New Haven Trust Co. v. Doherty

• Citation: 75 Conn. 555,54 A. 209
• Parties: NEW HAVEN TRUST CO. v. DOHERTY et al.
• Decision Date: 04 March 1903
• Court: Supreme Court of Connecticut

54 A. 209

75 Conn. 555

NEW HAVEN TRUST CO.

v. DOHERTY et al.

Supreme Court of Errors of Connecticut.

March 4, 1903.

Appeal from superior court, New Haven county; John M. Thayer, Judge.

Action by the New Haven Trust Company against John B. Doherty and others to recover damages from defendants, as directors of the Connecticut Life insurance Company of Waterbury, for their negligent investment of the company's funds. From a judgment in favor of plaintiff, defendants appeal. Affirmed.

The averments of the complaint which are denied by the answer are substantially these: The defendants were actively engaged in the management of the company, etc., and it was their duty to see that its assets were safely invested and preserved. The defendants caused the money of the company to be loaned upon an indorsed note secured by the mortgage of a vessel. No payment of the note has been made, and the maker and in-dorsers are unable to pay the same. The vessel mortgaged was an improper and inadequate security for the same, and is now worthless. The defendants wrongfully and negligently failed to obtain proper and sufficient security for said loan, or any security such as the statute requires; and, by reason of their said failure and neglect, the sum loaned, with all interest thereon, has been lost to the company.

The denials of the answer were accompanied by the affirmative allegation that the loan was secured, in addition to the mortgage, by certain bonds, as collateral therefor, of a par value of more than 25 per cent. above the amount of said loan, and the defendants and other agents of the company made reasonable investigation as to the amount and value of said security and collateral, and the defendants believed that said bonds had at the time of said loan a market value of more than 25 per cent. in excess of the amount of said loan, and the defendants believed that said loan, and the payment thereof, were fully secured by the security received. This allegation was denied by the reply.

The judgment, at the request of the defendant Platt, specially sets forth the facts found, as follows: This action was brought pursuant to an order of this court in an action of Frederick A. Betts, insurance commissioner, against said insurance company, entered January 10, 1900. Said company carried on the business of life insurance in said Waterbury from January 16, 1894, to July 14, 1898. During the whole of said period said Doherty was the secretary of said company, and from January 16, 1894, to July 12, 1897, the said Piatt was president, and from September 20, 1897, to July 26, 1898, was first vice president, of said company; and during the whole of said period from January 16, 1894, to July 14, 1898, both the said defendants were members of the board of directors—sometimes called the "executive committee"—and were actively engaged in the management of said company, in the investment of its funds, the collection of its income, and in the general management of its affairs, and it was their duty to see that its assets were safely invested, collected, and preserved.

On or about March 21, 1895, the defendants caused $9,815 of the money of said company (being the amount of the note hereafter mentioned, less discount at 6 per cent. for 111 days) to be loaned to S. A. Dutton, and accepted therefor on behalf of said company his promissory note for that sum, dated March 14, 1895, payable to the order of himself 4 months after date, and indorsed by him, and also by H. M. Munsell and M. I. Munsell, and also accepted from him, in behalf of said company, as security for said note, a mortgage deed dated March 22, 1895, of a certain vessel, known as the "Jessie B." The defendants also, in behalf of said company, accepted as additional security for said note $10,000, face or nominal value, of the bonds of the Waterbury Land Improvement Company of Waterbury, Conn., from one S. P. Williams. Said note, when due, was duly presented for payment, and payment thereof refused, and was duly protested for nonpayment, and no part thereof has ever been paid. Said vessel, when mortgaged as aforesaid, was registered and located in the state of New York, and was wholly inadequate security for said note, and when the same became due was worthless, and has so remained. At the time said loan was made and said bonds accepted as aforesaid by the defendants, said bonds did not have a market value of 25 per cent. in excess of the amount loaned thereon as aforesaid, and, when said note became due, were worthless. The defendants took no other security for said loan than that above stated, and negligently and wrongfully failed and omitted to obtain proper and sufficient security therefor; and by reason thereof the whole of said loan, with interest thereon, has been lost to said company. The plaintiff has been damaged thereby the sum of $14,280.83. As a conclusion of law from these facts, the court finds that the plaintiff is entitled to recover from the defendants said sum.

The finding for appeal states the subordinate facts found, bearing upon the conclusion of negligence, and such other facts as are material to the presentation of questions of law arising in the trial.

Henry Stoddard, William H. Ely, and Lucien F. Burpee, for appellants.

Henry C. White and Leonard M. Daggett, for appellee.

HAMERSLEY, J. (after stating the facts). A director of a stock corporation, when acting for it in the conduct of its business, is its agent, and indirectly the agent of all the shareholders. Like every agent, he may be personally responsible to his principal for negligence or misconduct in conducting the business intrusted to him. Ordinarily directors, acting in good faith and within the scope of their authority, are not liable for the disastrous consequences of a mere mistake in judgment. But there is no general rule of liability for wrongful neglect in the exercise of such agency, applicable to directors as a class by themselves, independently of the law which prescribes and defines the duties and liabilities of agents, The duties and liabilities of directors must depend in each case upon the terms of their agency and the particular circumstances of the case. The fact that their services are gratuitous, when it is a fact, may have some weight. The fact that they have put themselves in the position of dealing as directors with themselves as individuals; that the funds in their charge are not committed to them for ordinary business operations, but have been contributed to the corporation by others in the trust and confidence that they will be safely invested and preserved to meet the liabilities incurred to the contributors, and which must arise in the near or far distant future, as in the case of savings banks and life insurance companies; that they act in excess of their authority or of the powers of the corporation; that they act in violation of the plain prohibition of statute law—together with other circumstances, may each effect the kind and degree of care required by law of a director in making or approving a particular investment, and his liability for any loss thereby caused.

In the present case the defendants were the principal officers of a life insurance company, actively engaged in its management and the investment of its funds,...