Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/776

 § 759.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. himself could not sue in the absence of some enabling statutory provision, he could in case of the insolvency of the corporation — the only case in which his interests ordinarily would have been injured 1 — apply for the appointment of a receiver, whose duty it would then be to sue the delinquent directors, and ap- ply the moneys recovered to the discharge of the corporate in- debtedness. 2 § 759. When a corporation becomes insolvent, the duty of its directors towards its creditors becomes even stricter and more imperative ; for, under such circumstances, the rights of creditors are paramount, and it has be- come probable that they will be somewhat damaged ; and the plain duty of directors, who control the funds from which corporate debts are paid, is to see that the loss is as small as possible. Moreover, since, upon the in- solvency of the corporation, the rights of unsecured creditors are equal, it would seem to be improper, even in the absence of a statute expressly forbidding it, for directors to make pref- Di rectors' duties to creditors on the in- solvency of the cor- poration. had ample notice of this. The com- plaint was held good; the following being in substance the views taken by the court. The defendants could not rely on any lack of privity be- tween them and the plaintiffs. In a certain sense, directors are the bank, and the public has a right to expect reasonable care from them. They owe this duty to creditors of the bank. It is the duty of directors to use ordinary diligence to acquaint themselves with the business of the bank, and whatever information might be acquired by ordinary atten- tion to their duties, they may, in controversies with persons doing business with the bank, be presumed to have. They canuot then be heard to say that they were not apprised of facts showu to exist by the books of the bank, and which would have come to their knowledge except for their gross neglect. It is not neces- sary in many cases to show that the 756 directors actually had their attention called to the mismanagement of the bank's affairs or to the misconduct of the subordinate officers. It is sufficient to show that the evidence of such mismanagement or miscon- duct was sufficient to apprise them of it, had they not been grossly neg- ligent or wilfully careless in the dis- charge of their duties. United Society of Shakers v. Underwood, 9 Bush (Ky.), C09. Cf. Miller v. How- ard, 95 Tenn. 407. 1 Compare Frost Mfg. Co. v. Foster, 76 Iowa, 535; Houston v. Thornton, 122 N. C. 365. For the question of the liability of directors for the death of a person killed by an explosion of powder kept by the corporation in violation of law, see Cameron v. Kenyon-Con- nell Com. Co., 22 Mont. 312. 2 Compare Attorney-General v. Guardian Mut. Insurance Co., 77 N. Y. 272.