tages under which the concern labours, the contract may in general be reduced at the instance of the party aggrieved (a). But in addition to this, he has also a claim against the partner by whose misrepresentations he was deceived, to be indemnified for all loss and damage he may have thereby sustained (b).

II. LIABILITY OF DIRECTORS.

The principles which we have been now considering as regulating the liability of partners considered as agents and trustees for the firm, to be made responsible to their copartners and the public for the consequences of their malversation or unauthorized acts, apply with perhaps still greater force in the case of directors and other officials to whom the management of public companies is entrusted. These functionaries are in a very special manner charged with the duty of watching over the interests of their companies, and are expected to do their utmost to further their welfare; and in so far as the public are concerned, they are inexcusable if they do not acquaint themselves with the nature and extent of the powers with which they are entrusted. The cases have accordingly been very numerous in which directors and other managing officials have been found liable to indemnify the company or the shareholders on the one hand, and the public on the other, for the consequences of their improper conduct. In examining these authorities we shall, as before, consider first the liability of directors, etc., to the company or shareholders, and next their liabilities to the world.

the company.

1. Liability of Directors, etc., to the Company or the Shareholders. Liability to -The nature of this liability is similar to that which exists between an agent and his principal, a servant and his employer, beneficiaries and trustees; and it may be briefly stated as follows:-If by negligence, recklessness, dereliction of duty, or unwarrantable conduct on the part of these officials, the company or the shareholders are involved in loss, or their interests are sacrificed, they become liable to be sued for indemnity at the instance of the company, or of any shareholder who is aggrieved thereby.

of a Illustrations.

In Campbell v. Campbell, before referred to, the manager of a (a) See 'Dissolution.'

(b) See Stainbank v. Fernley, 9 Sim.

556; Seddon v. Connell, 10 Sim. 58
and 79, and previous cases.

Charges must be important and specific.

Liability to the public.

distillery company was found liable in indemnity to a partner for the liability incurred by him in consequence of the company having been engaged in illicit distillation; and the fact that the other partners had approved of the act was found to be no defence (a). The case of the North of Scotland Banking Co. v. Thomson (b) may also be referred to as an instance of a director of a bank being sued by the company for malversation in office, on the allegation that he had taken advantage of his position as director to act prejudicially to the interests of the company, on several occasions, when his own private interest was concerned. The report is important, as containing the form of issues adjusted to try the question. The following averments may here be instanced, as affording illustrations of what will be held relevant to maintain an action at the suit of the company or the shareholders against directors for malversation :-That they had been guilty of abuse of power and fraud in the management of the business; that they had failed or neglected to perform the duties of management, and had delegated them to the manager, while by holding office they professed to be discharging these duties themselves; that they had made reckless advances of enormous extent, by way of discounting bills to parties who were unworthy of credit (c).

But it must be observed, that since much is necessarily confided to the discretion and judgment of directors, every allowance will be made for mistakes or errors in judgment, where there is no good reason to suspect corrupt motives or culpable dereliction of duty. Hence it is not every proceeding or omission which, judging after the event, may appear to have been improper, that will ground liability. The acts or omissions complained of must be of a kind which plainly indicates fraud or culpable dereliction of duty; and to make the action relevant, their nature and the circumstances under which they took place must be clearly and specifically averred (d). 2. Liability of Directors, etc., to the Public.-As directors and other managing officials of public companies are not only their

(a) 1834, 12 S. 573. See M L. and Rob. 387, 1 Rob. 1.

(b) 1854, 16 D. 1011.

(c) Western Bank v. Bairds, 1862, 24 D. 859; Collins v. North British Bank, 1850, 13 D. 349, 1 Macq. 369.

(d) Same cases; and see Inglis v. Douglas, 1861, 23 D. 561; Tulloch v. Davidson, 20 D. 1045, 1319, aff. 1860, 22 D. (H. of L.) 7, 3 Macq. 783; Nat. Ex. Co. v. Drew, 1860, 23 D. 1; Leslie v. Lumsden, etc., 1856, 18 D. 1046; MacAlister

accredited agents, but the parties to whom the whole of the executive management is entrusted, the public as well as the shareholders are entitled to expect that these officials will faithfully discharge their duties, and make no representations regarding the company or the state of its affairs which are inconsistent with the fact. It has accordingly been held, that when directors published fraudulent reports as to the state of the company affairs, calculated to raise the credit of the concern, and to induce strangers to become shareholders, they were liable in damages to any one purchasing shares and suffering loss thereby, even although the shares should have been purchased neither from the company nor from any of themselves who prepared the reports. And to this effect it was further held to be sufficient publication, that the reports in question were presented to or circulated among the shareholders (a). To ground this liability, it is not necessary that the directors shall be proved to have been guilty of direct fraud; it is enough that they have been chargeable with gross neglect of duty in making proper investigations into the state of the company affairs, and with reporting notwithstanding to the shareholders that a proper investigation had been made (b). Nor does it make any difference that the parties imposed upon were already shareholders, and had only been induced to involve themselves still further by the purchase of additional shares; for the management of the company being entirely confided to the directors, a shareholder is in a matter of this kind as much a stranger as one of the public (c).

It sometimes happens that directors or other managing officials enter into contracts with strangers as for the company, but which, from being ultra vires of their agency or of the constitution of the do not bind it. If, in such circumstances, the stranger company, suffers loss or damage, the directors by whom he was misled are justly liable to him in indemnity (d). This, however, would hardly Johnstone, as revd. 1862, 24 D. (H. of L.) 10, 4 Macq. 424.

v. Alexander, 1843, 5 D. 580; Maxton v. Muir, 1845, 7 D. 1006; Graham v. North British Bank, 1849, 11 D. 1165; Baird v. Ross, 1855, 2 M'Q. 61.

(a) Tulloch v. Davidson, 1858, 20 D. 1045, aff. 1860, 22 D. (H. of L.) 7, 3 Macq. 783. See also Dobbie v. Johnstone, 1859, 21 D. 624; Inglis v. Douglas, 1861, 23 D. 561; Cullen v.

(b) Nat. Ex. Co. v. Drew, 1860, 23 D. 1; Dobbie v. Johnstone, supra; Inglis v. Douglas, supra; Cullen v. Johnstone, supra.

(c) Cullen v. Johnstone, supra. (d) M'llwham v. Johnstone, 1852, 14 D. 322.

Company need not be made a party to the action.

Directors not copartners.

All involved need not be called.

Duties of

retirement.

hold good in the case of shareholders; for it might be truly said that they were bound to know the rules and constitution of their own company.

Any shareholder or stranger who suffers from the malversation of directors has a title to sue them, and it is not necessary that the

company should be made a party to the action either as pursuer or defender (a). Yet where, by the constitution of the company, the evils complained of may be redressed without judicial proceedings, a shareholder will not be allowed to single out individual directors and sue them, before availing himself of the other modes of remedy provided for this purpose (b).

But as directors are not in that character partners with each other, they are not liable for each other's malversations or derelictions of duty, unless they can somehow or other be identified therewith, or have been guilty of such supineness or negligence as permitted the others without check to act in the manner complained of (c). All, however, who have joined in an act of fraud will be held liable (d).

On the other hand, the party aggrieved, whether a stranger or a shareholder, is not bound to call as defenders all the directors who have been guilty of the acts complained of. They are each liable singuli in solidum, and if cast in damages must find their relief against their associates as best they may (e).

It may here be noticed, that the duties of directors do not directors after always terminate by their renunciation of office. This is especially true of such duties as are incumbent on them as trustees for the company. Thus a director, in whose name as trustee for the company its property had been vested, was held bound after his retirement from office to concur when required in a conveyance of such property, though he was found entitled to have the fact of his being no longer a director mentioned in the deed (ƒ).

(a) Tulloch v. Davidson, Dobbie v. Johnstone, Inglis v. Douglas, Cullen v. Johnstone, and Western Bank v. Bairds, supra.

(b) Orr v. Glasgow, etc., Ra. Co., 1857, 20 D. 332, aff. 1860, 3 Macq. 799, and 22 D. (H. of L.) 10.

(c) Inglis v. Douglas, Cullen v. Johnstone, Western Bank v. Bairds, supra.

(d) Inglis v. Douglas, and other

cases, supra.

(e) Tulloch v. Davidson, supra ; Leslie v. Lumsden, 1851, 14 D. 213; Western Bank v. Douglas, etc., 1860, 22 D. 447.

(f) Stewart v. Gloag, 1837, 16 S. 86; aff. 1839, M'L. and R. 721.

BOOK III.

RIGHTS AND OBLIGATIONS OF

PARTNERS AND COMPANIES.

CHAPTER I.

PRELIMINARY.

rights and

THE rights and obligations of partners or shareholders, and of firms Division of or public companies, are of two kinds-those inter socios, and those obligations. with the world. They are likewise distinguishable into two classes with reference to their nature and origin: one class arising out of the very nature of the partnership relation, and being recognised and enforced as such by the common law; the other emanating directly from public authority, destined for some special purpose, and attaching to some particular association.

When men associate themselves into private firms or public companies for the acquisition of mercantile gain, their object is to obtain the largest possible return for their contributions, at the least possible risk of liability or loss. This principle infers the existence of certain rights and corresponding obligations inter socios, of which it forms at once the ground and the measure; and if steadily kept in view, it affords a ready means of ascertaining what these rights and obligations are, and in what manner they are to be exercised and enforced. Thus, to share in the management, and to have free access to the books of the company, to call his associates to account for their intromissions, to check their malversation, to terminate the partnership relation, and to apply for judicial aid to

Y

Principle of obligations

rights and

inter socios.