Court Opinion

ID: 6273774
Source: CourtListenerOpinion
Date Created: 2022-02-18 15:53:20.16272+00
Date Added: 2024-06-11T08:59:59.567331
License: Public Domain

Opinion by
William W. Porter,
The receiver of the Anchor Building & Loan Association filed an account. This was duly confirmed and an auditor appointed to make distribution of the fund. A controversy arose between general creditors of the association and creditors who were also directors. Eliza A. Tash, one of the general creditors, has appealed to this court and contends that the claims of the directors as creditors should be postponed because (1) the insolvency of the association was due to the negligent acts of the directors in pi’ematurdy maturing stock in ignorance of the financial condition of the association, and (2) because tire directors exceeded the statutory limit in borrowing for the association.
Testimony was taken before the auditor -who, in an elabo”ate report, finds, inter alia, that there is nothing whatever in the evidence to show that the directors had any personal knowledge of any illegal or fiaudulent acts in the management of the affairs of the association; that examination was made of the financial affairs of the association by the committees duly and legally appointed for that purpose ; that their reports made to the board of directors, uniformly showed that the association was in a solvent condition; that all of the directors who were examined, and whose evidence was not attempted to be contradicted, testified that they believed that the association was solvent and that the first intimation they had that the association was in financial difficulty, was when an examination was made by the bank examiner. The findings of the auditor are confirmed in an opinion by the court below. Examination of the evidence has been made by this court. As a result the findings are confirmed.
No allegation is made of any fraud attempted by the directors who are asking repayment of legitimate loans made to the company. No attempt on the part of the directors seems to have been made to secure themselves at the expense of other creditors. The error, which resulted in the financial ruin of the association, was committed by the directors in prematurely *109maturing stock. The action taken by the board in maturing the several series was, as found by the auditor, after reports by duly appointed committees of the board upon the financial condition of the association, and with the advice of counsel. Action so taken cannot be regarded as grossly negligent. Certainly it cannot be regarded as fraudulent. This being so, the directors were not liable for the unfortunate results of their management, since they are held to but ordinary skill and diligence and are personally liable only when they are guilty of fraudulent conduct or of acts clearly ultra vires : Swentzel v. Penn Bank, 147 Pa. 140 : Watts’s Appeal, 78 Pa. 391; Spering’s Appeal, 71 Pa. 11. This rule of law is based upon the fact that directors are gratuitous mandatories. In the case at bar the insignificant payments to directors when attending meetings of the board, were not compensation and did not change the measure of duty and liability of the directors.
The second proposition upon which a reversal is requested is that the directors borrowed on behalf of the association beyond its legal capacity, and by so doing deprived themselves of equal participation with other creditors in the liquidation. No allegation is made that the borrowed money did not go into the association. The argument does not seem to be that directors holding the evidence of any particular loan should be excluded from participation in distribution, but that the act of borrowing beyond the limit of law for the association, should defer the legitimate claims of the directors as creditors. It is not yet made clear to what extent, if any, there was an over-borrowing. Nor, in the intricacies of facts and figures in the case as presented, can it be assumed that an overborrowing was necessarily an act of gross negligence.
We are not convinced by the appellant of a duty to reverse the findings and conclusions of the auditor and court below, and, therefore, the decree is affirmed.