CHAN. DIV.]

disposed to stand upon this security, rather than raise 40,000l., to rescue the property from the first mortgagees. Mr. Gray, however, pointed out that, if we allowed the first mortgagees to foreclose, this security was perfectly valueless to us. The undertaking of the children of Mr. Joseph and their trustees went only to invest the money in Dunraven, and if this fell into the hands of the first mortgagees, and became their absolute property, we had no further value in it. This view, which was confirmed by Mr. Webster, was a complete surprise to me. Mr. Webster read to me the case which, at the time the loan was granted, he submitted to counsel for advice, and his opinion thereon. I note, however, that neither in the case or opinion is there any reference made to the contingency which has arisen, that is, the possibility of the mortgagees of Dunraven being able to foreclose before the period at which the undertaking of the children and trustees under Mr. Joseph's settlement comes into operation.

Mr. Kidner's report contained the following statements as to Joseph's financial position.

The colliery has lost money every year, probably 20001. or 3000l., besides interest on capital, 30001.-say 50001. altogether. This accounts for Mr. Joseph's position. During 1881 it will about balance, but next year I confidently anticipate a large profit. Mr. Joseph expects 30,000l. or an average of 48. per ton, which would require the price of coal to be 10s. I think it not at all improbable that this price will be generally obtained at Midsummer next; but, allowing for the first six months and for contracts running afterwards, I think 15,000l. profit would be a reasonable estimate for 1882. With a smaller output and less favourably circumstanced as to management, Mr. Joseph assures me that the colliery made 150,000l. profit in three years, when the limited company had it in 1873-5. Mr. Joseph's books are not complete or written up in a manner to enable me to ascertain his financial posiMr. Joseph and his solicitor say a large sum is due for arrears of royalties, altogether about 140,000l., against which, however, there are short workings, which he hopes to work up to a good amount. He says the arrears will not be pressed, as his case is one among many others just now in South Wales owing to the bad times, and they will be liquidated gradually. The proposals made by Mr. Joseph, as set out in Mr. Brailsford's report, were these:

tion

(1) To grant an absolute transfer of the wife's and children's interest in Davis's colliery, or execute any security which should secure his property to us; (2) in addition to the present charge upon his house, to give an undertaking to execute a bill of sale upon his furniture, &c., which Mr. Kidner thinks would be worth more than 1000l.; (3) to give us mortgage over his lease and tenant right of a farm, which he estimates at 20001., and undertakes to give a bill of sale over stocks to the value 10001; (4) To appoint Mr. Kidner on our behalf as receiver, with authority to pay over to us all colliery income beyond current working expenses; (5) to give us authority at once to transfer to the school board, and receive 19801. in payment of a picce of land agreed to be sold for a public school; (6) the loan to be for twelve months, 5000l. being given us as a commission or bonus, and the total sum to bear interest at 10 per cent. Any sum received from Mr. Joseph to be credited in reduction of principal and interest.

Mr. Brailsford's report continued:

(7) In the course of conversation Mr. Joseph named that he had another small colliery (the Avon) which was charged with a mortgage of 80001. I omitted to name that this should be charged to and included in our security, but am sure Mr. Joseph will consent to it.

The minutes then stated the resolutions passed upon these reports as follows:

After discussion it was unanimously resolved that the sub-committee be authorised to advance such sum (41,000l. or thereabouts) as may be necessary to take up the first mortgage of 40,000l. upon Mr. Joseph's property in South Wales. Resolved, that Mr. Bennett be added to the sub-committee to meet Mr. Joseph and arrange with him as to the securities which he shall be required to give upon his furniture, leasehold farm, the

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Avon Colliery, and other property, and especially Mr. Joseph's interest in D. Davis and Sons partnership. Mr. Brailsford raised a question as to whether the directors were before aware of the uncertainty of our hold upon the interest in D. Davis and Sons, in the event of the colliery passing into other hands adversely. At the request of the chairman, the secretary reported that he had called upon Mr. Holdsworth to inquire as to the society having an overdraft of 35,000l. or 40,000l. for an advance which they contemplated making, which may be required within a few days. He said he would submit the matter to his directors on Wednesday next, or call a special meeting on Saturday or Monday if desired. But they would require the key of the deed-safe and a list of securities, which should be given up when the advance was repaid. A resolution authorising this to be done was also necessary. Mr. Webster drew up the following, which was agreed to unanimously :'Resolved, that in consideration of the Sheffield and Hallamshire Bank granting to this society a special advance of 40,000l., the bank be and they are hereby authorised and empowered to retain the deeds of the society (which are now deposited with them for safe custody) as a security for any overdraft."

66

In pursuance of these resolutions 41,000l. was, on the 22nd Nov. 1881, applied by the plaintiff society in paying off the principal and arrears of the interest due on the first mortgage, of which about 40,000l. was borrowed from the bankers of the society. As security for the repayment of this advance of 41,000l., Mr. Joseph executed in favour of the society an agreement dated the 21st Nov. 1881. By that agreement it was provided

(3)

(1) That in consideration of the sum of 41,000l. to be advanced by the society in payment of the moneys secured by the said indenture of the 1st Nov. 1876 (and which loan was to be repaid by the said Thomas Joseph on or before the 20th Nov. 1882), the said Thomas Joseph should pay to the society interest on the said sum of 41,000l. from the date of its payment up to the date when the same should be repaid to the society at the rate of 10 per cent. per annum, and should pay to the society a bonus of 5000l. with interest at 10 per cent. per annum from the date of the agreement, and should execute a mortgage to secure the advance bonus and interest. (2) That the purchase-money of the property which had been sold to the school board of Ystradyfodwg for the sum of 1980l. should be paid to the society. That the said Thomas Joseph should obtain with all due diligence a lease of the Blaenselsig minerals, and charge the lease when obtained in favour of the society as a collateral security. (4) That the said Thomas Joseph should within one month from the date of the agreement execute and deliver to the society a mortgage upon all his estate and interest in the Avon Colliery. (5) That the society should be at liberty to appoint as their agent or representative their present secretary, Mr. John Kidner, who might keep upon the Dunraven Colliery a clerk, who should at all times be permitted to have access to all parts of the said colliery, and to the accounts, books, and vouchers of the concern. (6) That the said Thomas Joseph should charge in favour of the society the lease of a farm containing ninety-three acres or thereabouts, situate in the Vale of Glamorgan, and that in the event of the secretary certifying that the security was depreciating in value, or that the colliery was being worked at a loss, the said Thomas Joseph should execute to the society a bill of sale on the farming stock upon the said farm. (7) That until the moneys agreed to be advanced should be repaid the said Thomas Joseph should not draw by way of salary, or otherwise, any moneys from the Dunraven colliery except such moneys as might be required for the efficient working thereof.

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of this part of the transaction was reported at a board meeting of the 28th Nov. 1881, and approved. On the 21st April 1882, the first mortgagees, the London and South Wales Coal Company, transferred to the plaintiffs their mortgage debt and security; and on the same date Mr. Joseph executed in favour of the society a mortgage of the Dunraven, Hendrewen, and Blaengwynfi properties. This mortgage was not in the form of a building society mortgage, but was a simple mortgage to secure the repayment on the 21st Nov. 1882, of 46,000l. In addition to the usual powers it contained clauses enabling the society to work the collieries, and to appoint Kidner as their agent and representative there for the purpose of obtaining information as to the value of the security and the working and management of the mines.

Mr. Joseph, finding himself unable to work the collieries at a profit, made several unsuccessful attempts to dispose of them. In July 1882 he was unable to pay the wages of the men employed in the colliery. He was largely in arrear with the royalties reserved by the Dunraven lease, and on the 23rd Aug. 1882 Lord Dunraven, the landlord, distrained in respect of such arrears on the loose plant of the collieries.

Ultimately, on the 25th Aug., Mr. Joseph took proceedings for the liquidation of his affairs, and a receiver was appointed.

Under these circumstances the directors of the plaintiff society, at a meeting held on the 31st Aug. 1882, sanctioned an arrangement under which the distress levied by Lord Dunraven was not to be acted on for twenty-eight days from that date, on payment being made by the society to Lord Dunraven's agent of 1000l. a week, and Mr. Barber, the receiver in the liquidation, was to take or retain possession on behalf of the mortgagees (the plaintiff society), and to advance the money to pay arrears of wages, the mortgagees indemnifying him in the event of the assets not covering the wages.

On the 28th Sept. another board meeting was held, at which it was reported that 20001. had been paid on account of the royalties, and 10007. on account of wages, and that the colliery was being caried on by the receiver in liquidation as agent for the mortgagees.

On the 17th Oct. the board sanctioned the appointment of a manager of the collieries, and a payment of a further 1000l. on account of the royalties. Ultimately the society itself entered into possession of the collieries, and a certain Mr. Ralfe was appointed manager. Large sums were paid by the society in carrying on the colliery and in paying royalties. The working was unsuccessful. A large net loss was suffered by the society, in addition to which there was an expenditure of upwards of 70001. for engines, boilers, machinery, &c. No lease was obtained of the Blaenselsig property, and all attempts to sell the other properties failed. The evidence showed that the failure to sell was due to the absence of a lease of Blaenselsig.

On the 22nd July 1886 an order was made upon a petition presented by the plaintiff society that it should be wound up voluntarily under the supervision of the court.

Since the commencement of the liquidation the landlord of the Blaengwynfi property had recovered possession on the ground of breach of

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the covenant to work the colliery contained in the lease.

The plaintiffs, by their statement of claim, alleged as follows:

Par. 7. The Hendrewen minerals adjoin the Dunraven colliery. The Dunraven colliery and Hendrewen minerals are separated from the Blaengwynfi minerals by a tract of minerals (hereinafter called the Blaenselsig minerals) belonging to the Marquis of Bute and Messrs. Homfray. The Dunraven colliery had for some time past been worked by means of two pits. There was no separate pit for working the Hendrewen minerals, but it was possible to work them by instroke from the pit belonging to the Dunraven colliery. No pit had been sunk for working the Blaengwnfi minerals, and they had not been worked. The said Thomas Joseph, at the time of his application to the society, was in treaty with a Mr. Lewis, the agent for the Marquis, of Bute and Messrs. Homfray, for a lease of the Blaenselsig minerals. It was of the greatest importance that such lease should be granted. The Dunraven colliery had been worked, and the main engines' planes laid out with a view to the working of the Dunraven and Blaenselsig minerals at a future date as a single undertaking. If a lease of the Blaenselsig minerals could not be obtained, a large outlay would be required in altering the roadway in the Dunraven colliery, and certain portions of the minerals could only be worked at an increased cost. It was, moreover, necessary to acquire the Blaenselsig minerals to enable the Blaengwynfi to be worked by instroke from the Dunraven colliery through the Blaenselsig minerals.

Par. 18. No proper valuation was ever made by the surveyor of the society, or any one else, on behalf of the society. The said Mr. Lewis never was instructed by the directors, or any one else, to act on behalf of the society, and to protect its interests in the matter of the said loan, and he did not do so. He never made any proper valuation of the proposed securities. He was, moreover the agent of the Marquis of Bute and Messrs. Homfray, owners of the Blaenselsig minerals. He was also a personal friend of the said Thomas Joseph. On both grounds he was desirous that the loan should be carried through, and throughout acted as an advocate of the loan.

Par. 19. Even if the letters of the 11th and 27th April 1878 had been proper valuations, they would not have justified the advance, inasmuch as the said Mr. Lewis proceeded on the assumption that the said Thomas Joseph was entitled to the residence called Tydraw, with the 900 acres, and tipping right over 600 acres, as described by him, and also to a lease of the Blaenselsig minerals.

Par. 20. The said Thomas Joseph had not entered into any binding agreement for a lease of the Blaenselsig minerals, as the directors well knew, and he was never able to procure the owners of the property to enter into any such agreement.

Par. 40. Many efforts were made by the directors. before the winding up, to find a purchaser for the Dun raven colliery and other properties comprised in the society's securities, but without success. The owners of the Blaenselsig minerals have not entered into any binding agreement to grant a lease, and they decline to accept the society as lessees; but they have expressed their willingness to grant a lease to a person approved by them as nominee of the society, upon the terms that 60001. shall forthwith be paid to them representing dead rent from the date when the said Thomas Joseph first made an offer for a lease. The proposed lease also provides that the lessee shall within two years sink a winding pit, the cost of which has been estimated at 20,0001. The terms of the proposed lease are in other respects onerous. The society is unable to procure any person to accept the said lease as the nominee of the society. Without such lease, the properties comprised in the society's securities are unsaleable. In any case they could be sold only at an enormous loss to the society.

The defendant Allott and the legal personal representatives of Henry Loxley did not appear or put in any defence, and as against them the casc came on upon motion for judgment in default

CHAN. DIV.]

of pleading. The other defendants appeared and defended. Some of them defended separately, but their defences did not materially differ. Their defences were shortly that they relied upon the reports of Mr. Lewis and the information obtained from Mr. Allott, and honestly believed that the security was sufficient, that they instructed their solicitor to investigate the title as required by the rules, and were not aware that it was defective.

Several of the defendants stated in evidence

that at the date of the original security they were not aware that there were any arrears of rent due from Mr. Joseph, or that he had no lease of Blaenselsig; and that even at the date of the second security they believed that he had a valid agreement for a lease.

Sir William Lewis, who was called as a witness, said, referring to Blaenselsig, "Mr. Joseph had opened negotiations for the minerals under Blaenselsig, and his offer had been approved by Lord Bute and Mr. Homfray, the owners, and I regarded Mr. Joseph as having a claim to that property, although the lease was not granted. The exact position of matters was very fully explained to Mr. Allott. Mr. Joseph could have had a lease of the Blaenselsig minerals if he had required it on the terms proposed."

Rigby, Q.C., Buckley, Q.C., and Theobald for the plaintiffs. The defendants are liable in respect of three distinct matters, namely, the loan of 25,000l., the loan of 41,000l., and the expenditure for working the collieries. The loan of 25,000l. was in the first place ultra vires. Neither the Building Societies Act 1874 nor the rules of the society authorised an investment in anything except the security of freehold, copyhold, or leasehold estate. The security in the present case consisted partly of the personal undertaking of Mrs. Joseph's trustees and of promissory notes. This vitiates the whole security. But apart from this, the security was not really a leasehold property, but a business liable necessarily to fluctuations in value. Even, however, if the loan was not ultra vires, it was effected with complete disregard of the most ordinary precautions. The directors never appointed or instructed an independent valuer. Sir W. Lewis was acting in the interests of Mr. Joseph, nor did he receive any instructions from the directors. They are therefore liable by reason of their negligence. There is no difference between a director and a trustee as regards the duty to obtain proper advice; the difference begins when the question of exercising a discretion as to such advice arises. Nor are the directors protected by the Trustee Act 1888, because Sir W. Lewis was not an independent surveyor and was not properly instructed. To this extent the decision in Fry v. Tapson (51 L. T. Rep. N. S. 326; 28 Ch. Div. 268) is not affected by that Act. It was also improper to delegate the whole matter to Allott, and the directors having made no inquiries whatever are liable for not having discovered the defects of title. The loan of 41,000l. was a mere speculation, and not having been made in respect of shares held by a member was a breach of rule 47. The directors are therefore liable for that, both on the ground that it was ultra vires and on the ground of negligence. The expenditure incurred in keeping the collieries going was ultra vires.

[CHAN. DIV.

It was not authorised by the rules and it was not necessarily incident to the powers of the directors:

Small v. Smith, 10 App. Cas. 119.

They also cited

Charitable Corporation v. Sutton, 2 Atk. 400;

Evans v. Coventry, 29 L. T. Rep. O. S. 118; 8 De G.
M. & G. 835;

Overend and Gurney v. Gibb, L. Rep. 5 H. of L.
480.

Sir H. Davey, Q.C., Hastings, Q.C., and Chadwyck Healey for the first eight defendants.—The proceedings of the directors were not ultra vires. They had under the rules the largest possible powers. The colliery was none the less leasehold property because it was a business in the sense that it required capital and labour to make it profitable. The same might be said of agricultural land. In Blackburn District Benefit Building Society v. Ward (unreported), Bristowe, V. Č. held that it was not ultra vires for the directors to make a loan on the security of a colliery. But, if the rules are ambiguous, and the directors have by mistake adopted the wrong construction, they will not be made liable:

Ireland v. Livingstone, 27 L. T. Rep. N. S. 79; L.
Rep. 5 H. of L. 395, 416;

London Financial Association v. Kelk, 50 L. T. Rep.
N. S. 492; 26 Ch. Div. 107, 144.

The collateral personal security does not vitiate the loan if the leasehold property by itself was a sufficient security:

Re Pearson; Oxley v. Scarth, 51 L. T. Rep. N. S. 692.

[STIRLING, J. referred to Learoyd v. Whiteley, 58 L. T. Rep. N. S. 93; 12 App. Cas. 727.] That case was decided on the ground of negligence. If the original loan was not ultra vires, the subsequent transactions are not, for they are the natural consequences of that loan. Small v. Smith (ubi sup.) was a special case, and is not in point. A power to lend money on mortgage involves power to redeem prior mortgages, and enter into possession; and the power to enter into possession involves a power to save the property from going to ruin:

Re The Asiatic Banking Corporation; Royal Bank of India's case, 19 L. T. Rep. N. S. 444; L. Rep. 4 Ch. 252.

With regard to the charge of negligence, the duty of the directors was merely to form a bonâ fide judgment upon proper materials as to the security. That they did. They are not responsible because the solicitor failed properly to investigate the title. There was nothing to render it improper for them to rely on Sir W. Lewis's valuation. Directors do not stand in the same position as trustees, and if they are acting within their powers they cannot be made liable for an error of judgment:

Re The Faure Electric Accumulator Company Limited, 59 L. T. Rep. N. S. 918; 40 Ch. Div. 141. Leeds Estate Building, &c., Company v. Shepherd, 57 L. T. Rep. N. S. 684; 36 Ch. Div. 787. The last case also shows that the Statute of Limitations may be relied upon as a defence to an action for negligence. They also cited

Metropolitan Bank v. Heiron, 43 L. T. Rep. N. S. 676; 5 Ex. Div. 319;

CHAN. DIV.]

Bigham, Q.C. and Upjohn for the defendant Brailsford.-Even if the loans were ultra vires the directors are not liable in the absence of fraud or negligence:

Land Credit Company of Ireland v. Fermoy, 22
L. T. Rep. N. S. 394; L. Rep. 5 Ch. 763, 771;
Pickering v. Stephenson, 26 L. T. Rep. N. S. 608;
L. Rep. 14 Eq. 322, 341;

Re Denham and Co., 25 Ch. Div. 752;

Studdert v. Grosvenor, 55 L. T. Rep. N. S. 171; 33
Ch. Div. 528;

Re County Marine Insurance Company; Rance's
case, 23 L. T. Rep. N. S. 828; L. Rep. 6 Ch. 104;
Re National Funds Assurance Company, 39 L. T.
Rep. N. S. 420; 10 Ch. Div. 118;
Marzetti's case, 42 L. T. Rep. N. S. 206;

Re The Oxford Building Society; Ex parte Smith, 55 L. T. Rep. N. S. 598; 35 Ch. Div. 502. Pearson, Q.C. and Levett for the representatives of Leader.-The liability of directors depends on the law of principal and agent, not on the law of trustee and cestui que trust. If an agent exceeds his authority he is not liable if he does so innocently (Story on Agency, sect. 74.) And if the appointment of a substitute is expressly authorised or is necessary, he is not liable for the mistakes of the substitute:

Story on Agency, sect. 101;

Stone v. Cartwright, 6 T. R. 411;
Bromley v. Coxwell, 2 B. & P. 438;

Rossiter v. Trafalgar Life Assurance Association, 27
Beav. 377.

As to the measure of damages they cited

Cassaboglou v. Gibb, 48 L. T. Rep. N. S. 850; 11
Q. B. Div. 797.

Rigby, Q.C. in reply.-The person suing in this case is the liquidator who represents creditors. It is not, therefore, the case of a principal suing his agent. A building society differs from a jointstock company, and the directors of a building society are in the position of trustees rather than in that of managing partners of a business.

Cur. adv. vult.

Nov. 6. STIRLING, J., after stating the facts substantially in the language in which they are above reported, continued: - The transactions impeached in the action divide themselves into three heads: First, the original advance of 25,0001. in 1878; secondly, the advance of 41,000l. in Nov. 1881; and thirdly, the expenditure for the preservation, maintenance, and working of the colliery. Each of these matters involves somewhat different considerations, and I propose to deal with them separately. The original advance of 25,000l. is attacked on the ground that it was beyond the powers of the society, or at all events of the directors; and, further, that it was made so recklessly and improvidently as to render the directors liable in respect of it, even if it was within their powers. First, then, was the advance beyond the powers of the society? The object of the society is to make advances "upon security of freehold, copyhold, and leasehold estate.' It is said that the advance of 25,000l. was not made on such security, but on the security of the colliery and mines carried on by Mr. Joseph. In fact, however, the Dunraven, Hendrewen, and Blaengwinfi properties were held under leases, and constituted leasehold estate, the leases including minerals, which were to be

[CHAN. DIV.

worked and got by the lessees. The property offered as security was, therefore, to some extent of a wasting nature, and its value was affected by its being used for the purposes of the colliery business carried on by Joseph. Those were matters fit and proper to be considered in determining what amount should be advanced on the security of the leasehold property; but, in my judgment, it cannot be said that the society was precluded by reason of the existence of those circumstances from making any advance, however small, on mortgage of it; and I am therefore of opinion that this part of the transaction was not beyond the powers of the society. Whether the sum advanced was properly advanced is a matter which requires subsequent consideration. It was next said that the advance was not made exclusively on the security of leasehold estate, but was made partially on the security of the interests of Mrs. Joseph and her children in the funds held on the trusts of the two settlements of the 28th Sept. 1876 and the 15th Jan. 1877; it was said that those interests constituted an essential and integral part of the securities taken by the plaintiff society, and that reliance was placed upon them by the directors; and it was contended that the inclusion of those interests in the securities vitiated the whole transactionthat, in fact, the inclusion of any personal element in the security would vitiate such a transaction. If this contention were pushed to the utmost extent, then it would seem to follow that the inclusion in the building society's mortgage of a personal covenant by the mortgagor for repayment of the advance, and reliance placed by the officers of the society on the solvency of the mortgagor, might equally vitiate any transaction of which those were elements. Yet it was not disputed in argument, and in my judgment properly, that a building society making an advance hold, or leasehold estate, might take from him a to a member on the security of freehold, copypersonal covenant for payment of what might be due from him to the society, and I think that the officers of the society might to a certain extent, and for certain purposes, rely on the solvency of the mortgagor. For example, an action on the covenant of a solvent borrower affords an effectual and comparatively speedy and inexpensive mode of recovering what is due, and may be the means of avoiding the delay, costs, and liability incident to remedies (such as foreclosure, sale, or entry into possession) available only against the subjectmatter of the security. If the circumstances of the borrower are such that his personal corenant is without value, the building society may, in my opinion, secure a like advantage by means of the personal guarantee of a third party, or a charge on some readily available pure personal estate. The benefit so obtained must, however, be purely collateral, and the validity or propriety of the transaction is to be tested as if no such ingredient entered into it. If there be no freehold, copyhold, or leasehold estate comprised in the security, or if the estate so comprised be merely nominal, or its value out of all proportion to the amount advanced, the transaction is beyond the powers of the society and invalid; but where, as here, the borrower offers as security such estate to a substantial extent, an advance is within the powers conferred by the Act of 1874; and the question for the officers of the society to

CHAN. DIV.]

determine is, what amount may properly be advanced, and that they must decide having regard solely to the nature and value of the freehold, copyhold, or leasehold estate offered to them, and without reference to the solvency of the borrower, or the worth of any personal estate he may be willing to throw in. Next, it is to be considered whether the transaction, though within the powers of the society, was within the powers of the directors; and here it will be convenient to commence with some general observations as to the position and duties of directors of such societies. It has been laid down-and I take it to be established law-that directors of trading companies are not trustees in the sense in which that term is used with reference to settlements or wills. The question is discussed, and the authorities considered, in the recent case of Re The Faure Electric Accumulator Company (ubi sup.), and it is sufficient for me to refer to the judgment of Kay, J. in that case. It is said, however, that the rules there laid down refer to trading companies incorporated under the Companies Acts, and that the directors of building societies incorporated under the Building Societies Act 1874 are in a different position. Such societies, according to sect. 13 of that Act, are established "for the purpose of raising, by the subscriptions of the members, a stock or fund for making advances to members out of the funds of the society upon security of freehold, copyhold, or leasehold estate." It has been repeatedly pointed out that the objects of such societies are twofold: on the one hand, to assist some of the members to obtain advances on the security of their property; on the other hand, to assist others to obtain a high rate of interest on their money. Thus, in the judgment in Fleming v. Self (23 L. T. Rep. O. S. 63; 3 De G. M. & G. 997), in which Lord Cranworth elaborately explained the nature and objects of such societies as were established under the Act 6 & 7 Will. 4, c. 32, he says: "In truth, the whole scheme is but an elaborate contrivance for enabling persons, having sums for which they have no immediate want, to lend them to others at a very high rate of interest; " and in the case of Re Guardian Permanent Benefit Building Society (48 L. T. Rep. N. S. 134; 23 Ch. Div. 440) Sir George Jessel, M.R. says of the same Act: "It was the object to assist some of the members to obtain freehold or leasehold property, and some a high rate of interest." observations apply to societies incorporated under the Act of 1874. The societies, therefore, in one aspect of them have for their object the acquisition of gain in the shape of a high rate of interest by the investing members, and the directors ought not, in my opinion, any more than the directors of companies formed under the Act of 1862, to be held liable upon the rules (which James, L.J., in Marzetti's case (ubi sup.), said were, in his opinion, too strict rules) laid down by the Court of Chancery with respect to the duties of trustees of wills and settlements, where the preservation of the trust funds is the primary object. Some of the observations of the other learned judges who took part in the decision in that case also deserve consideration. The present Master of the Rolls says: "The question is, whether Mr. Marzetti has been guilty of such negligence as would make him liable in an action. Mere imprudence is not such negligence; want of

Similar

[CHAN. DIV.

judgment is not. It must be such negligence as would make a man liable in point of law. Mr. Marzetti has been guilty of not making those inquiries which a person of ordinary care in his position would have made." And Cotton, L.J. says: "Trustees are liable, whatever trouble they take, if the fund in their case goes not according to the trust. Opinions of counsel, bona fides, or care, do not protect them. Now, directors are confidential agents with the liabilities of trustees, but they have a large discretion, and, if they act bonâ fide, they are relieved, and are not liable for want of judg ment or error if they make a payment which is in fact not for the purposes of the company." In the exercise of this large discretion, the directors may, as I conceive, properly make advances on classes of securities forbidden to ordinary trustees. One rule which is binding on ordinary trustees is thus stated by Lord Watson in Learoyd v. Whiteley (ubi sup.): Business men of ordinary prudence may, and frequently do, select investments which are more or less of a speculative character; but it is the duty of a trustee to confine himself to that class of investments which are permitted by the trust, and likewise to avoid all investments of that class which are attended with hazard." In my judgment directors are not under an obligation to avoid investments attended with hazard, but might, in the absence of any. thing to the contrary in the rules or articles of association, act in the same manner as men of business of ordinary prudence, and, if any particular society or company should deem such powers too wide, it would be competent to the members to properly frame rules or articles to impose such restrictions as they might deem advisable. Is there then to be found in the rules any limitation on the powers of the directors as regards the nature of the property on the security of which they may make advances? It is observed that the rules of the society, though they deal with various special kinds of property, contain no reference to collieries. It is pointed out that one of the permanent officers of the society is the surveyor, whose duty it is to survey and value property offered as security, and whom the directors were bound to consult; and it is said that, inasmuch as the property offered by Mr. Joseph was of such a nature that Mr. Innocent, the duly appointed surveyor, was (as is admitted on both sides) not qualified to give an opinion as to its value, the directors ought at once to have seen that it was not one which they were authorised to accept. Rule 54 (as to the alteration of mortgaged property) was also referred to as showing that the directors had no power to take the security of a wasting property, such as a colliery in active operation. Now, the rules of the society appear to be framed on the supposition that the property likely to be most frequently or ordinarily offered as security, or, at all events, one class of such property, would be land on which buildings were, or were proposed to be, erected, and there are to be found rules dealing with that kind of property. Mr. Innocent was an architect, and qualified to survey and value such property, and was doubtless chosen to fill the office of surveyor in the like expectation; but I do not find anything in the rules which limits the operations of the society to that or any other species of property. The terms of rule 47 are of the widest