 Thomp....