"Directors of corporations are personally liable to surrender profits which have accrued to them, or to make good losses which have been inflicted upon the corporation through breaches of their trust, to the corporation itself,13 or where the corporation will not sue, to its shareholders,14 and in some cases to creditors and strangers.15

"The general rule is that equity aims at compensation to those who are beneficially interested in the trust fund, the corporation, the shareholders, or the creditors; and that the court will hence mold its decree so as to reach this result according to the varying circumstances of each case." 16 17

By statutory provisions in many of the states directors and other officers may be held personally liable for certain debts of the corporation. Illustrations of these provisions are those holding directors and officers liable for wage, claims, or debts in excess of the capital stock of the corporation.

"The authorities are not uniform as to how far a court of equity has jurisdiction in suits by corporations, or their receivers, against directors who were guilty of negligence or of acts contrary to some statutory provision. It cannot be denied that there may be charges of mismanagement or negligence causing loss or injury to the corporation, for which there could be no reason for going into equity- the corporation having a complete and adequate remedy at law. In 3 Clark and Marshall on Cor., Sec. 755, it is said that 'the corporation may maintain an action at law against them at common law - an action on the case - to recover damages;' but those authors go on to say, 'or it may maintain a suit in equity when any special jurisdiction exists, as in a case where an accounting or discovery or injunction is necessary.' Judge Thompson in the articles written by him on Corporations in 10 Cyc, thus speaks of the subject on page 836: 'The proper remedy is said to be an action at law for damages, and not a bill in equity, where no accounting of the financial condition of the corporation is necessary to determine the extent of their liability. The jurisdiction of courts of equity to compel unfaithful directors, to account to the corporation, or to its representative, for frauds, and breaches of trusts has been well established since the time of Lord Hardwicke; and unquestionably this is a proper forum in nearly all such cases, although this statement does not exclude the jurisdiction of courts of law in cases appropriate for the exercise of that jurisdiction, the two remedies being often concurrent.

12 Falk vs. Moebs, 127 U. S., 697.

13 See infra IX. N. I., a et seq.

14 Perry vs. Tuskaloosa Cotton-Seed Oil Mill Co., 93 Ala., 354; 9 So., 217.

15 See infra IX, 0.5.

16 Tobin Canning Co. vs. Fraser, 81 Tex., 407, 17 S. W., 25; Young vs. Toledo, etc., R. Co., 76 Mich., 485, 43 N. W., 632.

17 Cyc, 10 p., 801.

"The Court of Appeals of New York has gone as far as any court we are aware of in denying the jurisdiction of equity against delinquent directors at the suit of a receiver. It would be difficult to point out any substantial differences between the case of Dykman vs. Keeney, 154 N. Y., 483; 48 N. E. Rep., 894, and the one now under consideration. That case followed O'Brien vs. Fitzgerald, 150 N. Y., 572; 44 N. E., Rep. 1126, and Empire State Sav. Bank vs. Beard, 151 N. Y., 638; 46 N. E. Rep., 1146. It was conceded that some observations by the judge who delivered the opinion in O'Brien vs. Fitzgerald, 143 N. Y., 377; 38 N. E. Rep., 371 (when that case was first before the court), indicated that such an action might lie in equity, but that was finally determined to the contrary on the later appeal. In Brinckeroff vs. Bostwick, 88 N. Y., 52, the same court said: The liability of the directors of corporations for violations of their duty or breaches of the trust committed in them, and the jurisdiction of courts of equity to afford redress to the corporation, and in proper cases to its shareholders, for such wrongs, exist independently of any statute.' That was a proceeding by a shareholder and in Dykman vs. Keeney, it was referred to, to show that an action in equity will lie by a shareholder, and it was said that there was 'a wide and vital difference between such a case and one where the action is by the corporation against its delinquent directors.' There is unquestionably a distinction between the two classes of cases, as a director is an agent of the corporation, in its corporate capacity, and he accounts primarily with the corporation, which holds the legal title to the assets, but there is no privity at law between the stockholder and the directors, and hence when he can sue at all, a court of equity, is generally the proper tribunal, in which to enforce his rights, which are equitable and not legal - unless the statute gives him the right to proceed at law. But while we must not recognize that distinction, is the corporation or its receiver to be denied that right under such circumstances as are alleged in this bill? There can be no doubt that the opinions delivered in Booth vs. Robinson, 55 Md., 419, and Fisher vs. Parr, 92 Md., 48 Atl. Rep., 621, indicate that this court has taken a position contrary to the New York cases, but it is contended that the precise question raised by these demurrers was not involved in either of those cases. In Booth vs. Robinson, Judge Alvey, after stating that directors in joint stock corporations were not in the strict and technical sense of the term trustees for the stockholders, said: They are, however, in one sense trustees, and they occupy a fiduciary relation to the corporation and its stockholders. * * * And if this relation and duty be violated, to the injury of the corporation or its stockholders, the law affords an ample redress for the wrong against the guilty parties.' He then referred at some length to the case of Charitable Corp. vs. Sutton, 2 Atk., 400, and said: 'And in Sutton's case the lord chancellor held that directors of a corporation, are liable in equity, to the corporation, not only for gross frauds and breaches of trust, whereby the assets of the corporation are wasted, but are also liable to the corporation, if the assets of the corporation have been wasted by negligence on their part so gross as to amount to a breach of trust.' After referring to Spering's Appeal, 71 Pa. St., 11, and other decisions, he added: They all concur in holding that, in equity, the directors are personally liable for the consequences of their frauds or malfeasance, or for such gross negligence as may amount to a breach of trust, to the damage of the corporation or its stockholders.' Then after showing that directors are not responsible for the consequences of mere unwise or indiscreet management, and pointing out the character of proof necessary to render them liable, the opinion proceeds: 'In these cases the proper and primary-party to complain and call the directors to an account, in a court of equity, for fraud or breaches of trust in the management of the affairs of the corporation, is the corporation itself; because the duty was owing, and the wrong is done directly to the corporation, and only indirectly to the shareholders.' It then points out what is necessary to enable a shareholder to maintain a bill against directors for such fraud or breaches of trust.

"So although that was a bill filed by stockholders, the cases cited and the reasoning of the court tend to establish the right of the corporation to sue in equity. The case distinctly holds, not only that directors are in a sense trustees and occupy a fiduciary relation to the corporation and its stockholders, but that their negligence may be so gross as to amount to a breach of trust. Then in Fisher vs. Parr, which was a suit in equity by receivers, against directors, Judge Fowler said: 'The law appears to be well settled, in this state at least, that a court of equity, has jurisdiction to entertain a bill filed by a corporation to enforce the personal liability of directors for negligent performance of their duties, and that the corporation or its receiver is the proper and primary party to complain and call the directors to an account.' It is true that the defendants did not specifically rely upon want of jurisdiction in that case, but some of the grounds of demurrer were broad enough to include that and the court did in fact pass upon the question. If a court of equity had no jurisdiction to grant the relief prayed, it was idle to remand that case for further proceedings, and it will be observed that the dissenting opinion of the chief judge, which was concurred in by Judge Schumucker and the writer of this opinion, not only did not question the jurisdiction of the court of equity to grant such relief under proper allegations, but referred to a number of cases which sustain the right of a corporation, or its representative, to sue in equity, including Wilkinson vs. Dodd, 40 N. J. Eq., 123; 3 Atl. Rep., 360; Spering's Appeal, supra; Charitable Corp. vs. Sutton, 2 Atk., 400. It must therefore be admitted that in so far as this court has indicated its views on the subject, it is not in line with the New York cases, but with those adopting a contrary doctrine.

"There are many decisions elsewhere in which the courts have recognized the jurisdiction of equity in such cases. In Cockrill vs. Cooper, 86 Fed. Rep., 7; 57 U. S. App. 576; 29 C. C. A. 529, the Circuit Court of Appeals, through Judge Thayer, delivered a strong and convincing opinion on the subject, and referred to many authorities. In that case the suit was against a number of directors, and the personal representatives of others, whose terms of service were not identical. It was said that if a receiver must sue at law, it would not only require numerous actions, but Very likely several separate actions would have to be brought against some of the directors, to comply strictly with the rules of procedure at law governing the joinder of parties;' and that 'it is also fair to infer from what is stated in the bill that the excessive loans therein complained of were inaugurated by one set of directors, and either continued, renewed, or enlarged by another, so that a suit brought against any one of the directors would probably involve an inquiry into the proceedings of the board of directors, and into many of the financial transactions of the bank for the entire period during which its affairs are alleged to have been mismanaged.' In that case there was also the charge of declaring dividends in violation of the Revised Statutes, and it was said of that: 'An investigation into the merits of this charge will necessarily involve a critical inquiry into the financial condition of the bank on each of said occasions; and as this court held in Hayden vs. Thompson, 36 U. S. App., 361, 369; 17 C. C. A., 592, and 71 Fed. Rep., 60, that it is an inquiry which is peculiarly appropriate to a court of chancery, since an account of any considerable length or intricacy cannot be stated before a jury with that degree of fairness and accuracy which is necessary or at least desirable, in a judicial proceeding. The learned judge very forcibly showed why courts of equity are best adapted to adjusting such controversies as usually arise between receivers of insolvent corporations and their directors or managers, and added that 'in a court of law there is always a greater probability that the guilty will escape detection or that the innocent will be made to suffer for the wrongful acts of others.' "18

18 7 American and English Annotated Cases. Note to page 1121.