Court Opinion

ID: 6980617
Source: CourtListenerOpinion
Date Created: 2022-07-24 02:18:55.227048+00
Date Added: 2024-06-11T09:12:33.113627
License: Public Domain

Mr. Justice Stone, dissenting: I cannot concur in the opinion filed in this case so far as it relates to the bill against appellee Billings. The original bill filed against Billings alone in 1910 was predicated on his alleged negligence in failing to perform his duties as director of the Home Savings Bank. This bill was filed within five years of the failure of the bank, and it is not questioned that it was filed within the statute. The amended original and supplemental bill filed August 21, 1918, made all of the directors of this bank, including Billings, parties defendant, and, as I view it, was predicated upon the negligence of all the directors of the bank, and it further contained the additional charge of willful, deliberate and continuous failure of those directors to perform their duties as such; that by the negligence of the directors, and their willful, deliberate and continuous failure to perform their duties as such, the losses occurred and the bank failed. That the amended original and supplemental bill was open to the defense of the Statute of Limitations, so far as the defendants other than Billings are concerned, seems clear, and in that portion of the opinion I concur. The opinion filed does not pass upon whether or not the original bill stated a cause of action, but, in effect, holds the amended original and supplemental bill abandoned the original charge of negligence and was predicated solely on the willful and deliberate failure of the directors to perform their duties. The language of the bill will not admit of that construction. The original bill, after averring the relationship of Billings to the bank, sets out in detail his duties as director as prescribed by the by-laws and the principles of good banking. It then charged that he wholly failed and neglected to perform those duties, averring numerous respects in which that failure occurred, and that by reason of such negligent conduct on his part, and as a result thereof, the losses to the bank occurred. The original bill then sets out different special items of loss, and prays that Billings may account for such loss by reason and in consequence of his negligence in violation of his duty as director of the bank and that he be decreed to pay such losses. The amended original and supplemental bill, after setting out the duties set forth in the by-laws, averred that it was the duty of the directors, including Billings, to perform them, but that they “utterly failed and neglected” to do so. That bill then charges that the directors willfully, deliberately and continuously failed to perform their duties as directors. It also charges “that as the direct and immediate cause and consequence of such failure and neglect on the part of said directors and said officers to observe, perform and discharge their said duties,” the bank became insolvent and the stockholders sustained the losses set out in that bill. It then sets out various specifications of duties which by reason of their negligence and willful and deliberate failure the directors did not perform. This bill also charges that the directors, and each of them, knew, “or by the exercise of ordinary care and diligence would have learned and known, that Walsh would be unable to secure the bank against loss as to his loans.” After specifying the losses to the bank the bill charges “that as the direct result and consequence of the neglect and unlawful conduct of the directors of the Home Savings Bank as herein set forth, and the unlawful misappropriation of the funds of the Home Savings Bank by John R. Walsh, * * * the Home Savings Bank sustained and suffered the loss of the greater part of its money, assets and property,” etc. The bill also charges that this loss was “brought about by the willful, deliberate and continuous negligence of the board of directors of the Home Savings Bank and of each member of said board, and their failure to supervise the business, property and affairs of the bank, and to supervise and control the affairs of the bank, and .to guard and protect its funds, assets and property from the unlawful misappropriation and waste in this bill set forth, as it was their plain duty to do.” The prayer of the bill is “that an accounting may be had of the moneys, funds and property of the Home Savings Bank which were unlawfully, wrongfully and fraudulently misappropriated, misapplied, lost or wasted, or permitted or suffered to be misappropriated, misapplied, lost or wasted, by reason and in consequence of the negligence of the defendants, [naming them,] and that the loss and damage which the Home Savings Bank has sustained by reason of such negligence may be ascertained and assessed, and may be adjudged to be paid by the defendants in this cause, or some of them.” From these averments in the amended original and supplemental bill it appears to me, beyond argument, that it is based both upon the charge of negligence in the performance of the duties of the directors, including Billings, and that of willful and deliberate wrongdoing on their part. In the former charge the last bill in nowise departs from the original bill filed in this case against Billings. If this be true,—and it seems to me incontrovertible,—it certainly follows that the defense of the running of the Statute of Limitations does not exist as to Billings, so far as concerns the charge of negligence contained in both bills. Even though it be conceded that a joinder of these two charges renders the bill multifarious, it cannot be said that it amounts to an abandonment of the charge in the original bill. It is not assigned on demurrer or argued that the bill is multifarious. Such objection must be specified on demurrer. (Labadie v. Hewitt, 85 Ill. 341.) The appellant here should not be deprived of the right to a hearing on the merits of the charge of negligence set out in both these bills. The opinion does not pass upon whether or not the original bill stated a cause of action, nor, under the view taken in the opinion as to the abandonment of the original bill, was it necessary so to do. That question should be determined on this record. If the original bill states a cause of action Billings should be required to answer the charge of negligence in the last bill filed. The basic question in this lawsuit, so far as defendant Billings is concerned, is his liability for negligence in failing to perform his duties as director. The question is one of the duty of bank directors toward stockholders. Directors of a bank are selected by the stockholders to manage the business of the bank. Their selection arises out of the confidence reposed in them by the stockholders. No bond is required of them. Their acts in the regular course of the business of the bank are the acts of the highest authority within the corporation. No hard and fast rules can be laid down concerning their duties. By the decisions of this court and those of other jurisdictions, they may in general be stated to be the exercise of such care, skill and diligence in the transaction of the business of the bank as prudent men exercise in the conduct of their own affairs. That duty is one of ordinary diligence and care in the supervision and control of the affairs of the bank and in knowing the condition of its business. Directors are not insurers against loss to the bank, nor are they guarantors of the fidelity and honesty of its officers, nor against losses arising from the defalcation or wrongdoing of such officers, provided the diligence and care of a prudent man have been, exercised by them in the control and supervision of the transactions of such officers. What constitutes ordinary care on the part of a bank director depends upon the circumstances surrounding the occasion calling for its use. ' If he knows or should have known of facts or occurrences that would arouse the suspicion of a prudent man the degree of care required is that commensurate with the evil involved. He cannot say, “I did not know,” when a prudent man would have found out. While he cannot be required to go over the routine of every day’s business of the bank, he should have a general knowledge of such matters as require the supervision and approval of the directorate and exercise such supervision in accordance with the laws governing the corporation and its bylaws. These rules are based upon reason and have been recognized and adopted, in substance, by this court and those in numerous other jurisdictions. Chicago Title and Trust Co. v. Munday, 297 Ill. 555; Bowerman v. Hamner, 250 U. S. 504; Warner v. Penoyer, 91 Fed. 588; Charitable Corporation v. Sutton, 2 Atkins, 400; Wilkinson v. Dodd, 42 N. J. Eq. 234; Robinson v. Smith, 3 Paige, 222; 2 Thompson on Corporations,—2d ed.—sec. 1266. It has been held in this State and other jurisdictions that directors of a bank who do not use reasonable diligence in giving attention to their duties are equally liable with those by whose acts the loss occurs if they negligently suffer such loss to occur through inattention to duty on their part. Chicago Title and Trust Co. v. Munday, supra; Delano v. Case, 121 Ill. 247; Bowerman v. Hamner, supra; Ackerman v. Halsely, 37 N. J. Eq. 364; Corbett v. Woodward, 5 Sawyer, 403; Fisher v. Parr, 92 Md. 245. The law of this State does not differentiate in the duties of directors. It follows that in a suit by a stockholder, consent or acquiescence on the part of the stockholder to an arrangement whereby a director may limit the performance of his duties as such, is available only as an affirmative defense, unless such consent or acquiescence is shown by the bill. In Bowerman v. Hamner, supra, it was sought to hold Bowerman, as director of a national bank, for negligence in not attending meetings and assisting in supervising the affairs of the bank. Bowerman lived two hundred miles from the bank, and it was urged that as he was not a resident of the city in which the bank was located he should not be held to the same degree of accountability as resident directors. The evidence in that case showed that though Bowerman was a director in the bank he had not for five and one-half years attended directors’ meetings. The court in that case said: “That ordinarily prudent and diligent men accepting election to membership in a bank directorate would not willfully absent themselves from directors’ meetings for years together, as Bowerman did, can not be doubted; that a director who never makes or causes to be made any examination whatever of the books or papers of the bank to determine its condition and the way in which it is being conducted does not exercise ordinary care and prudence in the management of the affairs of the bank is equally clear; and that Bowerman, when guilty of negligence in both of these respects, did not exercise the diligence which prudent men would usually exercise in ascertaining the condition of the business of the bank or a reasonable control and supervision over its affairs and officers is likewise beyond discussion. He cannot be shielded from liability because of want of knowledge of wrongdoing on his part, since that ignorance was the result of gross inattention in the discharge of his voluntarily assumed and sworn duty. * * * He was a man of such importance and reputation that the use of his name must have contributed to securing the confidence of the community and of depositors for the bank, and it would be a reproach to the law to permit his residence at a distance from the location of the bank,—a condition which existed from the time he first assumed the office of director,—to serve as an excuse for his utter abdication of his common law responsibility for the conduct of its affairs and for the flagrant violation of his oath of office when it resulted in loss to others.” In Briggs v. Spaulding, 141 U. S. 132, the court said: “Directors must exercise ordinary care and prudence in the administration of the affairs of the bank, and this includes something more than officiating as figureheads. They are entitled under the law to commit the bank’s business, as defined, to their duly authorized officers, but this does not absolve them from the duty of reasonable supervision; nor ought they be permitted to be shielded from liability because of want of knowledge of wrongdoing, if such ignorance is the result of gross inattention.” In Chicago Title and Trust Co. v. Munday, supra, it was held that the director of a bank “is bound to the observance of ordinary care and diligence, and is hence liable for injury resulting from the non-observance, where such nonobservance is due to the negligence of such director.” Appellant here should have the right to a hearing on his charges of negligence against Billings. . - Mr. Justice Duncan, also dissenting.