Sec. 137. Rights Of Stockholders

Stockholders in a bank have the same general rights that obtain in other corporations.

The right to hold meetings, to inspect the books, to receive dividends, is governed by the same general principles that govern corporations generally.

c. Directors and Officers.

Sec. 138. The Bank's Directors

Under the National Bank Act, the directors must number at least five, and three-fourths of the directors must live in the state and own ten or more shares of stock.

Aside from the special qualifications and duties that may be imposed by statute, the powers, duties and manner of action by directors is the same in case of banks as in any other corporations.

There is some difference of opinion in respect to the degree of care which a bank director should exercise in looking after the bank's interests, although all agree that it is a high one on account of the nature of the trust undertaken to be administered, and it is generally laid down that it is not enough that the bank directors refrain from being dishonest, nor even that they act in good faith, but also that they act with the prudence of reasonably prudent men. It is to be remembered that directors are chosen that they may see to it that the bank is honestly conducted and wisely managed.

First: Directors are liable to the bank or its depositors and creditors if they are parties to fraudulent or dishonest banking transactions.

Second: Directors are liable for damages following their participation in ultra vires and illegal acts, though there may be no actual dishonest intention.

Third: Directors are liable for not giving proper attention to the affairs of the bank. What attention should be given depends upon the circumstances, and it is here that the authorities have differed. The directors must, however, act with care in respect to employing officers, in demanding and considering reports, and particularly in conducting the general policy of the institution which is peculiarly their duty.158

In one case159 the Court said:

"First. The language on this topic of judges, as reported in the books, must, in all cases, be construed in the light of the facts of the particular case.

"Second. The various directions in which the care of directors of banking institutions should be exercised in order to protect against fraud and theft of employes has greatly increased in number and variety within 50 years. Experience has developed modes of theft by such employes unknown and unthought of half a century ago, and these manifestations of ingenuity on the part of the thieves has been met by new safeguards on the part of the directors; so that what years ago would have been considered due diligence cannot be so considered today.

"Third. So numerous have been the defalcation and dishonest abstractions of money by employes of high grade, who had by years of right living and acting earned the confidence of their employers, that it has become well-nigh a maximum with such institutions to, so to speak, trust nobody beyond what is necessary to the practical business of the bank, and to subject the work of each one, from the highest to the lowest, to periodical investigation.

158. Briggs v. Spalding, 141 U. S. 132; Hun v. Cary, 82 N. Y. 65.

159. Campbell v. Watson, 50 Atl. (N. J.) 120.

"Fourth. That at one time and in some instances bank directors were unpaid servants, who were not expected to spend much time or to give much attention to the affairs of the institution, and on that account were dealt with leniently by the courts; but at this day such officers are not expected to work gratuitously, and are usually paid a fair compensation; and, whether paid or not, they are entitled to no indulgence on that account. Their names give credit and standing to the institution, and are a guarantee to dealers that its affairs will be conducted with reasonable prudence and care, and according to law. They are, in my opinion, bound to acquaint themselves with the extent and mode of supervision exercised by officers of well-conducted banking institutions in the neighborhood. I cannot yield to the suggestion of some of the defendants' counsel that the fact that the institution in question was a small country bank relieved its directors from adopting the same practical measures for protection against frauds and thefts as were in use by its greater neighbors in the larger towns.

"Fifth. Another observation is that the directors cannot be held liable for a mistake in an honest judgment upon matters properly mere matters of judgment, as distinguished from matters of administration. In matters of administration, where a duty to perform certain functions devolves upon them, they are justly held liable either for their nonperformance, nonfeasance, or for their lack of ordinary diligence in their attempted performance, whereby loss is incurred. By 'ordinary diligence' I mean such as is exercised by other prudent and diligent officers under like circumstances."

In this case, the directors were held liable for peculations continuing undetected over a period of years. An examination of the correspondent's accounts would have revealed the peculations, but this was trusted entirely to the cashier. The bank's by-laws requiring examination by the directors every three months were ignored. Held, that the directors were liable upon the bank's insolvency, to the receiver, for the benefit of creditors.