Court Opinion

ID: 3321418
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:39:00.520057+00
Date Added: 2024-06-11T14:00:56.906652
License: Public Domain

I find myself unable to concur with the majority of the court in their conclusion that the court below committed legal error in finding, as it did, that these defendant directors, in the performance of their duties as such directors, were not guilty of negligence.
It is agreed that the obligation which they came under in accepting their directorships, as expressed in the abstract terms of the law, was the exercise of good faith and ordinary diligence and care in the performance of their duties, including that of reasonable oversight and supervision. Lowndes v. City National Bank, 82 Conn. 8,16, 72 A. 150. It has been said, and counsel for these plaintiffs have contended, that this ordinary diligence and care which the law demands of bank directors is *Page 495 
such diligence and care as an ordinarily prudent man would exercise in his own business. Hun v. Cary,82 N.Y. 65, 72; Marshall v. Farmers  Mechanics SavingsBank, 85 Va. 676, 684, 8 S.E. 586. Clearly that is not the true rule. The true rule is that which prevails under all other conditions, and that is, such diligence and care as the ordinarily prudent man would exercise under like circumstances. Translated into terms applicable to the situation in which a savings-bank director finds himself placed, that means that he owes the duty of exercising such a degree of diligence and care as an ordinarily prudent director of similar institutions, similarly circumstanced, would exercise under similar conditions. The conditions which surround a man in his own business are not the same as those in which a bank director is placed, and the degree of care is not, therefore, to be measured by the same standard. Swentzel v. PennBank, 147 Pa. 140, 149, 25 A. 403, 415; SavingsBank of Louisville's Assignee v. Caperton, 87 Ky. 306,318, 8 S.W. 885; 1 Michie on Banks  Banking, p. 335.
I do not understand that my associates dissent from this proposition as defining the extent of the defendants' legal duty. This is the standard which the law sets up. The trial court recognized it, and measured the defendants' conduct by it. There can be no manner of doubt upon that point.
For the rest, the question before the trial court was one of fact, pure and simple. The law goes no further than to prescribe the abstract rule of duty. It establishes a standard that is applicable to cases like the present. It is, and of necessity must be, an abstract one. It cannot furnish a specific, concrete one for practical application under the infinite variety of circumstances which may arise. This latter standard to be applied to any given case, which, for want of a better word, I may call the concrete or practical standard, is *Page 496 
one which can only be derived from an inquiry as to the course of conduct of ordinarily prudent men under like circumstances. That inquiry, and the determination thereby of the concrete standard by which conduct under investigation is to be measured, involves nothing else than an inquiry of fact and a conclusion of fact. This we have held too often to admit of further discussion.Farrell v. Waterbury Horse R. R. Co., 60 Conn. 239,250, 21 A. 675; Bunnell v. Berlin Bridge Co.,66 Conn. 24, 33, 33 A. 533; Lawler v. Hartford Street Ry.Co., 72 Conn. 74, 81, 43 A. 545; New Haven Trust Co.
v. Doherty, 74 Conn. 353, 356, 50 A. 887; Briggs v.Spaulding, 141 U.S. 132, 152, 11 Sup. Ct. Rep. 924.
The majority of my associates say that the trial court erred in applying too low a standard of duty. As it is beyond question that it applied the correct legal standard, that charge can only mean that the court's concrete standard, drawn by it from its inquiry into the course of conduct of ordinarily prudent men under like conditions, for use in testing the defendants' conduct, was too low, or, in other words, that its conclusion of fact upon that subject was erroneous. It seems to me that at this point the majority have fallen into error, and been led into an unintentional transgression of the powers of this court in matters of fact.
I am confirmed in that notion by the introductory passage of that portion of the majority opinion which deals with the subject now under discussion. It is there said that the first question presented by the appeal is whether the trial court's finding of reasonable care was one purely of fact, or one of fact and law. Then follows a discussion which seems to me to confuse the legal rule of duty and the concrete standard of conduct deducible from the application of that rule to the circumstances of a given case.
Further than that, it seems to me that in portions of *Page 497 
the discussion there is a distinct departure from the well-established rule of duty already referred to, and which I do not understand that it is desired to repudiate. For example, it is said that "the standard of reasonable care required by law of bank directors is affected by their fiduciary position, by the nature of the business, and by the fact that, in accepting the office, they hold themselves out as reasonably competent and reasonably qualified to perform the duties of the office." If by this is meant, as it apparently is, that the fact that the position which savings-bank directors occupy is a fiduciary or quasi-fiduciary one, and that by consenting to serve they hold themselves out as undertaking to bring to the discharge of their duties reasonable competency, add something to the requirement that they exercise that degree of diligence and care which ordinarily prudent men similarly circumstanced exercise, the statement is not correct. It is by reason of their consenting to come into the fiduciary or quasi-fiduciary relation, and to undertake the performance of the duties imposed upon directors, that they bring themselves under the obligation of exercising the care and prudence used by ordinarily prudent men similarly circumstanced. The extent of this obligation, however, is measured, and fully measured, by the ordinary conduct of ordinarily prudent men similarly circumstanced. The legal rule of duty when ordinary care and prudence is required is a universal one. It is the same for all men in all positions and under all circumstances. It is to exercise that degree of care which ordinarily careful and prudent men would exercise under like circumstances. This is the single simple test, and any attempt to deviate from it, or to recognize variations, can only serve to befog the inquiry to be made, and to obscure the fact to be determined.
If I misinterpret this portion of the opinion, and its *Page 498 
purpose at this point is to emphasize the fact that the quality of conduct in the concrete, which the application of the legal rule calls for, is or may be different or very different for savings-bank directors than for men in other spheres of life, it but states a commonplace of universal application. The ordinarily prudent man acts differently, and with a different degree of care, under differing conditions, and the rule recognizes and is based upon that fact as its fundamental principle. The course of conduct of such a man in the concrete changes with the circumstances, but the legal rule of duty remains unchanged. It was the same for these directors in the performance of their duties at the bank as it was in their business or their pleasures, and as it is for all in every walk or activity of life; and there the subject as a matter of law is left.
It was incumbent upon these directors, acting in conformity with the rule of law, to conduct themselves as others circumstanced like them would, in the exercise of ordinary prudence, act. The matters of present significance, however, are: (1) that what kind of conduct this would call for is a question of pure fact; and (2) that the determination of that matter, as furnishing a test to be applied to these defendants' conduct, being one of fact, is one which cannot rightfully be disturbed by this court unless it could not have been arrived at without the violation of the rules of logic or through some disregard of legal principles. Farrell v.Waterbury Horse R. R. Co., 60 Conn. 239, 250,21 A. 675; Lawler v. Hartford Street Ry. Co., 72 Conn. 74, 81,43 A. 545; New Haven Trust Co. v. Doherty, 74 Conn. 353,356, 50 A. 887. No disagreement of opinion as to what ordinarily careful men in the defendants' places would have done can afford us justification for substituting ours for its. I fear that this is what the majority have done. *Page 499 
In the present case, as in most where the right of action is founded upon negligence, we have a situation where the ascertainment of the concrete measure of duty, and the determination of whether that duty had been performed, are so bound up together as to be practically inseparable. The only practical way of discovering the standard arrived at is by the indications furnished by the ultimate conclusion that the conduct in question did or did not measure up to it. Such cases present only an unreviewable question of fact save, of course, where the conclusion reached is one which could only be reached in violation of the rules of logic or reason. Lord v. Lamonte, 72 Conn. 37,39, 43 A. 491; Fox v. Kinney, 72 Conn. 404, 407,44 A. 745; Murphy v. Derby Street Ry. Co., 73 Conn. 249,253, 47 A. 120; Dinini v. Mechanics SavingsBank, 85 Conn. 225, 230, 82 A. 580.
Applying these well-established principles to the present situation, we are bound to remember that the question before us is whether we are prepared to pronounce, and justified in pronouncing, a judgment of unreasonableness upon the conclusion of fact of the court below, that the defendants were not negligent. No disregard of legal principles is discoverable, and we are driven, if error is to be found, to the extreme indicated. As one member of the court I not only find myself unable to pass such a judgment of unreasonableness, but am firmly convinced that the trial court's conclusion was the reasonable and proper one.
It is charged, and the majority of the court hold, that the defendants failed to exercise that degree of care which the law required of them. Ignoring for the moment the importance which the law attaches to the trial court's conclusion that they did exercise such a degree of care, let us examine the matter entirely independently, and as though the question passed upon *Page 500 
by the court below was before us upon the facts found for our original determination. Such an examination requires that we have clearly before us both the circumstances in which the defendants were placed and their conduct under them. Without knowledge of the first set of facts one cannot arrive at the concrete standard of what would be the conduct of ordinarily prudent persons similarly circumstanced; without the second, it is impossible to know what to bring to the measure of that standard when ascertained. The finding contains a very full statement of the facts, the more significant portions of which it is worth while to bring together that we may have before us an adequate picture of the situation.
The institution in question is a country bank of moderate proportions, located in a community of comparatively small population. Incorporated in 1871, its deposits in 1880 had reached only $60,000. At the time of the discovery of its former treasurer's irregularity, in January, 1912, they had mounted to between $500,000 and $600,000.
The men who organized the bank and have served in its directorate, including the defendants, were representative men of the community, who were interested in its welfare, and acted in the direction of its affairs from a sense of public duty, and without compensation. They were honest, prudent men who had successfully conducted their own affairs and gained the respect and confidence of the community. They were unaccustomed to deal with large financial affairs, and were not expert bookkeepers, but they were fully competent to manage the bank with prudence and economy. Their performance of their duties was in no sense perfunctory. Their formal meetings were frequent, and they often met informally to discuss the affairs of the bank. They were scrupulously regular in their attendance. *Page 501 
At their meetings they discussed and passed upon all investments, and these have at all times been of `a high order. So well were they made, that the bank has had the unusual record of never having had to take property by foreclosure.
In the further performance of their duties the directors chose for the successive presidents of the institution, four in number, leading men of affairs of the town, who were proper selections for that office. For treasurer and managing officer they selected in Converse, a resident of the town who had been successful in business, was possessed of the reputation of being a capable business man, and was universally trusted and respected. All his days he was honored with public office of responsibility and entrusted with the execution of private trusts, and so highly regarded was he that the entire community suspended business at the time of his funeral, and joined in paying respect to his memory. "No one could have been chosen to that office who had a higher reputation for honesty, carefulness, faithfulness and efficiency."
Converse was the only male employee in the bank, save for a short time, and kept its books. The other employees were women. No one of these assistants, as far as appears, was a competent or experienced bookkeeper. A double-entry system of bookkeeping was used, and it was a proper and the customary one for banks of its kind. The practice of committing the management and the keeping of the books to one person was a customary one in banks of its class, and proper. The method employed in the conduct of the business was that which prevailed in other banks of the State of similar character and size. In such banks the treasurer customarily keeps the books, and proves the balances, and the directors rely upon him and his reports, in connection with the reports of auditors and *Page 502 
the examinations of the bank commissioners, for their knowledge of the bank's condition. "It is not customary for directors of other banks to instruct their treasurer how to keep his books, nor to instruct the auditors appointed in accordance with law how to make their audit."
In the early days of the bank a quarterly, and later a semiannual, audit was provided for by a by-law. In 1877, and before Converse's peculations began, a statute was enacted imposing upon the directors the duty of appointing auditors from outside the management "who shall examine the books, accounts, and securities belonging to such bank, and make a sworn statement showing the true condition thereof on the first day of October in each year." Pursuant to this statute the directors annually appointed as auditors "experienced and careful men of affairs and expert bookkeepers, who acted as bookkeepers in the manufacturing establishments of the town." Several different sets of men were thus appointed, and the appointees were honest, reliable and capable of making careful audits. They were men who were themselves substantial depositors, and upon whose reports the directors had a right to rely. The auditors so appointed made examinations and reports at least twice, and sometimes three or four times, each year. These reports all showed the bank to be solvent, its dividends declared earned, and its condition sound.
The bank commissioners of the State, as provided by statute, examined the bank semiannually during the whole period covered by Converse's peculations. They found and reported that its condition was as shown in the statements of the treasurer and auditors. The directors knew of these examinations and the reports made thereon. These reports, as well as those of the auditors and statements of condition as made *Page 503 
by the treasurer were, from time to time as called for, laid before the directors, and discussed and considered by them with care. At various times five of these commissioners orally commended the condition of the bank to individual directors, who reported to the board the favorable comments made.
No one of the defendants during the period of their respective directorships ever personally attempted to audit the books of the bank, or to take a trial balance therefrom, or to give directions to the treasurer as to how he should keep his books, or verify them, or to instruct the auditors as to the character or methods of the audit they were expected to make, or to examine them as to the character of those made and the methods employed in making them. They believed that both the auditors and bank commissioners made their examinations with care, made such verifications of the books as were necessary to disclose the true condition of the institution and prove their correctness in appropriate ways, and had no reason to suspect otherwise. No changes in bookkeeping methods were ever suggested by the bank commissioners or auditors.
This record of the conduct of these defendants, as detailed in the finding, is not one which reveals a group of dummy directors content with doing as little as possible and surrendering all real responsibility to officers and appointees. These men were devoted to the interests of the bank, gave freely of their time and thought to it without compensation, chose for the immediate administration and supervision of its affairs men of the highest quality, capacity and trustworthiness, and appointed to oversee the financial accounts of these men others possessing similar qualifications. There is very much in their record that is highly commendable. So commendable is it that the most captious critic has been able to point to but two matters *Page 504 
as involving any shortcoming whatsoever on their part. These are: (1) a failure to require trial balances to be taken, and (2) a claim of dereliction in respect to audits. As to all things else their slate is confessedly perfectly clean. It is, of course, true that good conduct in most respects cannot excuse laxity in others, even though few. But in the presence of a record of worthy conduct such as these men are able to show, it behooves one to be careful not to condemn for misconduct without justification.
With respect to these two criticisms it is worthy of note that both concern closely related matters of bookkeeping — details of the business which directors are not called upon to perform personally, but are expected to commit, and may properly commit, to appointees. They do not lie in the field of the personal activities of directors. The directors of this bank were not required to spend their time in a personal examination and verification of its books. They were not called upon to qualify themselves to do so, nor to become expert bookkeepers. Their undertaking by the acceptance of their positions that they possessed ordinary competency therefor did not go to that extent. Ordinarily competency for directorial supervision does not imply capacity to personally do all things that may come within the range of the business of the corporation. Neither does the duty of supervision which a director takes upon himself require of him personal attention to the details of the business. His duty in these matters is confined to reasonable care in the selection of fit agents and a reasonable regulation and oversight of those selected. Warner v. Penoyer, 33 C.C.A. 222, 226, 91 F. 587, 590; Dovey v.Cory, L. R. (1901) App. Cas. 477, 485, 486.
The majority opinion holds that the defendants failed in their duty in that they did not require trial *Page 505 
balances to be taken. It is said that in this they failed to conform the bookkeeping methods of the bank to the established usage of similar institutions, and that, therefore, they were negligent. Let us see what this usage thus relied upon was. It was none other than that the treasurers of the respective banks have trial balances taken at periods from once in three months to once in two years. This, read in connection with the further finding that this bank followed the usual method of conducting its business employed in other banks of this State of its size, and that in such banks the treasurer keeps the books and proves the balances, shows (1) that the custom is for the treasurer, and not the directors, to cause the trial balances to be taken, and (2) that the treasurer himself takes them.
As I read the majority opinion I get the impression that it overlooks, at times at least, the true character and office of a trial balance. A trial balance, as I understand, is, as its name indicates, only an incidental process for proving the correctness of the ledger in certain respects. It is resorted to by bookkeepers and auditors as furnishing a test. There are other tests, more or less convenient and satisfactory, according to the conditions and the purpose of the investigator, but, as applied to the double-entry system of bookkeeping, it is so admirably adapted to a verification of the entries upon the ledger, both as to their amount and their entry upon the right side, that it has a large use for that purpose. It may contain the material from which a balance sheet or statement of condition may be made; but it is neither, and there is nothing in a statement of condition to indicate, even in the most remote way, whether or not a trial balance, or any other test, was used in verifying the books from which it was drawn. In its quality a trial balance is in no respect different, although more far-reaching in its *Page 506 
indications, than the addition a second time of items found upon the pages of the ledger. Whether either test of correctness has been applied can be told by no one save the man who applied it, unless he leaves some external evidence of the fact, as, of course, he may, as by preserving his trial balances. His labors will not be shown in the result, save as they may be reflected in its correctness.
Returning now to the charge that the defendants were neglectful of duty in that they did not conform the usage of their bank to the prevailing custom in similar institutions of having trial balances taken, that means, as we have seen, of having such balances taken by the treasurer, who was also the bookkeeper. This bank presented the customary situation in institutions of its size. The treasurer was the bookkeeper, and he was the man who, prior to the audits, gave the books such verification as they had. Conformity to this usage, upon which so much stress is laid, would have amounted to this: that the man who was guilty of the peculations, and of the falsifications of the books to conceal them, would have taken the trial balances. These tests would have disclosed to him nothing he did not already know, and it is a fair assumption that he would not have heralded as a discovery proof of his criminality thus gathered. It is too apparent for argument that Converse might have taken a trial balance every day for the whole period of his embezzlement without any unknown fact being brought to his mind or to the knowledge of any director, officer, or auditor of the institution. In other words, compliance with the usage would have been an idle ceremony, and led to no useful result.
Upon what ground, then, can these defendants be liable for failure in this regard? One is only liable for the consequences of his shortcomings. Negligent omissions of duty do not entail liability for that which *Page 507 
performance of duty would not have been calculated to prevent. Before liability for negligence can arise there must be disclosed some relation of cause and effect between the negligence and the loss or harm. This elemental principle is well brought out in Warner v.Penoyer, 33 C.C.A. 222, 226, 91 F. 587, 591, where it was attempted to hold directors for the default of a bank cashier. The court well says: "Before they can be made responsible for losses which have occurred through the mismanagement or dishonesty of the cashier, it must appear that such losses resulted as a consequence of the omission of some duty on their part." It cannot be said that the losses suffered by this bank through Converse's irregularities resulted as a consequence of his not having taken, or being required to take, trial balances, or that such taking or requirement would have contributed in the least to deter Converse in his wrongdoing.
The majority opinion supplements the charge against the defendants by the statement that they never asked for or saw a trial balance. It will be noted that this enlarges the usage whose nonobservance is made to furnish evidence of guilt. No usage on the part of directors of other institutions of having trial balances laid before them for consideration is found, and, if so, what possible virtue could there have been in having Converse, the defaulter, present such a paper to his board? He could as easily prepare a false trial balance as a false statement. The setting of a thief to catch a thief may promise results under some conditions, but surely that promise is wanting when both the thief and the deputed catcher are the same person. The trouble with the argument of the majority opinion in this matter, as it seems to me, is that it sees a virtue, as providing a means of either detection or prevention of Converse's peculations, in that which by no possibility *Page 508 
could possess such virtue. Trial balances made or produced were bound to result in nothing as long as their making and production remained in Converse's hands.
I must confess myself at a loss to explain why so much stress has been laid by plaintiff's counsel and the majority of the court upon this matter of trial balances. The court finds, and it is apparent, that a resort to any one of a half dozen other equally simple and available tests would have as surely revealed the irregularities in Converse's books as the taking of a trial balance. Take one, for example. The simple expedient of footing the deposits, as shown in the individual ledger, would have shown at once that the entries in the general ledger were false, and the item of deposits in the bank's statements fictitious. It is found that it was customary for the treasurer of a savings-bank to apply this test. It may safely be presumed that Converse never conformed to this usage. He didn't need to. He knew the discrepancy already. Why are not the directors liable for their failure to see that this usage was observed? The answer is, of course, obvious, and it is precisely the same answer that must dissipate the claim that they are liable by reason of their noncompliance with trial balance usage. It is, that compliance would have disclosed nothing, and availed nothing, in the way of discovery of the true character of Converse's books and his statements of condition.
It is apparent that the only trial balance worth anything as a means of detecting Converse's peculations would have been one taken by some other person than he competent to perform the task, and that, in this small institution, would have meant some one outside of the bank's working force. No custom in similar institutions of having that done, save as it was involved *Page 509 
in audits, appears. We are thus brought to a consideration of the second charge, that the defendants were negligent in respect to audits, either in relying upon those made, or in not requiring others to supplement them, or in not investigating as to the methods employed in making them, or in not instructing the auditors as to the methods to be employed by them.
The finding shows that there were at least four examinations and audits of Converse's books each year. Two of these were made by State officers specially charged with the duty of savings-bank examinations, and presumably competent. The remainder were made by experienced and careful men of affairs and expert bookkeepers, who were honest and capable of making a correct audit of an institution such as this bank was. These defendants and their associate directors believed, as the finding states, that these examinations and audits were made with thoroughness, and that the tests necessary to verify correctness of the books and statements were made, and they had no reason to suspect otherwise. Thus believing, and having the faith that they, in common with all the community, had in Converse and in the correctness of the statements and reports that he made, they rested satisfied. They made no personal examination of the books, ordered no further audits or examinations, gave no instructions to auditors as to methods to be employed, and did not examine them as to those employed. The issue is thus a narrow one. Did they or did they not perform their full duty of supervision and oversight in stopping where they did, or was the duty imposed upon them of doing some one or more of these last-mentioned omitted things which are now charged against them as misconduct?
My difference with the majority of my associates upon this issue is not so much one of principle as of *Page 510 
conception as to what the examinations and audits made presumptively evidenced, and what the directors were entitled to assume upon the strength of them. The audits, made as of October 1st of each year, pursuant to the Act of 1877, were appended to a report made out upon a printed form prescribed by the bank commissioners, and therein the auditors certified that they had made the examination required by law and found the condition of the bank as contained in the report. The other audits, made for the benefit of the directors, were appended to a statement of condition, and the certificate was that the auditors had examined the books and vouchers of the bank and found the statement correct. The bank commissioners' semiannual examinations were made under the statute, which required a visit to and examination of the bank to ascertain whether it had been managed according to law, and a report to the Governor of the condition of the banks so examined.
The majority opinion, referring to the auditors' certificates, says that these examinations and consequent reports did not purport to involve, or to be based upon, an examination of the books of the bank "except to see that the figures in the treasurer's statement agree with those appearing on the face of the books," and that they did not "purport to be an audit or examination to see whether the books were correctly kept, or whether they agreed among themselves." Although the opinion, as I recall, makes no reference to the examinations and reports of the bank commissioners, I presume that they would be disposed of by a somewhat similar criticism. If I believed that this charge was well made, and either that the examinations and audits made by the State's officers and auditors appointed by authority of statute for the purpose of ascertaining the true condition of the institution were *Page 511 
intended to be the perfunctory and superficial performances thus described, or that the reports and certificates indicated that they were based upon such examinations and audits, I should be bound to agree with the majority in their conclusion that the directors of this bank were not justified in relying upon them without further investigation, examination or inquiry. I agree entirely with the admirable statement in the abstract of the majority opinion as to the duties of directors. I presume I should not disagree with the majority in the application of the abstract to the concrete, if the concrete situation was susceptible of but one construction. Apparently, however, that is not the case here. At least we do differ widely upon this vital concrete matter as to what these examinations and audits and the reports and certificates thereof reasonably implied in the way of real examination and audit, and what, therefore, the directors were reasonably justified in assuming therefrom. Here, I conceive, we come upon the crux of this case, and I must confess my inability to see any sort of foundation for the premise upon which the argument of the majority rests.
We may safely assume, I take it, that our statutes contemplate examinations by bank commissioners and audits by auditors which are worth something, and do not contemplate perfunctory performances, bearing that name, which are not calculated to reveal the true condition of the institutions. That necessarily implies examinations and audits in the course of which those conducting them resort to such expedients and the use of such comparisons, verifications and tests, trial balances or other, as experience shows are reasonably necessary to discover the truth or falsity of the books from which the statements of condition are drawn. The true condition of a bank cannot be ascertained with reasonable certainty, or a certificate of its condition *Page 512 
be fairly given, until that is done. Unless we are prepared to hold that our statutes provide for something more than perfunctory, superficial and good-for-nothing ceremonies which could serve no possible purpose but to deceive, we must hold that they look to examinations and audits involving those incidents which have the promise of fruitful results in ascertaining the truth.
The assertion of the majority opinion, already quoted, as to what the certificates of audit purport to involve in the way of the examination of the books must, therefore, if it has any foundation, find it in the terms or attending circumstances of the several certificates of audit which were made in the present case. Of them the majority opinion says that they disclose on their face that the examinations were directed "to the single purpose of ascertaining the assets and liabilities of the bank as shown on its looks, and not to the purpose of ascertaining whether the statement of liabilities to depositors as shown in detail by the depositors' ledgers agrees with the statement of total deposits as shown on the other books."
I am at loss to discover wherein the auditors' certificates, or anything about them disclose, or tend to disclose, that the auditors did anything else than their full duty under the law in auditing the books of the bank. The statute required that they make a sworn statement showing the true condition of the institution examined. In the present case they, in the official audits, certified under oath that they had made the examination required by statute, and found that the condition of the bank was as stated. What is there here of a suspicious character, or to indicate that the auditors had departed in any way from the strict line of their duty? In the unofficial audits they certified that they had examined the books and vouchers, and *Page 513 
found the appended statement of the treasurer correct. I fail to discover here anything to indicate or suggest that they had examined only a part of the books and vouchers, or that their certificate of correctness was based upon anything other than an adequate examination.
The annual reports of the bank commissioners certainly are not open to criticism as suggesting lax or irregular methods of examination. The statement of the opinion last quoted contains a concession that the certificates of the auditors on their face implied that there had been an examination for the purpose of ascertaining the assets and liabilities of the bank as shown on its books. Here again I am at a loss to conceive how the extent of a bank's assets and liabilities as shown on its books can be ascertained without an examination of all its books, and an inquiry as to their correctness and their agreement among themselves. Surely it cannot be determined without an examination to discover whether or not entries in the books speak truth or falsehood, and what the fact which they speak is, and an examination involves something more than a perfunctory audit which in reality amounts to nothing.
It is said that the several certificates of audit were attached to statements in the handwriting of the treasurer, and that this fact gave to the audits a suspicious character so that they ought not, in the exercise of reasonable prudence, to have been trusted. I wonder why. I venture to think that the vast majority of such certificates are endorsed upon or attached to statements prepared by some officer or bookkeeper of the audited institution, and not by the auditors themselves. And what possible impropriety there is in the statement being so prepared and presented as the basis of the audit I fail to discover. Neither can I imagine how the duty of the auditors in the matter *Page 514 
of verifying and testing the correctness of the statement and of the books from which it was drawn, or, to use the language of the opinion, "of finding out for themselves," can be conceived to be reduced by the furnishing of such working basis.
I find my only explanation of this suggestion in the statement of the opinion in this connection that it is clear that these statements of the treasurer so submitted were not, and did not purport to be, based upon trial balances. Of course they were not trial balances. They did not purport to be. Of course they did not purport to be based upon such balances. I wonder if there ever was one that did, or that conveyed information that a trial balance had been taken to verify the ledger entries from which it was taken? The statements were just what they purported to be, save that some of their items were false. Whether they were true or false was the very thing the auditors were appointed to discover. An accompanying trial balance from Converse's hands would not have helped in the discovery unless verified. Nothing which Converse was capable of producing could be self-verifying. Verification of whatever came from him, or, for that matter, from any officer or servant of the bank, was the essential thing in an audit. The statements furnished fit subjects for such verification, and they were before the auditors for that purpose.
The opinion says that "to any one who knew that they were in the handwriting of the treasurer, they would fairly indicate that the auditors had verified the treasurer's statement of the amount of deposits, and had examined the books and accounts . . . for that purpose," and that they "would not necessarily or reasonably involve anything more than inspection of the figures in the deposit and withdrawal registers and of the total deposits as stated in the general ledger." *Page 515 
My speculations as to how that verification could be made without a real examination and audit leave me still in the dark, and I remain in the dark as to how the work of auditors, who could certify as these did, was altered in substance by having a statement furnished them by the treasurer as a basis for their investigation.
Here is my radical difference with my associates. I cannot conceive that our statutes contemplate or authorize anything less than real examinations and audits which are worth while. I cannot conceive that it was intended by our legislators that the reports of the results of such examinations and audits should not be deserving of credit. Neither can I conceive of any reason why the reports in this case possess any earmark indicative of their not being deserving of the credit which should attach to them. It must be that our statutory examinations and audits call for, and necessarily involve, such real examination and comparison of books and accounts and the employment in respect to them of such recognized tests, trial balances or other, as are reasonably necessary to discover their truth or falsity in respect to the financial condition of the institution, and that the announcement of result in certificate or report, when made in ordinary and appropriate language, imports that it is made upon the strength of such examination, comparison and test. In no other way can our statutes be justified. Auditors and examiners may neglect to pursue the proper course and take the necessary precautions, but that is their fault and not the fault of the law. The law expects of them different conduct, and there is nothing in the history of our statute that suggests even remotely anything to the contrary.
The significance of this distinction between my view and that of the majority is important in its bearing *Page 516 
upon this case. Upon their view these defendants had no right to assume, however competent the examiners and auditors might be, that real examinations and audits calculated to reveal the true condition of the bank and the correctness of its books had been made, and to go on without further precautions being taken. Upon my view they had every right, in view of the character and capacity of those who had examined and audited it, to assume, and in the absence of knowledge or suspicion to the contrary to act upon the assumption, that at least four examinations and audits worthy of the name had been annually made. They had a right to assume, and to act upon the assumption, that as incidents of such examinations and audits such tests as were reasonably necessary to disclose the accuracy or inaccuracy of the books and the honesty or dishonesty of the care of its funds, trial balances or other, had been applied in the process of these examinations and audits. In so far as trial balances, or any other tests of correctness, were reasonably necessary to a proper audit, they were justified in assuming that they had been resorted to. In the absence of suspicion, or reasonable ground for it, they were under no obligation to convert themselves into detectives to spy upon the work of the auditors, or to delegate others to do so, or, assuming them to be competent, to examine them as to their methods, or to issue directions as to those methods. The matter of audits is one which directors, in the performance of their duty of supervision, may properly delegate, and, having delegated it to competent, trustworthy and experienced persons, they are, in the absence of knowledge or suspicion, or reasonable ground for suspicion, to the contrary, justified in assuming that the delegated duty is faithfully and properly performed.Dovey v. Cory, L. R. (1901) App. Cas. 477, 485, 486;Warner v. Penoyer, 33 C.C.A. 222, 226, *Page 517 
91 Fed. Rep. 587, 591; Savings Bank of Louisville's Assignee v. Caperton,87 Ky. 306, 319, 8 S.W. 885; 2 Thompson on Corporations (2d Ed.) § 1266. Personal confidence still has its place in the affairs of this world, and must continue to if success is to crown human effort.
In this connection the findings of fact made by the court below are important. It is found that reasonable care on the part of the auditors required them to make a "reasonable effort to verify a reasonable proportion of the footings in the registers, and that they make a reasonably careful audit of the registers, and that they make a reasonably careful audit of both the deposit and cash account in the general ledger, and that they make a reasonably careful audit of at least some portions of the daily balance books, and that they make such comparison in the several books as might be requisite to that end." It is found that the defendants believed, and had no reason to suspect otherwise, that such audits, and thorough ones, were being made. It is found that if they had been made, Converse's irregularities would surely have been revealed. It is found that the directors had a right to rely upon the audits made. Can we say as a matter of law that this last proposition is not true? If not, what becomes of the main premise in the majority opinion?
The majority opinion suggests that these examinations and audits should, in the exercise of due care, have been supplemented by others. If the four or more a year were not sufficient in number, yes. If sufficient in number, what need of adding to them? Upon the theory of the majority as to the character of the statutory audit there would, of course, be a good reason for the requirement of others; upon mine none whatsoever. Apparently the directors could not have been expected to select more competent persons to make the additional audits, and no more efficient methods could have *Page 518 
been anticipated than those the statutory proceedings contemplated.
Were the four, five or six audits a year actually made insufficient in number, and were the directors derelict in duty in not requiring more? I fail to see why, assuming that those made were reasonably efficient, the number was inadequate, or why, assuming that they were reasonably believed to be efficient, that more should, in the reasonable exercise of the supervisory duty of the directors, have been demanded.
The majority opinion states that the defendants' argument assumes, and wrongly so, that the statutory audits are in lieu of those called for by common-law requirements. I make no such assumption. I do assume, however, that where the statutory and official audits and examinations are sufficient in number and comply with all reasonable requirements, others in addition are not demanded, and that directors, reasonably believing that those made satisfy those conditions, are not derelict in duty in not requiring others. This I conceive to be a sound assumption based upon simple common sense. An examination or audit certainly cannot be any worse or more open to suspicion for being official or directed by statute.
It is all too evident that some one other than the criminally guilty party contributed by negligent conduct, and grievously so, to the unfortunate losses of this bank. It is easy to discover that there must have been some strangely lax auditing, but that fact by no means suffices to impute negligence to these directors whose duty was that of general supervision and oversight, and not of detail management or bookkeeping. The mysteries of business defalcations will probably never cease to astonish us. The mystery of how this one continued as it did for so many years is not the least of them. But the existence of that mystery *Page 519 
does not necessarily make for the defendants' responsibility.
The conclusion of the majority to my mind adds a strange climax to the already strange situation. Successive bank commissioners, some seven or eight in number, covering the whole long period of years during which Converse's peculations continued, examined this bank twice a year, with the distinct purpose of discovering its condition, and found nothing wrong. Expert and experienced bookkeepers in varying groups of two audited its books and accounts twice a year or oftener, and found no flaw in them. All these men, whose special duty it was to detect financial irregularities, failed to detect those of Converse. Now that they are known, it is contended that the directors, having no other than a supervisory duty, failed to exercise reasonably care in the discharge of that duty, and are financially responsible because, forsooth, they did not succeed in bringing to the light of day that which had for years escaped the detecting eye of a very considerable group of men competent and qualified to make detection, and set to the particular task of making it.
Of course such responsibility is logically possible, but practically it would present a striking situation. Is not the explanation of the attitude of those who charge responsibility to be found, in large part at least, in the fact that we now know Converse's misconduct, the manner of it, and the simplicity of the means of discovery. The very simplicity of these means, now known, appears to add force to the charge of negligence, and we are judging them with the advantages proverbially attending what is familiarly known as "hindsight." We see how easy it would have been to detect, and wonder why detection did not come. As regards the auditors and examiners the wonder remains. But *Page 520 
when we turn to the directors we must remember their field of duty, their right of reasonable reliance upon others, that they were compelled to govern their conduct by the aid of foresight only, and that they should be judged with those facts clearly in view and from their standpoint at the time of their action.
I have said nothing concerning the losses through excessive dividend payments. I agree with the majority opinion in holding that liability for these payments, under the circumstances attending them, can only be predicated upon negligence in not knowing the actual condition of the bank when the several declarations of dividends were made. Holding, as I do, that such negligence is not shown, I have no occasion to touch that subject further.
I concur in that portion of the opinion of JUDGE BEACH which deals with the subject of the operation of the statute of limitations.
In this opinion RORABACK, J., concurred.