Foutz v. Miller

Burke, J., delivered the opinion of the Court. The appellants on this record are the receivers of the Fraternal Savings Association of Baltimore City, a corporation organized under the laws of Maryland. Its objects were “to furnish a safe and profitable system for investing money, in either small or' large sums, in a manner which assists and encourages savings, such savings to be readily converted into cash, if desired, and increased profits awarded those who persist in saving through a term of years; to promote industry and thrift by aiding those wishing to acquire a home or place of business to do so on an easy monthly payment plan, costing but little, if any more, than the rental of the same property.” These objects were to be obtained by having a home office as a distributing point, and branches or advisory boards in other towns and States. Each local branch having supervision of the association’s affairs for the town, and all operating under one charter and plan.

The association began business on October 19th, 1899, and was placed in the hands of the appellants, as a insolvent corporation, on the 25th of July, 1901, so that the period of its active work was about twenty months. The defendants in ⁴⁶⁰ this case are directors of the company, and the object of the suit is to hold them personally liable for losses sustained by the association and its stockholders. Negligence of the directors is the ground upon which personal liability is attempted to be fastened upon them. It is charged that the management of the affairs of the association by the directors was “marked by wilful disregard of the interests intrusted to their care, and by reckless and culpable extravagance and negligence, whereby the said board of directors misapplied, wasted and squandered the funds and assets of said association;” that investments of the funds of the association were lost because they were to a great extent made “negligently and imprudently by said board upon inadequate security;” that the directors suffered the funds and property of the association “to be lost and wasted by gross negligence and inattention to the duties of their trust;” that they “acted negligently, recklessly, wastefully and culpably in the management of the affairs of said corporation, whereby it sustained the almost complete loss of its funds and property, and was rendered insolvent.” George W. Miller.and Elmer O. Wachter were the only defendants who answered the .bill.

Their answers denied all the charges of negligence, recklessness and extravagance, etc., charged against them, and averred that they had acted in good faith and did all they could for the best interest of the association. Testimony was taken by the appellants, and the bill, after argument, was dismissed by the lower Court. There can be no doubt that the defendants as directors of the insolvent association would be personally liable in this' suit for losses sustained, if the allegations of gross or culpable negligence charged in the bill are proved. This Court has defined the duty of directors, and has stated the circumstances under which they are personally liable for losses sustained by the corporation in consequence of their negligence.

It may be said that the rules to be applied to this class of suits have been definitely settled in this State. Booth v. Robinson, 55 Md. 420 ; Reus Loan Company v. Conrad, 101 ⁴⁶¹ Md. 224; Emerson v. Gaither, 103 Md. 564 ; Fisher v. Parr, 92 Md. 245 ; Murphy v. Penniman, 105 Md. 452 ; Thomas v. Penniman, 105 Md. 475 . In Booth v. Robinson, supra, the Court adopted the doctrine announced in Overrend v. Gibb, 5 H. L. 480, that “facts which may show imprudence in the exercise of powers clearly conferred upon directors will not subject them to personal responsibility; but if the imprudence be so great and manifest as to amount to crassa negligentia, and consequently to a breach of trust, personal responsibility will be incurred. Indeed all the cases agree that directors are not liable for the consequences of unwise or indiscreet management, if their conduct is entirely due to mere default, or mistake of judgment, but the onus of proof of fraud, combination, or gross negligence to render the directors personally liable is upon the party making the charge; and the proof