Woodward v. Stewart

Citation101 S.E. 749,149 Ga. 620
Decision Date12 December 1919
Docket Number(No. 1341.)
PartiesWOODWARD. v. STEWART.
CourtSupreme Court of Georgia

(Syllabus by the Court.)

Error from Superior Court, Fulton County; J. T. Pendleton, Judge.

Suit by A. M. Stewart, receiver of the Citizens' Bank of East Point, against J. C. Woodward and others. Demurrers of defendant Woodward to the petition as amended overruled, and he brings error. Reversed.

Brewster, Howell & Heyman, of Atlanta, for plaintiff in error.

Edgar A. Neely, Geo. Westmoreland, and Alfred Broom, all of Atlanta, and J. F. Golightly, of Fairburn, for defendant in error.

HILL, J. The judge of the superior court of Fulton county, in response to a petition filed by three named stockholders of the Citizens' Bank of East Point, made an order requiring the receiver of the bank to bring suit against the directors of the bank to require them to account to the stockholders for their loss by reason of the alleged failure of the directors to perform their duty, or duties, as such. Suit was accordingly filed by the receiver against several persons alleged to be the directors of the bank. The petition alleged that the bank had lost large sums of money on account of bad loans made by the cashier of the bank by reason of the negligence and nonfeasance on the part of the directors, and because of the failure of the directors to perform the duties required of them by the by-laws of the bank and the laws of the state of Georgia. The prayers of the petition were for a judgment against the defendants for the use of three named stockholders, for the cost of their stock to them, besides interest, after deducting dividends which had been paid upon the stock, that such other persons as might be similarly situated be permitted to come in and be made parties to the case, and that judgment be rendered for such persons, and that the directors be required to account to all stockholders not directors for any loss sustained by them by reason of the negligence of the defendants. The plaintiff in error, J. C. Woodward, filed general and special demurrers to the petition. The several grounds of the special demurrer were sustained, save one; but the court did not pass upon the general demurrer at that time, and allowed the plaintiff 30 days within which to amend. Within the time allowed the plaintiff offered several amendments for the purpose of curing the defects pointed out by the special demurrer. The amendments were allowed over the objection of the defendant on the ground that the petition as it stood set out no cause of action against him, and did not contain enough to amend by. Woodward also renewed his original demurrer to the amendment as offered, and also to the petition as a whole after the amendment was allowed. Certain paragraphs of the amendment were stricken on special demurrer, after which all the demurrers were overruled, and Woodward excepted.

The question to be determined is: What is the measure of duty imposed upon bank directors by the laws of this state and the by-laws of the bank, and whether the plaintiff in error is liable to other stockholders of the Citizens' Bank of East Point, who are not directors, for a breach of such duty under the allegations of the petition; in other words, what is the degree of care which should be exercised by directors of a bank In the performance of their duties? And does the petition show such breach of duty? In 2 Thompson on Corporations (2d Ed.) § 1265, the author, after stating that the courts are not agreed upon the extent of the liability of directors, says that they are practically unanimous on the proposition that directors are bound to administer the affairs of the corporations according to the terms of the charter or governing statute with diligence and in good faith, and that, if they fail in either respect, they are liable to the party in interest who is injured by such breach of trust, and a court of equity will compel an accounting. This liability of directors to the corporation for damages caused by the negligent or unauthorized acts is said to rest upon the common-law rule which renders every agent liable who violates his authorityor neglects his duty to the damage of his principal. And it is now generally agreed, continues the same author, that no matter whether the act is prohibited by the charter or by-laws, the liability is on the ground of violation of authority or neglect of duty. See, also, to the same effect, 10 Cyc. 828 (19m).

The degree of care required of directors is thus laid down in Thompson on Corp. § 1266:

"The measure of liability must necessarily be the degree of care required, and the degree of care which directors are bound to exercise depends on their relation to the corporation. The courts that adhere to the principle that directors are the agents of the corporation apply to them the same rules in the measure of liability as those imposed upon the agents of natural persons who receive a compensation for their services. The general rule as to the measure of care, skill, and diligence required of the directors of a corporation may be said to be such as prudent men exercised in the conduct of their own affairs, and this must be determined in each case in view of the circumstances. The rule as otherwise expressed is that directors must answer for ordinary neglect; and 'ordinary neglect' is understood to be the omission of that care which every man of common prudence takes of his own concerns. In a recent Missouri case, on the examination and citation of many authorities, the court adopted the rule that the directors of a bank were only required to act in good faith and to exercise such a degree of care as a reasonably prudent man would exercise under the same circumstances; that they were not bound to that degree of care which a prudent man would exercise in his own business. The stockholders divest themselves of the immediate control of their property and select directors as agents to manage and control the affairs of the corporation, and they expect, and have the right to expect, that the persons so selected will exercise ordinary care and prudence in the trusts thus committed to them, the same degree of care and diligence that men prompted by self-interest 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.' "

In Stone v. Rottman, 183 Mo. 552, 82 S. W. 76, Fox, J., delivering the opinion of the court, said:

"The degree of care directors are bound to exercise cannot be better stated than in the opinion of Chief Justice Fuller in the leading case of Briggs v. Spaulding, 141 U. S. 132, loc. cit. 150, 11 Sup. Ct. 924, 930, 35 L. Ed. 662: 'No one of the defendants is charged with the misappropriation or misapplication of, or interference with, any property of the bank, nor with carelessness in respect to any particular property, but with the omission of duty which, if performed, would have prevented certain losses, in respect of which complainant seeks to charge them. * * * Treated as a cause of action in favor of the corporation, a liability of this kind should not lightly be imposed, in the absence of any element of positive misfeasance, and solely upon the ground of passive negligence; and it must be made to appear that the losses for which defendants are required to respond were the natural and necessary consequences of omission on their part. * * * In any view the degree of care to which these defendants are bound is that which ordinarily prudent men would exercise under similar circumstances and in determining that the restrictions of the statute and the usages of business should be taken into account. What may be negligence in one case may not be want of ordinary care in another, and the question of negligence is therefore ultimately a question of fact, to be determined under all the circumstances.' And again, in the same case (page 165, 141 U. S., page 935, 11 Sup. Ct,, 35 L. Ed. 662), he says: 'We hold that directors must exercise ordinary care and prudence in the administration of the affairs of the bank, and that this includes something more than officiating as figureheads. They are entitled under the law to commit the banking business as defined to their duly authorized officers, but this does not absolve them from the duty of reasonable supervision, nor ought they to be permitted to be shielded from liability because of want of knowledge of wrongdoing, if that ignorance is the result of gross inattention.' Judge Hughes said, in Trustees v. Bossieux (D. C.) 3 Fed. 818 (s. c. [D. C.] 3 Fed. 387): 'If. by reckless inattention to the duties confided to them by their corporation, frauds and misconduct are perpetrated by officers, agents, and codirectors which ordinary care on their part would have prevented, then I think it may with truth be said that it is now elementary law, to be found in all the books, that directors are personally liable for the losses resulting; i. e., for gross negligence, or what the jurists call "crassa negligentia."" Stapleton v. Odell 47 N. T. Supp. 15; Savings Bank v. Caperton 8 S. W. 885, 12 Am. St. Rep. 488.

"The referee is of the opinion that the director of a bank is only required to act in good faith, and to exercise such a degree of care as a reasonably prudent man would exercise under the same circumstances. He is net bound to exercise the same degree of care which a prudent man would exercise in his own business. This is too high a standard. 'To expect a director under such circumstances to give the affairs of the bank the same care that he takes of his own business is unreasonable,...

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3 cases
  • Council v. Brown
    • United States
    • Supreme Court of Georgia
    • June 14, 1921
    ...... conclusion of the pleader. The petition should allege in what. respect the directors failed in their duty. See, in this. connection, Woodward v. ......
  • Council v. Brown
    • United States
    • Supreme Court of Georgia
    • June 14, 1921
    ......The petition should allege in what respect the directors failed in their duty. See, in this connection, Woodwardwhat respect the directors failed in their duty. See, in this connection, Woodward v. Stewart......
  • Woodward v. Stewart
    • United States
    • Supreme Court of Georgia
    • December 12, 1919
    ...101 S.E. 749 149 Ga. 620 WOODWARD v. STEWART. No. 1341.Supreme Court of GeorgiaDecember 12, Syllabus by the Court. The general rule in this state is that directors of a bank must exercise ordinary care and diligence in the administration of its affairs. The active management of the bank may......

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