Nashville union and American. [volume] (Nashville, Tenn.) 1868-1875, 1872-07-17
an ImpoRrANr pEclsloS.
The Responsibility of Directors TO
stockholders. ~

stockholders.
An important decision was recently rem
dered in the United States District Court
in Bankruptcy at Philadelphia, touching
upon the responsibility of directors to stock
holders. Tie case was that of SperiDg VS..
Smith, the National Safety Fund case, the
company having suspended in 1861.
Judge Sharswood said, in reference to
the responsibility of the directors: "We
may adopt upon this point the language Of
Z. j. Greene, in Hodges VS.. the New Eng
land Screw Company. l Rhode Island,
SIN considering the question Of the per
sonal responsibility of the directors we
shall assume that they violated the charter
OF the screw company. The question then
Will be, Was such violation the result Of
mistake as to their powers, and, If so, did
they fall into the mistake from want Of
proper care, such care as a man of ordinary
prudence practices in his own affairs?
For, If the mistake be such as with proper
care might have been avoided, they
ought to be liable. If, on the other hand,
the mistake be such as the directors might
well make, Notwithstanding the exercise of
proper care, and if they acted in good faith
and for the benefit of the screw company,
they ought not to be liable" We may say
in this case, conceding that the directors did
violate the charter, 1t was question upon
which, with all due care, they might have
made an honest mistake; and, moreover. it
appears by the evidence, and is so reported,
that they acted throughout by the advice of
their counsel.
Upon the merits of this decision the Phil
adelphia Inquirer remarks:
The opinion Of the Supreme Court of
this State In the case of Spering vs.. Smith,
dissipates the hopes of a large number of
persons who were depositors in the Nation
al Safety Insurance and Trust Company,
that they will ever recover the moneys
which they had intrusted to that institu-
ton. That corporation failed under pecu-
liar circumstances. 1t had managed to obtain
control of considerable amounts of money
from the deposits CT a large number OF
persons who were induced to take the risk
by promise fthe parment of an interest of
five per cent on balances. These induce
ments, seconded by liberal advertisements,
brought in large amounts of money, the de-
pOsitors not seeming to consider that an
institution which was limited to one per
cent profit, if its investments were legal at
six per cent interest, would be tempted to
loan its money at a much higher rate, even
if there should be great risk in such trans
actions. In due time the company failed,
showing assets quite insufficient, which
proved that a large amount of the
money had been so iDiudiciously invested
that it was lost, and the circumstances
proving bad management, if not fraud, on
the part of the directors. Some Of the
stockholders therefore brought suit against
all the directors between 1850 and 1861,
upon the allegation that they had misman-
aged the funds, and by want of good iudg-
ment jeopardized the investments which
were frequently made, in doubtful securi-
ties, and upon collaterials which, when the
day of trial came, proved to be worthless.
This case has eXemplified the proverbiel
laws delay by a twelve years'i habitation
in the courts. The company failed in 1860,
and twelve years afterward the Supreme
Court finishes the story. There are two
points involved in this judgment. One is:
That in case ofthis kind where the direct
ors of a company are charged with mis-
magement the remedy can only be enforced
against such of the officers as were in
the discharge of their duties within
six years previous to the time
when the bill was filed. The
statute of limitation protects the directors
who had seized their functions before the
| commencement of the six years.
The most important point of the decis-
| ion is that these directors cannot be made
responsible for their mismanagement un-
! less it can be shown that they embezzed
or misappled the funds to their Cwn par
| ticular profit. The law will only require
that officers of corporations of that charac-
| ter shall act according to their best judg-
ment, although that Judgment may be
weak, uD5usiness-like and highly Injurious.
| They are not liable, the court says, "FOr
mistakes of judgment, even though they
may be so gross as to appear absurd and
ridiculous, and provided they are fairly
within the scope of the powers and dis
! cretion cOntided to the managing
body" The test as to whether the direc-
tors are to be held personally responsible,
seems to depend upon the question wheth-
er the acts complained of were done for the
| personal profit of themselves. If they were
not attempting to use the funds of the in
stitution in their own speculations, if they
were nanifestly endeavoring to make
profit for the stockholders even although
they were greatly mist AIKEN in judgment as
| to the effect of their investments, they can
not be held personally responsible.
The idea of the law evidently is that, as
the directors are chosen by the stockholders
to attend to the business of the latter, it is
intended not to give them an authority
which may be dangerous, although they
may endeayor to do their best, but to pro-
tect them against their mistakes, or even
their recklessness, so long as their acts were
not governed by considerations of personal
advantage. The National Safety Insurance
and Trust Company made bad failure
The great hope Of tbs depositors was that
the officers of the company could be made
responsible for the money that was lost
This now being demonstrated an impOssi
bility, the assignee, Joshua Spering, viii
doubtless at once file his report, and pro-
coed to distribution. The dividend, we sus-
/