Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/775

 CHAP. XIV.] OFFICERS AND CREDITORS. [§ 758. to account to creditors for the profits they have made from the use of the corporate funds for their personal advantage, although they might be accountable to shareholders for such profits. 1 § 758. Through gross neglect of their duties, directors may render themselves liable to creditors for the frauds or other wrongful acts of officers and agents of the of°dut|. leCt corporation other than themselves, by which cred- itors have suffered injury. If it is the duty of directors to supervise the actions of each other and of the other officers of the corporation, and through gross neglect of duty on the part of directors, the funds of the corporation are embezzled or wasted by others, as they could not have been had the directors attended to their duties, the delinquent directors will be lia- ble to the persons to whom they owe the duty of supervising the corporate affairs for the loss. This duty directors owe to the corporation as the representative of the interests of all persons in the corporate funds. If the corporation fails to enforce it, or to sue for the damages which a breach of it has occasioned, the shareholders may proceed against the directors. 2 Directors also owe this duty to creditors, since for them as well as for shareholders the corporate funds are held in trust. Consequently, if it can be shown that had it not been for the gross negligence of directors, the wrongful acts of the other officers could not have been committed, all the directors who have been either dishonest or delinquent will be liable for the consequences of such acts to creditors of the corporation who are injured. 3 If, indeed, it should be held that the creditor 1 Lexington R. R. Co. v. Bridges, 7 B. Mon. (Ky.) 556. But see Thomas v. Sweet, 37 Kan. 183. 2 See § 694. 3 Directors who misappropriate corporate funds or through culpable negligence allow other corporate agents to do so, will be individually liable to judgment creditors, whose executions against the corporation have been returned unsatisfied. Shea v. Mabry, 1 Lea (Tenn. ), 319. See, also, Maisch v. Saving Fund, 5 Phila. 30; Penn Bank v. Hopkins, 17 Weekly Notes (Pa.), 49. When the guilty directors control the corporation no previous demand on the corporation to sue need be alleged. lb. And compare Robinson v. Smith, 3 Paige (N. Y.), 222. In an action against the directors of an insolvent bank, the complaint charged that bonds, specially de- posited with the bank, were wrong- fully taken by its officers, and by them converted to the use of the bank without authority from the plaintiffs, and that the defendants had, or by the most ordinary dili- gence and investigation, could have 755