
    Charles H. Kavanaugh, Who Sues on Behalf of Himself and All Other Stockholders of the Commonwealth Trust Company of New York (Formerly the Trust Company of the Republic) Who Are Situated Similarly with Himself, Respondent, v. George J. Gould and Herbert L. Satterlee, Appellants, Impleaded with Commonwealth Trust Company of New York and Others, Defendants.
    Third Department,
    November 15, 1911.
    Banking—trust company — duties of directors — delegating powers — executive committee — negligence — liability of directors for acts of committee — trustee — when directors not chargeable with knowledge of details—by-laws — section 48 of the Banking Law — loans made on security of bonds — resulting loss—section 156 of the Banking Law— powers of trust company — right to issue prospectus for bonds — unauthorized acts of president-^when directors warned of incompetency— liability for similar acts — power of president — agreement that director need not attend meetings of board — failure of director to attend meetings — liability of directors for error of judgment — vacation of director of executive committee, when no negligence — misapplication of funds by president — liability of directors.
    The board oí directors of a corporation may delegate some of its powers to committees and individuals selected from the board.
    It is not customary in the city of New York for a board of directors to search actively the individual transactions of their bank in .order to learn the responsibility of its debtors or the nature and value of the collateral given^for loans.
    It is the custom of banks and trust companies in New York city to intrust to the executive committee of the board of directors the supervision of the detail management of the corporation.
    Such, custom, however, does not relieve the directors generally of all responsibility.
    They are bound to use every effort that a prudent business man would use in supervising his own affairs with the right, however; ordinarily to rely ■ upon the vigilance of the executive committee to ascertain-and report any irregularity or improvident acts in the management of the corporation.
    For example, they must make diligent efforts to attend meetings of the board and to advance the interests of the corporation by advice and by active work, and,, if they learn of any irregularity in the proceedings of the bank they are bound to take steps to correct it. They are not, however, required to watch the small every-day transactions of the corporation, nor are they chargeable with such knowledge as would be acquired by so doing. .
    The executive committee is charged with this duty of minute supervision, and the directors are not answerable for any neglect of this duty by the committee.
    As the directors may delegate such detail work they are not responsible ■ for its negligent performance.
    A trustee is not liable for a breach of trust of his cotrustee of which he was not cognizant, or in which he did not participate, so far as it concerns property which has come lawfully into the cotrustee’s hands.
    In order to make him liable for the act of his cotrustee it must appear that he knew or assented to the misapplication or waste of the trust fund, or that he neglected some duty consequent upon his knowledge that' a misapplication of the fund was intended.
    Among cotrustees there may be a division of duties arising from the necessities of the case, and after a division is made, one trustee is not , responsible for the acts of his cotrustee done without his knowledge.
    Directors of a trust company are not generally liable to stockholders for the negligence of the members of the executive committee as they would be if they were chargeable with all the knowledge which might be imputable to a member of such committee by reason of his supervision of the details of the business.
    Where the by-laws of a trust company provided for an executive committee to which was given all the powers of the board of directors while the board was not in session, and further provided that the committee should meet at least once a week and should have charge of all investments and disbursements over $200, and of all the. details of the company’s business, it is clear that a difference was thereby recognized between the supervision to be assumed by members of the committee and by members of the board of directors generally.
    
      Section 42 of the Banldng Law, providing that the directors of a banking corporation may by resolution require the detailed information of the bank’s business to- be given to an executive committee composed of at least five members of the board instead of to the board itself, leads necessarily to the inference that the directors who are not members of the executive committee are not to be charged with knowledge of the detail management, which need only be reported to the executive committee.
    Bank directors are liable to stockholders only for "such loss of the bank’s funds as is attributable to their own negligence.
    A director of a trust company is not negligent in sanctioning a loan made upon the note of a responsible party and secured by bonds whose value had been attested by repeated purchases by leading financiers; even though it later develops that the security is inadequate and that the president of the .bank had secretly agreed that the makers should not be personally liable on the notes.
    Directors of a trust company, who had previously resigned, are not chargeable with the negligence of the board in later releasing the makers of such notes from personal liability.
    As section 156 of the Banldng Law gives a trust company power to act as the fiscal agent of any corporation and to buy and sell stocks and bonds, it follows that it has the right to advertise for sale the bonds of a corporation whose fiscal agent it is and- to prepare a prospectus for such bonds.
    The directors of the trust company cannot be held hable for loss occurring to the company on the ground that their act in issiiing the prospectus was ultra vires.
    
    
      It seems, that where the foreign underwritings of the bonds of a shipbuilding company, for which the trust company acted as fiscal agent, having failed, the president of the trust company without authority , procured it to loan him over. $2,500,000 on notes signed by himself and another and seemed only by the shipbuilding company’s bonds and on behalf of the trust company procured other banks to make loans on the same security so that the trust company was obligated to the extent of over $4,000,000 substantially upon the security of these bonds alone, such acts of the president gave warning to all the directors when they learned of them not only that steps must be taken to repair the injury to the bank but also to provide against any further unauthorized acts by the president.
    It cannot be said, however, that the directors were thus warned that they must loan no more funds of the trust company upon the security of these bonds for, as ?the company then had loans seemed by over $5,000,000 of these bonds, it could not afford to refuse to take similar bonds as collateral for money loaned on the underwriting agreements with the shipbuild ;ng company.
    Under the peculiar circumstances, the directors were not negligent in authorizing further loans on the security of these bonds where the borrowers were of. known financial ability and the bonds had not at the time been discredited in the financial market.’
    
      The irregular and unauthorized acts of the president, however, were sufficient to put the directors on their guard against further irregularities on his part and they would be liable to a stockholder for losses arising thereafter from similar irregularities.
    They are not, however, liable for losses due to the previous unauthorized acts of his in promising to give personal immunity to borrowers whose notes were seemed by the shipbuilding company’s bonds where they did not learn of such acts until suit was brought on the notes.
    Where a syndicate was formed which provided for the payment of the unauthorized liability assumed on behalf of the trust company by the • president and also for his notes to the company and which took over in return the bonds held as' collateral and sold them at a profit, the directors cannot be held liable to a stockholder for losses sustained by subsequent loans made to responsible parties on the security of the bonds.
    The president of a trust company has no authority to agree that if a certain person would become a director of the company, he should not be called upon to attend any meetings of the board, but should simply be asked to allow his name to be used in. the directorate.
    Such an agreement could only be made with the stockholders themselves, and even then it seems that it would be ineffective as against a liability claimed on behalf of creditors..
    Although such director wholly neglects his duties as such, he does not thereby make the executive officers of the bank his representatives, nor is he responsible for all then acts.
    Even though he had attended the meetings and authorized the loans from which the loss resulted, he would not have been liable, for the loss did not result from that, but from the prior act of the president in guaranteeing personal immunity to the borrowers.
    Directors are not liable for errors of judgment, nor are they insurers of the acts of the executive officers of the bank.
    A member of the executive committee of a trust company is not negligent in taking a vacation of two months and a half if there were sufficient members of the committee within reach to constitute a quorum during his absence and the company’s condition appeared sound, when he left. ■
    He had the right to assume that the balance of the committee would attend the meetings and that the president would see that meetings were held. '
    Where such member upon his return found the company involved because of the large loans made on the security of the shipbuilding company’s bonds and thereupon formed the syndicate before mentioned and extricated the company from its embarrassment in large part, he cannot be held to have been negligent. j
    
    The directors are not liable to a stockholder for fuiids of the trust company later appropriated by the president) of the company to his own use, for, whatever irregularities the president had been guilty of before none of them involved any personal dishonesty.
    
      Especially a director who resigned before the president’s return from abroad and, therefore, before suit could have been brought to recover the money, is not liable for the loss caused by the misappropriation.
    Nor is a director hable who, upon the president’s return, endeavored to have the liability sued on and the president ousted from his office. Kellogg, J., dissented, with opinion.
    Appeal by-the defendants, George J. Go.uld„and. another? from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Saratoga on the 3d day of January, 1910, upon the decision of the court, rendered after a trial before the court without a jury at the Saratoga Trial Term, requiring the said defendants to pay to the Commonwealth Trust Company certain sums of money claimed to have been lost to said company by reason of their negligence as trustees of the Trust Company of the Republic of which the Commonwealth Trust Company was a reorganization.
    The plaintiff has brought this action in behalf of himself and other stockholders of the Trust Company of the Republic against certain of the directors of said trust company to compel said directors to restore to the company moneys claimed to have been lost through their negligence. The action is brought upon the allegation of a neglect and refusal of the trust company itself to sue.
    Early in 1902 the Trust Company of the Republic was incorporated. Both the defendants Gould and Satterlee. soon after its incorporation, were elected and qualified_as-diractors. Satterlee became a member of the executive committee. Upon July twenty-fourth said trust company loaned to J. G. White & Co., upon their promissory note, the sum of $37,500. This note was secured by an assignment of rights under an underwriting agreement in bonds, to be issued by the United States Shipbuilding Company, to the amount of $32,000. On July twenty-fifth said trust company loaned to E. G. Bruckman the sum of $90,000 upon his individual note, secured by an interest in a similar underwriting agreement, in bonds of the shipbuilding company to the amount of $113,400. Upon August first said trust company loaned to J. G. White & Co. $33,750 upon their promissory note, secured by their interest in a similar underwriting agreement for bonds of the said shipbuilding company to the amount of $50,000. Upon August twenty-ninth said trust company loaned to J. G. White & Co. $28,500. Upon bonds of said 'shipbuilding company of the par value of $38,000. .Upon October second said trust company loaned to Wheeler & Jones $12,000, and upon October fourth to W. A. Bailey the sum of $12,000. .These loans were upon the promissory notes-of the respective partios, secured by bonds of ¿the said shipbuilding company of the par value of $33,600. Upon December twenty-third said trust company loaned to J. G. White & Co. $34,200 upon their promissory note, secured by bonds of the said shipbuilding company Of the par value of $46,000. Upon January 6, 1903, said trust company loaned to W. A. Bailey the sum of. $21,.600 and to Wheeler & Jones the sum of $21,800 upon their promissory notes respectively, secured by bonds of the said shipbuilding company of the par value of $60,400. For the losses incurred upon these loans, as well as for a.loss incurred by reason of $35,000 paid, to the president, Dresser, upon September 25, 1902, the judgment against the defendant Satterlee is based. Inasmuch, however, as the defendant Gould resigned as director upon October 29. 1902. he has not been held liable for the loss upon the notes that were thereafter executed.
    It was proposed by men interested in the United States Shipbuilding Company to purchase the principal shipyards in various parts of the country. The financial scheme of this shipbuilding company was to execute a first mortgage for $16,000,000 as security for-bonds of $1,000 aggregating an. equal amount. Of these bonds, $5,500,000 were to be withdrawn from public, issue for disposal under vendors and subscribers’ contract; $1,500,000 thereof were to be reserved in the treasury of the company, and the balance, or $9,000,000, thereof, bearing interest at five per cent, were to be offered for public subscription and the proceeds used to pay for the several plants to be acquired. The $9,000,000 issue of bonds was to be offered for public subscription at not less than ninety-five. per cent, and the Trust Company of the- Bepublic was authorized to receive applications for these bonds at that price. The prospectus issued by this shipbuilding company named the trust, company as the bankers and transfer agents, while the Mercantile Trust Company was named as the trustee for the bondholders. The Bethlehem Steel Company was not one of the concerns which it was first proposed to purchase and make part of the shipbuilding company, and was not mentioned in the prospectus. Thereafter, however, arrangements were made for its purchase and consolidation. Upon August eleventh and twelfth these properties were .passed over to the shipbuilding company upon payment of the several sums named in the options which had been theretofore held. Prior to this time, however, many of the bonds had been provided for by various underwriting agreements, and all of these notes upon which loss occurred were notes for moneys to pay upon or complete those underwriting agreements. The moneys were not handed over to the several makers of the. notes, but were passed to the account of the United States Shipbuilding Company upon the books of the Republic Trust Company. It had been theretofore agreed upon that the Eepublic Trust Company should hold the deposits and be the fiscal agent of the United States Shipbuilding Company. This shipbuilding company progressed until sometime in the latter part of 1903, when it became embarrassed, and a reorganization was had and stock and bonds of the Bethelem Steel Company were substituted upon these loans for these shipbuilding bonds.' Sometime after January 26, 1903, all of the makers of these notes were released from personal liability by the Eepublic Trust Company. The collateral upon the notes proved of little value and the Eepublic Trust Company lost upwards of $300,000 thereupon, and this in the main forms the basis of the judgment against these defendants. The judgment as entered runs against other defendants who are not represented upon this appeal. Further facts appear in the opinion.
    
      Rush Taggart, for the appellant Gould.
    
      J. Langdon Ward [Lewis E. Carr of counsel], for the appellant Satterlee.
    
      Alton B. Parker and Theodor Megaarden, for the Trust Companies Association of the State of New York, intervening.
    
      Edgar T. Brackett, for the respondent.
   Smith, P. J.:

In Cassidy v. Uhlmann (170 N. Y. 505) the opinion in part reads: “The board of directors of a bank has the general superintendence and active management of all its concerns, and, for all practical purposes, the board is the corporation. As a‘ general rule a board of directors must act as a board. But, since directors do not exercise a delegated authority in the sense which applies to other officers and agents, it is clear that a board of directors may delegate some of its powers to committees and -.individuals selected from the board. This is common practice in the management of banks as well as other corporations. Since a board of bank directors is composed of individuals it is manifest that each director sustains a distinct relation, not only to his bank, but to its stockholders and depositors. For obvious reasons the duties which attach to this relation cannot be precisely defined. They cannot be the same under all circumstances; nor can they be imposed with unvarying exactness upon all directors alike, ” By the evidence of. the plaintiff’s witness Krech it appears to be the custom of banks in New York city to intrust to the executive committee of the board the supervision of the detail management of the corporation,; The directors generally not upon the executive, committee are not sunnosed to have knowledge of the details of the business-managernent of the corporation which are not submitted—to—them.' In other words, it is not their custom to actively search the individual transactions- in a bank that they may "learn the responsibility of its debtors, or the nature or value of the collateral. This they intrust, first, to the executive officers of the bank, who are carefully chosen and paid for their services; secondly, to the supervision of the executive committee of their body, which is chosen with a special reference to this duty, and to which committee must be reported weekly all the transactions of the hank.

This custom, however does not relieve directors generally of all responsibility. If the by laws require monthly meetings tií^mustlñake diligent effort to be present thereat. They must give their best efforts to advance the interest of the corporation, both by advice and counsel and by active work on behalf of the corporation when such work may be assigned to them. If at their meetings, or otherwise, information should come to them of irregularly in the proceedings of the hank they are hound to take steps to correct those irregularities. Tire law has no place for dummy directors. They are bound generally to use every effort that a prudent business man would use in supervising his own affairs, with the right, however, ordinarily to rely upon the vigilance of the executive committee to ascertain and report any irregularity or improvident acts in its management. And this custom is but the outgrowth of the necessities of the situation. In the first place it is not a practical proposition to commit the supervision of the details to twenty-five men. A smaller number would do the work more efficiently. Responsibility would be greater because not so scattered. Again, business men of New York are probably the busiest men in the world. They have large business enterprises in which their first interest lies and to which their first duty belongs. Most of them are directors of more than one corporation, and some of them of many. If they are compelled to supervise the detail management of each corporation in which they are directors, or if they are deemed to have constructive knowledge of such facts as would be acquired by such supervision, it would be wholly impossible for them to accept such a trust. They cannot give the time to watch the small every-day transactions of the corporation, and if chargeable with such knowledge as would be acquired therefrom the risk is too great for them to run. They are then in effect made answerable for the neglect of the executive committee to which is given this duty of supervision. Plaintiff’s contention is that they must not then accept the position of director. .The obvious answer to this contention is that the corporation cannot afford to tose them. One of the best assets of a corporation is the advice and assistance of men of business experience and of large business connections upon its board. Their advice and assistance are of . inestimable value in all emergencies and in determining the policies of the corporations and in counsel upon the more important questions that arise. Any construction of the law that would make it impossible for such men to accept positions upoh various boards of directors would seriously impair both the effectiveness and stability of corporations, in fact be little less than calamitous, But "plaintiff contends further that this rule of responsibility leaves the stockholder at the mercy of the executive officers of the corporation. Not at all. To the members of the executive committee is assigned the duty of detail supervision. With this duty they are bound to be on their guard to detect any irregularities or improvident acts on the part of the executive officers.' They are required to scan critically the detailed reports which are made to them by such officers. Thepliljgence_requ-ired-.of-.them is.-therefore., greater, a,nd__the rule of their-liability more, strict- than that--of.-a-d-i-rec-for._not a mpmber of_.that„committe.e, for_to_ them-not._only do the stockholders look for protection, but the directors themselves. and-u-pou-tbeir fidelity to thei-r -commission alb partiesjmust rely. Moreover, twice each year an expert examination is made of the condition of the trust company, and of its results all directors must take cognizance. Plaintiffis.assertion that the directors may dnleg.a±.e--to_theexecutive„.cqmpiittee their work but not-their responsibility- -is- not in accord--w-itEPthe"glawIdf this State. If they may delegate the work they are* not responsible for its ■negligent performance, and this principle is not new to the law of trusts. It is ruled in New York State that á trustee- is not liable for the breach of trust of his cotrustee of which he was not cognizant, or in which he did not participate, as to property which comes lawfully into his cotrtistee’s hands. He may passively allow his cotrustee to take full control and yet not be liable for his devastavit. The responsibility is more strictly held in England and in Pennsylvania. In 1 Perry on Trusts (6th ed. p. 667, note “A”) it is Said: “In the administration and managepient of the affairs of a trust it is usually impracticable for every trustee to actually participate, in every act. To some extent they may delegate to each other the merely ministerial duties of management, and each is entitled to rely upon the honesty and prudence of the other unless he has notice of facts which should lead him to distrust the°other. ” In Croft v. Williams (88 N. Y. 388) the opinion in part reads: “One, therefore, may sit passive and see the other receive funds of the estate, arid making no objection be deemed to assent, but that does not make him responsible for what, has been received. He must in some manner know and assent to the misapplication, he must be a consenting party to the waste, or neglect some duty consequent upon his knowledge of a misapplication intended or in progress. (Williams v. Nixon, 2 Beav. 472.) A wrong done or a duty omitted must lie at the foundation of his liability.” In Sutherland v. Brush (7 Johns. Ch. 22) I quote from the opinion: “The defendant P. is not responsible for the devastavit of his coexecutor 0., any "further than he is shown to have been knowing and assenting, at the time, to such devastavit or misapplication of the assets of the estate. Both the executors could not, with any kind of convenience, jointly possess and hold all the assets. The assets must, from the necessity and reason of the case, have been distributed between the executors for the purpose of collection and security; and it appears to be settled, and upon very just principles, that one executor shall not be chargeable with the waste of the other, except so far as he concurred- therein; and that merely permitting the other to possess the assets, without going further, and concurring in the application of them, does not render him answerable for the receipts of the other.” This rule is further held in Cocks v. Haviland (124 N. Y. 431); Wilmerding v. McKesson (103 id. 340); Ormiston v. Olcott (84 id. 346). While these cases are not precisely analogous to the case at bar they establish the rule that among trustees there may be a division of duties' arising out of the necessities of the case, and after that division one trustee is not responsible without knowledge for the acts of his cotrustee. As applied to the case at bar, as far as these directors are trustees for these stockholders, a division may be made both of duty and responsibility, and the directors generally are not liable for the negligence of the members of the executive committee, as they would in effect so be if they were chargeable with all the knowledge which might be imputable to a member of the executive committee, by reason of his supervision of the detail management of the corporation.

This distinction between the diligence required of a director generally and a member of the executive committee is not only shown by the evidence in the case to be the custom in banks in the city of New York, not only does it appear to be a reasonable and sane distinction, but it is clearly recognized in the by-laiys of this corporation itself, which were made by these very stockholders here complaining, and afterwards ratified by the board of directors. In fact these stockholders might make-any requirement that they should see fit in their by-laws regulating the duties of the directors, which would be binding upon, the directors, and are not subject to modification or veto by the directors themselves. Those by-laws provide for the executive committee to be composed of six members of the board of directors in addition to the president. ■ To that executive committee is given all the powers of the board of directors when the board- is not in,session, except the power to fill a vacancy in the board. The assent of that executive committee is required “ for all investments that shall be made of the funds of the company in stocks, personal securities and bonds and mortgages, and for the disposal 'of the same, and of the funds of all special trusts,” No guardianship, receivership or'other special trust can be accepted by the president without either their approbation or that of the board of directors,- unless it be ordered by a court or surrogate having jurisdiction. The executive committee may in its discretion authorize the president generally to make' investments in such securities as are authorized by the charter of the' company, and to dispose of such securities, without previously consulting as -to details with .the committee; -but all such transactions shall be reported to the committee at its next meeting. No disbursements, except for current expenses or. for an amount not to exceed $200, shall be made without being reported to the' executive committee for approval. The executive committee is required to meet at the main office of the company on Tuesday of each week, and also meet at other times on the call of the president. Section 5 requires that “regular minutes of the proceedings of the executive committee shall be- kept, and shall always be open to- the inspection of' .any director; and the minutes of the meetings of the preceding month shall be read at each monthly meeting of the board.” All through the by-laws is clear evi- ' dence of a specific supervision given to the executive committee, of which; the directors generally are relieved. In accordanee with those provisions reports were made weekly to the executive committee of loans proposed and loans made. Whilé the by-laws required that the minutes of the meeting of the .executive committee should be before the board of directors, those minutes need not necessarily show specific loans proposed or loans made. There is nothing in the by-laws which would require the executive committee or any officer of the trust company to report to the directors any of the detail of its business management. '■ These by-laws, therefore, recognize clearly a difference between the supervision to be assumed by members of the executive committee and members of the board of directors generally.

Finally this principle has received legislative recognition. By chapter 155 of the Laws of 1908 section 39a was added to the Banking Law (Gen. Laws, chap. 37; Laws of 1892, chap. 689), which was re-enacted by section 42 of the Banking Law (Consol. Laws, chap. 2; Laws of 1909, chap. 10). Said section was made to read in substance: “The directors or trustees * * * shall by resolution duly recorded in the minutes of the proceedings of such corporation designate an officer or officers whose duty it shall be to prepare, and submit to each director or trustee at each regular meeting of the board, or to an executive committee of not less than five members of such board, a written statement of all purchases and sales of securities, and of every discount and loan, exclusive of discounts and loans of less than one thousand dollars, made since the last regular meeting of the board, describing the collateral to the loans so made as of the date of the meeting at which such statement is submitted.” This statement is required to contain other details also. (See, also, Laws of 1911, chap. 708, amdg. said § 42.) But the significance of the provision is that the directors may by resolution provide that this detailed information should, instead of being given to the board itself, be given to an, executive committee of not less than five members. The necessary inference follows that the directors not upon the executive committee are not chargeable with knowledge of detail management, which need be reported only to the executive committee. So that the distinction which I have sought to deduce from reason and judicial authority is now made part of our statutory law.

Before discussing the facts as hearing upon the liability of the respective defendants, it may be well to call attention to a general rule of law which is here applicable. That rule of law charges a party guilty of negligence only with the loss caused by that negligence. Whatever punishment there may be aside from civil liability must rest in the criminal law. The liability of these defendants for the losses with which they have been charged can only be sustained. if such losses were caused by their negligence. In Bloom v. National United Benefit Savings Co. (81 Hun, 120, 127) it is held that directors are liable only for loss of its funds attributable to their negligence. To this is cited Briggs v. Spaulding (141 U. S. 132) and Arthur v. Griswold (55 N. Y. 400). The Bloom case is affirmed in the Court of Appeals in 152 New York, 114. It is unnecessary to cite further authority, as this proposition is distinctly asserted both in.the opinion of the Trial Term (See Kavanaugh v. Commonwealth Trust Co., 64 Misc. Rep. 303) and in the brief of respondent’s counsel, so that it stands here unquestioned.

The makers upon the notes, for loss upon which these defendants have been charged, were all of them abundantly responsible financially. The shipbuilding bonds which were offered as collateral were being readily sold in New York and purchased by the leading financiers of the city at prices which made them apparently abundant security for the notes for which they were collateral. The moneys loaned upon these-notes were all passed directly to the credit of the shipbuilding company upon the trust company’s books, and went to strengthen and make secure the very bonds that were held as collateral. These underwriting agreements, all of them, contained the provision that they were to be void unless the $9,000,000 contemplated to be sold was entirely underwritten. So that if there should be any failure to procure the $8,100,000, which was "contemplated to be procured upon the sale of this $9,000,000 of bonds, the moneys would be in the vaults of the trust company subject to the claim of the trust company thereupon as a first equity. These moneys were, therefore, all retained by the trust company itself until the full amount should, be raised, the various properties purchased and the bonds made of substantial worth. With the responsibility of the makers of the notes conceded, and with the value of the bonds attested by repeated purchases by leading financiers in New York, city, it cannot be held to be an act of negligence upon the part of any director to sanction the loan of the moneys under the circumstances and in the way in which it was thus loaned. Nor could the plaintiff himself or anybody question the , act of the directors in sanctioning such a loan, except for facts which afterwards developed, of which the directors had no knowledge at the timé that the loans were made, and of which' they could not by active diligence have obtained knowledge.

It seems that in the early part of 1903 Bruckman and White and the other makers of these notes' claimed in some way that they had been misled in the making of these underwriting agreements, and demanded that they be released from personal liability upon these notes. The learned trial judge has found that their claim was that they were misled by false representations in a prospectus which was issued 'by the trust company upon the sale of these bonds. This finding is not supported by the evidence. There is no evidence anywhere in the case which shows that their claim was based upon. any misrepresentations in the prospectus. The inference of' the trial justice is wholly unjustified. The evidence is not clear as to just what was the nature of their claim. The only light thrown upon the nature of that claim lies in the agreement for the release of Bruckman, wherein it is recited: “ Whereas, said Bruckman agreed to underwrite and' purchase said securities subject to a loan of One hundred and Forty-nine thousand Two hundred dollars ($149,200), with interest at five per cent per annum, for the repayment of which loan he was not to become personally liable, the said Trust Company looking to the securities only for eventual paymentT This paper between the trust company and Bruckman, executed upon January 27, 1903, would seem to indicate that he and the others had been promised immunity from personal liability by Dresser, or some one in his behalf, which 'promise was wholly unknown to Satterlee or to any other director at the time the loans were made. Satterlee in fact swears that these loans prior to October would have been provided for by the Sheldon syndicate agreement, which will. be hereafter referred to, if it were not for the known responsibility of the makers of the notes. The fact that these notes were not provided for by the Sheldon syndicate is full coirobo- - ration of Sheldon’s attitude that he supposed the makers were .individually liable thereupon. The trial court has found that these makers were negligently released. If so, the release was by directors subsequent to the resignation of both Gould and Satterlee, and the negligence was not their negligence. But' without further evidence as to the ground of the release or the foundation therefor, it cannot be held that the release was itself a negligent act. '' Wetmore swears that the trust company thought it impolitic to have a suit with such a determined man as Bruckman was known to be. There might have been many reasons from a policy standpoint why the trust company did -not wish to have litigation at that time in respect of those - underwriting agreements.

■ But assume for the - argument that the trial judge was right , in finding that the contention of the makers of these notes was that they were misled by statements in this prospectus. There is no proof in the case that there was any misstatement .of fact in that prospectus, or- anything upon which .'a claim pf fraudulent representation could be made. The trial judge has not found that there was any fraudulent or "false statement therein. Tt was not claimed upon the trial by the plaintiff’s attorney; for when' the question arose the court stated upon the trial: “ There is no claim of fraud here in the prospectus; no recovery asked because of fraud in the prospectus.” This statement was unchallenged by the plaintiff’s counsel.- But the trial court has held these defendants liable- upon áll the White and Bruckman notes, not because of any fraud in the prospectus, but on the ground that the act of publishing the prospectus was an act ultra vires, which gave an opportunity for the makers of the notes to- claim fraud and thereby cause this loss. It is not entirely clear how the conclusion follows the premises in' this syllogism. But* it is immaterial, because in my judgment the premises are inaccurate. Section 156 of the Banking Law' (Gen.-Laws, chap.'31 [Laws of 1892, chap. 689], as amd. by several statutes) purports to define the powers of this company. In the first' subdivision of the section (as amd. by Laws of 1893, chap. 696) it is given power “to act as the fiscal or transfer agent of any State, municipality, body politic or corporation; and in such capacity to receive and disburse money, and transfer, register and countersign certificates of stock, bonds or other evidences of indebtedness.” By subdivision 9 (as amd. by Laws of 1893, chap. 696) it is given power “to purchase, invest in, and sell stocks, bills of exchange, bonds and mortgages and other securities.” (See, also, Id. § 156, subds. 1, 9, as amd. by Laws of 1901, chap. 192; Laws of 1906, chap. , 601, and Laws of 1908, chap. 191; now Banking Law [Consol. Laws, chap. 2; Laws of 1909, chap. 10], § 186, subds. 1, 9.) The power thus given would seem to be comprehensive enough to authorize this trust company as the fiscal agent of the shipbuilding company to sell its bonds, and with the authority to sell the bonds there must follow as a corollary, thereto the right to advertise the bonds for sale. If so) the ground upon which the trial judge has based the defendants’ liability for the first three notes, at least, cannot sustain the conclusion which he has reached.

As to the loans that were made upon these notes after the twelfth of August, another and a different ground of liability is also asserted. Early after the organization of this corporation the officers of the, corporation were in the habit of buying and selling in the name of the corporation its own stock. At one time $160,000 was invested by the trust company in its own stock. That did not appear upon the books of the company or any of the reports to the executive committee except as so much, charged to “ advances.” With the duty, however, of the executive committee to supervise the detail of the corporation, such a large charge toan indefinite account called “advances” would in my judgment put them upon inquiry, so that they were deemed to have known of this transaction. It is not claimed that anything was lost by this speculation. In fact it resulted in a profit of upwards of $2,000 to the company.- But it is claimed that there was such irregularity as 'should put the directors upon their guard as to possible future irregularity of the officers of the company. There was a further loan appearing upon the books in June of $800,000 to one firm, which was in excess of the amount that might lawfully be loaned to that-firm. Further, there were loans made to one John W. Young, which, were perhaps inadequately secured by collateral. But the main irregularity" which has been held to charge all of these directors with a specific duty occurred upon the eleventh and twelfth of August, or thereabouts. At that time the options given to the shipbuilding company upon these various properties were about to. expire. Of the $9,000,000 of bonds which were to be sold it was understood that $3,000,000 were to be underwritten in London, $3,000,000 in Paris ' and $3,000,000 in New York. The London and the Paris under-writings fell through, So that when it came to the eleventh • and twelfth of August the shipbuilding company did not have the money with which to complete options which it held. Thereupon the Republic Trust Company loaned to Lewis Nixon and Dresser the sum of $2,600-,000. upon their notes, secured by shipbuilding bonds. It also procured other banks to loan to these same parties further sums, so that' within a short time the Republic Trust Company had either loaned or obligated itself to the amount of about $4,100,000, substantially upon the security of these shipbuilding bonds alone. This was'held by the trial judge to be such an improvident, reckless act of the president of the trust company as to give notice to all of the directors of his improper conduct of .the bank, and further to give notice to them to provide that no further loans should be made upon the security of shipbuilding bonds. /-It cannot be questioned that the act of Dresser in loan-ing thi'SJ-arge sum'to himself and Nixon, and in obligating the trust company for a .-further ' sum, was wholly unauthorized and improvident. I will agree for the argument that this act of - Dresser gave warning to all of the directors not only that steps must be taken to repair the injury done to the bank, but also that steps must be taken to provide against any further such unauthorized acts by: the officers. . The board of directors, however, under Satterlee’s leadership, procured a syndicate, called the Sheldon syndicate, to take these bonds from the company and pay the notes of Nixon and Dresser, and pay the guarantee made by the trust company. So that confessedly no loss came to the trust company by reason of these unauthorized and improvident acts- upon the eleventh and twelfth of August. I am not prepared, however, to assent to the proposition that the directors were thus warned that they must loan no more funds upon the security of these bonds. They at that time had loans secured by upwards of $5,000,000, at the par value of these bonds. They could not afford to refuse to take these bonds as collateral for money loaned on these very, underwriting agreements and thus discredit those bonds. If they had done so at that time it would have been impossible to have formed this syndicate for the payment of this $4,100,000, in which amount Dresser had unlawfully involved the trust company. So that the loans of August twenty-ninth to White & Co. of $28,500, of October second to Wheeler & Jones of $12,000, and of October fourth to W. A. Bailey of $12,000, all upon the security of these shipbuilding bonds, cannot be said to have been negligently authorized by the board of directors, if in law they had been, under the peculiar circumstances in which they were placed. It must be borne in mind further that these bonds had not at that time been discredited in the financial market, and that the makers of these notes were all of them' of known financial responsibility. This Sheldon syndicate agreement, which provided for the payment of the unauthorized liability assumed by Dresser upon August eleventh and twelfth, was perfected upon October twenty-ninth.- George B. Sheldon, the head of that syndicate, was one of the leading financiers in New York city. Other members of the syndicate were representative bankers and business men in New York city. They took these bonds at a valuation of seventy-five per cent, with the agreement that they would divide with the trust company whatever profits were made thereupon. They then went into the market and sold these bonds, so that a profit of over $160,000 was made thereupon, of which the trust company,..had its half. Instead of discrediting these bonds, therefore, upon the market, the stability .of their values had been practically for the time demonstrated by these very sales, and after that time the loans made to White, Bailey and Wheeler & Jones in December, 1902, and January, 1903, were made both upon acknowledged financial responsibility of the makers and upon the established market value of these bonds. We may assent to the proposition that these irregularities on the part of Dresser were sufficient to put these directors on guard against further irregularities upon his part, and that for losses which thereafter occurred, if they arose from similar irregularities, they would clearly be liable.The difficulty with plaintiff’s proposition is that the losses which did thereafter occur arose from no irregularities on the part of the officers of the company whatever. From, this statement must be excepted an item of $35,000, which will be discussed hereafter. The promise of personal immunity, if given by Dresser, occurred at the inception of these underwriting agreements, before the directors were put upon their guard, and none of the directors had an intimation thereof until 1903, when it was asserted as a defense to those notes. Upon the. making of this Sheldon syndicate agreement upon the 29th day of - October, 1902, the defendant Gould resigned as director. The defendant Satterlee urged Dresser to resign as president, but Dresser was upheld by the defendant Boldt and other defendants, so that he did not resign, and was re-elected in January for another term. Upon his re-election the defendant Satterlee resigned from the board, having resigned from the executive committee upon December twenty-third previous.

As to defendant Gould, then, he consented to go upon the board upon an understanding with Dresser that he -should not be called upon to attend any of the .meetings... of__the board, but would simply allow the use of his name in_the directorate. This agreement was clearly beyond -the .authority of Dresser to make. The stockholders had a right to assume that as director he would comply with the obligations of his oath and accept and discharge the responsibilities of the position. . Such_an agreement, could only he made with the stockholders, themselves, and even then it is not certain that such an agreement would be effective.,as^agiin&t_aJiability claimed in- behalf of creditors. In the case aj. bar..-it-does-Jiot appear that there are any creditors whose righ-ts are ■involved.. Gould’s liability, therefore, must be determined as if_no-such agreement had been made, and he is clearlyjiable provided that the dosses with which he has been charged are attributable to his failure to perform the duties which the law imposes upon a director not a member of the executive committee. The contention that because he has wholly. neglected his duties as director he has made the executive officers of the bank his representatives and is responsible for all of their acts, ignores the well-settled rule of law that a negligent director is liable only for the losses attributable to his negligence. If I am right in the conclusions which I have heretofore reached, as_a director generally he was charged neither actually nor constructively with the knowledge of the making of any of these loans or of the collateral upon which they were made. But further than that, if he had been attentive as a director, attending every meeting of the board of directors and had specifically authorized these very loans upon these securities, such acts under the circumstances would not have been negligent acts which would make him responsible for the losses arising therefrom. Neither actually nor constructively did he have notice of any secret agreement for personal immunity made between the makers of the notes and Dresser. So that he might rely upon the acknowledged financial standing of the makers of these notes. And as has been before indicated these bonds had a stable and substantial value in the New Torle market. Looking backward with the knowledge of subsequent events, we might say that such investments were unwise.. In view of the situation as it then existed, at the most it can only be said that there was an error of judgment and to hold directors liable for losses under such circumstances would make them insurers of the acts of the executive officers of the bank. Liability to this extent is nowhere claimed even by the plaintiff.

As to the defendant’s after lee still other questions, arise. He was a member of the executive committee, and waft one of the firm of Ward, Hayden & Satterlee, who were the attorneys for the trust company. Upon July sixteenth he went to Europe upon his vacation and did not return until the twenty-ninth day of September. I have heretofore considered his liability as though he had been present at all these times and had- full knowledge of all the acts of Dresser and the Republic Trust Company. Trial court has found that he had no right to take this vacation except with the permission the board of directors and with a provision for, some one’s taking his place. The by-laws provided that with the, president two members of the executive committee should^constitute a quorum. Greig was a director upon the executive committee and was one of the officers of the company- and at all times accessible. Prior to leaving Satterlee suggested that one Wetmore, a neighbor of Dresser’s at Oyster Bay, should be asked to fill a vacancy that existed upon that committee, apparently that he might be there during his absence. Either Wetmore or Marvin were at all times present in or near the city of New York and at all times subject to call in case Dresser wanted a meeting of the executive committee. Whether or not they were negligent in not going to the trust company’s building and insisting upon a meeting of that executive committee is not a matter of concern here. Satterlee was not negligent in taking a vacation while there were members of the executive committee sufficient to constitute a quorum at all times during the summer within reach. One of the members of his firm was at all-times in the city during his absence. Of course Satterlee occupied an ' unusual position with this corporation. He was one of the organizers of the company. He was not only a member of . the executive committee, but he was one of the attorneys for. the company, and probably was the mainstay of its president while he was in the city. The executive committee meeting usually consisted of Satterlee, Greig and Dresser. But even so, he had the right to assume that sufficient of the executive committee remaining in the city would attend to make up the quorum, and that the president would see to it that such committee meetings were held. At that time he could not be charged with notice of any such emergency as afterwards arose in respect to the underwriting of the shipbuilding bonds. When he left it was supposed that at least the French underwriting could be relied upon. Positive assurances were given thereof up to within two or three days of the time that the options had to be completed. The company had refused to underwrite any of these bonds. No loans had been made upon their security, which were in any way indiscreet or hazardous as far as he could know. He returned from Europe upon the twenty-ninth of September. Early in October he found out what had transpired in his absence. He thereupon went actively to work to form a syndicate which would relieve the trust company of the embarrassment in which it had been put by Dresser’s improvident acts. The formation of this syndicate has been approved by the trial court, and the plaintiff’s counsel in his brief finds no fault with the actions of Satterlee after he returned from his vacation. After the redemption of these bonds and the canceling of these liabilities by the Sheldon syndicate, the bank examiner reported to the State Banking Department that the capital and surplus of the institution were left intact and a small profit shown in addition. It would seem, therefore, that' he had been thoroughly diligent, both before his vacation and after his return therefrom, and without fault in taking that vacation he cannot be held to have been guilty of any negligence jffiich could have caused this loss to the company.

There is one other item of liability found as against both of these defendants which is not included in these notes. Shortly after the twenty-fifth day of September Dresser went to Europe and did not return -until sometime in November. Upon the twenty-fifth day of September he withdrew from the trust company the sum of §35,000. This was taken without security. It is spoken of as a loan to Dresser by the trial judge, but if it was a loan to Dresser it was a loan by Dresser to himself. It was not submitted to the executive committee and no knowledge thereof was given to any member either of the executive committee or of the board of directors. In Scott v. De Peyster (1 Edw. Ch. 541) the court in discussing an act of embezzlement of the secretary and treasurer of the company and the liability of the directors therefor, used the following language: " If this be so, then no blame can attach to the president or any of the directors in respect to the mere act of embezzlement or the commission of forgery in altering checks. The funds were not needlessly or improperly exposed by them to the temptation of such crimes. They had a right to repose some confidence in the secretary of the company. His station required it of them; at least, so far as to allow him to receive-whatever money was paid at their office in the course of business and have charge of such money for the purpose of depositing it in bank, and also to the extent of filling up checks to be signed by the president and himself and to be used and applied to the purposes for which the same were intended. All these were matters within the scope of' the secretary’s duties, and which, according to established usage, belonged' to him to perform. He was, therefore, entrusted with them, and it was in these alone he betrayed his trust. How then can the president and directors be liable for the act of embezzlement or forgery merely? There was no collusion, and thus far, no want’ • of care or prudence on their part. I know of no law which requires the president or directors of any monied institution to adopt a system of espionage in relation to their secretary or cashier or any subordinate agent or to set a watch upon all their actions. • While engaged in the performance of the general duties of their station they must be supposed to act honestly until the contrary appears; and the law does not require their employers to entertain jealousies "and suspicions without some apparent reason. Should any circumstance transpire to awaken a just suspicion of their want of integrity and it be suffered to pass unheeded, a different rule would prevail if a loss ensued. But, without some fault on the part of the directors, amounting either to negligence or fraud, they cannot be liable. ” Whatever irregularities Dresser had been guilty of prior to this time none of them involved any personal dishonesty. Wherein he had acted contrary to law or prudence was for the supposed benefit of the trust company of which he was president. None of his acts had given cause to any of the directors" to suspect that he would purposely appropriate to himself any sum whatever. It was discovered sometime in October, while Dresser was in Europe. It does not appear what this was taken for. It must be' deemed in the nature of a misappropriation by Dresser, although there must’have been some purpose which caused its taking to be, condoned by the stockholders of the' company, who re-elected him thereafter with full knowledge of his act. The only course which the directors could take would be to sue Dresser therefor." But before he returned and could be sued Gould had resigned as director,, and after he returned Satterlee both advised its suit and sought to compel his resignation, in both of which he was overruled by the directors. There certainly can be no negligence in permitting the misappropriation, which was. done Without their knowledge or consent. There can be no negligence In Gould, because of his resignation before the return of Dresser, when suit could have been brought. The diligence of. Satterlee was attested by his effort to have the liability sued upon, and by his effort to have Dresser ousted from the presidency. So for that loss I do not_fincLany ground for liability oLeithenof these defendants- These views lead to a reversaLof this judgment as to defendants appellant upon law and fact and the granting of a new trial, with costs to each appellant to abide the event of the action, which judgment I recommend.

All concurred, Betts, J., in the result, except Kellogg, J., who wrote for modification and affirmance.

Kellogg, J. (dissenting):

A brief statement of some of the facts relating to this trust company, the manner in which it did business and the connection of the defendants therewith, makes unnecessary a discussion of the liability in ordinary cases of a director of a. trust company for negligence in the performance of his duties. We may assume that he is at least charged with exercising the same care which the ordinarily prudent man would exercise under like circumstances, and that each director is liable only for his own negligence and not for the negligence of a fellow-director.

This company began business March 31, 1902, and about, the 1st of October, 1902, was discovered to be upon the brink of ruin by reason of the illegal, and reckless manner in which its business had been transacted.

The defendant Satterlee states his-introduction into the business as follows: Dresser “ told me that he had heard of this matter from Mr. Greig, and that they had' started to get up a Trust Company, and some Texas parties were interested and had an option, so to speak, or a claim to subscribe to a considerable portion of .this Trust Company stock. * * * He wanted me to become interested in it with him, as his counsel, and to guide him particularly at that time in the relations of Mr. Greig and himself with the Texas people who had been in the matter from its inception, and who wanted to get an increasingly large share and take an increasingly prominent part in its direction.”

Dresser had no knowledge or experience in financial institutions, nor does it appear that any of the officers or any one of the other six members of the executive committee had any practical experience as executive or financial men in any moneyed institution.

The by-laws provided that “the affairs of the company shall be managed and its corporate powers exercised by a board of twenty-five directors,” and also “The Executive Committee shall exercise all the powers of the Board of Directors, when the Board is not in session, except the power to fill a vacancy in the Board. 'The assent of the Executive Committee shall be required for all investments that shall be made of the funds of the Company in stocks, personal securities and bonds and mortgages, and for the disposal of the same, and of the funds of all special trusts; and no guardianship, receivership or other special trusts shall be accepted by the President Without either their approbation and concurrence or that of the Board of Directors, unless it be ordered by a Court or Surrogate having, jurisdiction. The Executive Committee may, in- its discretion, authorize the President generally to make investments in such securities as are authorized by the charter of the Company, and to dispose of such securities without previously consulting, as to details, with the Committee; but all such transactions shall be reported to the Committee at its next meeting.”

Satterlee, at the request of Dresser, purchased ten shares of stock to qualify as a director and become a director, a member of the executive committee and counsel for the company, his law firm being designated as official counsel. The defendant Gould also became a director at the request of Dresser, but with the distinct understanding that he was to pay no attention to the affairs of the company or attend the board meetings, and all he did as a director was to qualify, and later to resign. This committee was to meet weekly and subject to call by the president, and was required to keep minutes which were to be read at each monthly meeting of the directors.

The limitations imposed upon a trust company are well considered in Gause v.. Commonwealth Trust Co. (196 N. Y. 134).

The executive committee held its meetings weekly until July 22, 1902. The next meeting was September ninth, at which Whitmore, Greig and Dresser only were present, and the only business done was adopting a resolution authorizing the president to make or guarantee loans in the company’s name when necessary. The object of this resolution was to permit the trust company to guarantee the loans of Dresser and Nixon hereafter referred to, which were made in order to float the shipbuilding scheme. Although regular notices for committee meetings were*-sent out weekly the members did not attend.

A proper banking practice required the submission. o£ all loans to the executive committee tor. its approval at the next meeting following the loan, and this practice was not followed. On Hay twenty-seventh the committee instructed the secretary to present to it at every meeting a complete list of all loans and collateral not previously passed upon, and to merge the reports of both of its offices in one. Apparently the first report of loans was made to the committee on June seventeenth, when the minutes show the loans from the beginning were submitted and approved. The next was on July eighth. Satterlee, though present at both these meetings, apparently gave no attention to or took any interest in the reports and was negligent in not understanding the details of loans made prior to that time.

Immediately after the business was organized questionable transactions took place and it became early apparent that the president did not understand the law of banking, or that if he did, he had no regard for the law. From April eleventh until the crisis the company was buying and selling its own stock through brokers and otherwise, the amounts paid appearing upon the books as advances, and when the first semi-annual statement was required, about June thirtieth, the president gave his check for the amount and the account was canceled. There were no funds to pay the check and it remained in the cash items; afterward the amount was returned to advances. There was no loss; in fact the company made a profit by these. illegal transactions.

On June twenty-third $700 was loaned to J. W. Young on collateral which was merely an agreement to transfer to the company certain stock in a company thereafter to be formed. On June twenty-fourth $5,000 was loaned to Young, a man of little financial and personal standing, secured by an order on Lewis Nixon for shipbuilding bonds, not then issued, of a company which had at that time no property. On July twelfth, on similar security, it loaned him $2,500 while he was not in this country. On June thirtieth $800,000 was loaned for thirty days to a firm on shipbuilding bonds. This was an excessive loan prohibited by the Banking Law, the capital and stirplus of the company being $1,500,000. On June twenty-sixth $50,000 was loaned to Eeiss, Dresser’s partner, for which on October twenty-seventh the note of Engel, an employee of the. firm, was taken, secured by shipbuilding collateral. ' No actual loss was sustained on the above loans. They are mentioned as tending to show how and by whom the affairs of the company were conducted.

The losses to the company came from its participation in underwriting the bonds. of the United States Shipbuilding Company, of which Dresser was vice-president and director. Briefly, the shipbuilding company’s scheme was to purchase the plants of certain other companies, payment for which was to be made at the trust company on August eleventh. It involved the underwriting of $9,000,000 of bonds at ninety, with bonuses of twenty-five per cent of preferred, and twenty-five per cent of common stock. The property so acquired was to be the security for the bonds, which were to be issued after August eleventh, when the shipbuilding company should have acquired title to the mortgaged property. Dresser and probably the other directors had no confidence in the character or financial standing of Young, the promoter of the shipbuilding company, and at first Dresser refused to meet him, but finally did so at the request of another trust company and its counsel, who also were interested with Young in the formation of the shipbuilding company. Dresser was led to believe that one third of the underwriting had been subscribed in Paris, one-third in London and the other one-third was to be underwritten in New York.

He undertook to obtain the $3,000,000 subscription allotted to New York. If he succeeded his company was to be banker for the shipbuilding company and otherwise act for it, and was to receive the compensation mentioned hereafter. If he did not succeed, his company was to receive nothing and was not otherwise to act for it. A prospectus of the shipbuilding company was issued which named the Trust Company of the Republic as the party to receive applications for bonds, and gave notice that said trust company, would open subscription books for public subscription, and reserved to the trust company the right to give preferential allotments to the shipbuilding trade and its employees. Dresser secured the subscriptions to the underwriting as agreed, and when he learned that the London underwriting had failed he agreed with the promoter and the representative of the other trust company that he would do all he could to obtain $1,700,000 of that underwriting, with the understanding that the remainder of the amount allotted to London would be arranged for with the Paris underwriting. With some help from his executive committee and directors, he secured his share of the London subscription, in a large part from his own directors and officials, and thereafter, from June fourteenth to June nineteenth, the trust company advertised the bonds in the New York papers for public sale at ninety-seven and one-half. The advertisement recited that the trust company was authorized to receive subscriptions; that the entire issue of $9,000,000 had been underwritten, and that “The Trust Company of the Republic reserves the right to close the subscription at any time and to reject any and all subscriptions.” notwithstanding this advertisement, it was not then definitely known that the balance of the London subscription would actually be taken in Paris, and the real status of tire Paris subscription was not understood. The trust company actually received $476,755 from the public sale, and Dresser had obtained subscriptions for $4,700,000 of bonds.

As August eleventh, the date for payment, approached, it was unlderstood there would be delay in receiving the money from the Paris underwriters, but it was hoped that it would eventually be realized. If the underwriting failed, the trust company would lose its compensation and would lose the shipbuilding company’s accounts; it would be discredited; the loans which it had made, secured by the shipbuilding underwriting, would be uncovered, and the persons who had purchased bonds from the company could not receive them; The company had made itself so far a part of the scheme that its failure meant an irreparable injury. The situation was met by an excessive and illegal loan by the trust company to Nixon upon the security of the shipbuilding bonds, and loans of large amounts were obtained by Dresser and Nixon elsewhere by pledging the shipbuilding bonds and upon the trust company guaranteeing them.

The defendant Satterlee went abroad on his vacation July sixteenth and returned September twenty-ninth. Soon after he returned he discovered the large loan made to Nixon and the large guaranties made by the company. He and. others became alarmed, and undoubtedly his able and effective management, with the assistance of his friends, saved the trust company from failure. By the formation of a syndicate which,, in consideration of certain shipbuilding bonds, settled the Nixon and Dresser notes and the company’s guaranty, it resulted that the company sustained no loss therefrom.

The evidence of Dresser indicates that he was acting in the shipbuilding underwriting for the trust company and not for himself, and that up to the time that Satterlee went abroad the executive committee was informed by him in a general way what was being done in the matter. In the minutes of the committee appears, May twentieth: The.President made an informal report on the Shipbuilding Combine.” May twenty-seventh: “ The Shipbuilding underwriting proposition was discussed.” At this latter meeting he stated what was desired, of the company and the benefits which would come to it. It is significant that the first record shows arix informal report on the combine; the next the underwriting proposition was discussed. On May twenty-seventh, on the stationery of the company, we find a communication to Dresser from his vice-president, stating the understanding between him and the representatives of the other trust company that the lawber was to act as trustee for the bonds, etc., and the Trust Company of the Republic to act (a) as issuing bankers and perform all the duties incidental thereto, (b) advertise prospectus, (c) receive all subscriptions, (d) pay the necessary cash to the trastees to clear the titles and commitments thereto, (e) deliver all bonds and shares to the subscribers, (f) registrar and transfer agent of the shares of the company, and concluded by asking his opinion as to at what price the public issue should be made, how long they should be advertised before the books were opened and how long the books should remain open. The defendant Satterlee does not remember this communication, but there was no other shipbuilding proposition up for consideration and I am satisfied that Dresser read or stated the contents of this memorandum at this meeting in the defendant’s presence. The minutes of June fourth show: “ President made a verbal report on the U. S. Shipbuilding underwriting.” The evidence shows that the general progress, of the underwriting was stated. June twenty-third the promoter Young gave to Nixon an order, which was accepted by him, to deliver to the trust company “In payment for services rendered and to be rendered in the matter of the underwriting and issue of $9,000,000 of the bonds,” $300,000 of bonds, $800,000 of the preferred stock and $800,000 of the common stock, “the same being payable to them in accordance with my letters of agreement which they hold.” It also authorized the company to retain $67,000 in cash as it was received by it. It also recited that the trust, company is to receive from the proceeds of the sale of the Bethlehem Steel Company $1,000,000 of the common stock of the shipbuilding company. Dresser was an active participant in getting the Bethlehem Steel Company into the combination and was to receive $1,000,000 of the common stock for his services, which I assume is the last item mentioned. The letters referred to in the order are not in evidence, but were evidently written before the underwriting was completed and prior to June fourteenth. Dresser prided himself on this accomplishment and there is no doubt that he informed the executive committee. Satterlee swears: “When I saw the advertisement I knew that this transaction involved the raising of several millions of dollars. I knew that before the advertisement, but I did not know the full volume. T was told by Mr. Dresser, that is I heard a statement he made at the meeting of May 27th of the executive committee, in which it appeared that there were to be several millions of bonds issued and several millions of stock, but I did not know the exact amount until I saw the advertisement. I knew that the putting through of that transaction ought to involve the supervision of counsel at practically every step. I do not think I made any investigation of the details of the transaction before I went away. I had no conversation with either of the members of the firm of Ward, Hayden & Satterlee with respect to- overseeing the legal side of the .transaction.” On July twelfth, just before sailing, he wrote Dresser: “Let me again congratulate you-on the splendid success you are making. You have already exceeded the confident expectations of your friends and have made a record for the Company that I believe is unique. My only word of caution would be to go slow and take it as easily as possible during the summer and not overwork yourself, as we ought to have a very busy and prosperous winter ahead of us.” From his testimony it does not appear that he had much knowledge of the affairs of the company, and it does not indicate that he knew of anything which would justify him in characterizing the success of the company, as unique except the large benefit it expected from this underwriting. He admits that Dresser stated at an executive committee meeting that the company would receive its compensation within the month and it would go into the next report. If none of the committee knew what compensation the-company was to receive it is strange that inquiry was not then made. The company had not otherwise earned anything; its service as banker had not begun.

It is not contended that under ordinary circumstances a director [or a member of an executive committee of a trust company who is absent from meetings for a reasonable time upon his own business or.pleasure is liable on account of transactions which took place in his absence and of which he had no notice. By becoming such officer a person does not undertake to devote his whole time to the company. The members of the executive committee received ten dollars for each meeting, and necessarily it was expected-that'they were at liberty to devote their- time to their ordinary business and pursuits, giving to the trust company just such time-as was reasonably necessary under the circumstances to protect its interests: When the defendant Satterlee left New York on his vacation July sixteenth to return September fwehty-ninth he knew that two of the members of the executive committee were practically of no use; that the other members were exercising very little supervision and taking but little interest in the matters and that they were practically permitting Dresser to carry on the business in his own way; that the company was involved in the shipbuilding underwriting and had gone so far with reference to it that a failure of the plan meant practical disaster. It was too late to leave without obtaining a thorough and accurate knowledge of the circumstances and details of the underwriting and taking some precautionary measures against contingencies. He had made no inquiry and had no knowledge as to the Paris underwriting- or as to the American underwriting and had no information of the trustworthiness of any of the subscriptions. The trouble came to the company from the fact that Dresser received his information from the hearsay of parties’ whose interests were opposed to his, and that the executive committee made no inquiry and sought no informar tion with reference to the plan or its execution, but was content with the hearsay from Dresser, to the extent which he chose to communicate. It is not necessary to say that the participation of the trust company in this underwriting was illegal. (Gause v. Commonwealth Trust Co., 196 N. Y. 134, supra.) It is enough to say that under the circumstances it was reckless. The defendant was negligent while here and negligent in leaving while the affairs of the company, by reason of its reckless management, were in such a serious condition.

It is unnecessary to inquire whether Dresser and the directors and executive committee who acted in part with him during Satterlee’s absence, took a wise or unwise course to relieve the company from the emergency in which it had previously been placed. He evidently did what he thought best; many of his acts were illegal and unauthorized, but it was represented to him that there was simply a .delay in the money from Paris and he felt that the expedients which he adopted were mere makeshifts to tide over a few days. ’ The .persons who negligently permitted the trust company to get involved in this matter under the circumstances are hardly in a position to complain because Dresser acted unwisely or illegally, or to deny that their negligence makes them civilly responsible for such acts.

The defendant Gould agreed to be and was a dummy director. If the others had followed his example Dresser would have been the board of directors and the executive committee. Gould left everything to his discretion and judgment and is fairly .responsible for it.

It is immaterial in each particular transaction to consider whether the directors and members of the executive committee knew what was being done by the company or whether their fault lay in not knowing. The method in which the executive committee permitted the business to be carried on by Dresser evidently led the officers and employees of the company to understand that Dresser was in fact the executive committee and that he was unrestrained in doing what he thought ought to be done.

About September twenty-fifth Dresser deemed it necessary to go to Paris to try and realize upon the underwriting there, and just before he departed he took from the company, with the consent of the vice-president and the, clerk who had charge of issuing checks, $35,000. Their acts can only be explained upon the supposition that they felt it was money taken to be used in the company’s business with reference to the Paris underwriting. Apparently it was not so used. When he arrived at Paris he did not find any substantial underwriting there, and the alleged Paris underwriting did not justify any expenditure. This money was never repaid to the company and is one of the items of damages which have been allowed against the defendants. In my judgment it was properly allowed.

When Dresser was obtaining the part of the so-called London underwriting which fell to him, the day when the underwriting must be closed was at hand and the subscriptions not entirely taken, and he called upon members of the executive committee to assist him. One" of the last subscriptions obtained was that of Bruckman, who later gave his notes for a part of his underwriting, secured by the underwriting- agreement or the bonds called for by it. After the syndicate had relieved the company Bruckman refused to pay his notes, claiming that he had been deceived. An adjustment was made after Gould had resigned as a director and Satterlee as a director and member of the executive committee. The agreement of adjustment recited: “Said Bruckman agreed to underwrite and purchase said securities subject to a loan of One hundred and forty-nine thousand Two hundred dollars ($149,200), with interest at five per cent per annum, for the repayment of which loan he was not to become personally liable, the said Trust Company looking to the securities only for eventual payment.” The trust company then accepted the bonds and relieved him from liability upon his notes. Satterlee was attorney for the company in making the adjustment and approved of and advised the execution of this agreement. We cannot assume that the recital was false. It related to the terms of a subscription taken by the company while he was a member of its executive committee. It is, therefore, some evidence against him that the Bruckman note never had any validity and that the company was negligent in advancing money upon it. Bruckman all the while was financially responsible, and aside from this recital in the agreement there is no evidence giving any good reason why his note was not collectible. This recital is not evidence against the defendant Gould.

With reference to the other notes which have been treated as an element of damage, while the makers were discharged, there is no evidence tending to show that there was any valid reason therefor.

These conclusions lead to the result that the judgment should be modified as to the defendant Gould by striking out all damages except with reference to the $35,000 item, and as to the defendant Satterlee by striking out all damages except those relating to the $35,000 item and the Bruckman notes,- and as so modified affirmed, without costs.

Judgment reversed on law and facts, new trial granted, with costs to each appellant to abide event of the action.  