to an action by the receiver of the corporation against such directors for negligently making the loan.

5. Where, in an action against directors of a life insurance company for negligence in loaning the company's funds, the receiver proved that defendants had made the loan on insufficient security, in excess of their authority, resulting in a total loss, the receiver was not required to further prove the value of the security at the time of the loan.

6. In an action against the directors of an insurance company for wrongfully loaning the company's funds on improper security, the court was not required to divide the loan into parts, and treat the entire security taken as security for one of such parts, for the purpose of affecting damages recoverable.

Appeal from superior court, New Haven county; John M. Thayer, Judge.

Action by the New Haven Trust Company against John B. Doherty and others to recover damages from defendants, as directors of the Connecticut Life Insurance Company of Waterbury, for their negligent investment of the company's funds. From a judgment in favor of plaintiff, defendants appeal. Affirmed.

The averments of the complaint which are denied by the answer are substantially these: The defendants were actively engaged in the management of the company, etc., and it was their duty to see that its assets were safely invested and preserved. The defendants caused the money of the company to be loaned upon an indorsed note secured by the mortgage of a vessel. No payment of the note has been made, and the maker and indorsers are unable to pay the same. The vessel mortgaged was an improper and inadequate security for the same, and is now worthless. The defendants wrongfully and negligently failed to obtain proper and sufficient security for said loan, or any security such as the statute requires; and, by reason of their said failure and neglect, the sum loaned, with all interest thereon, has been lost to the company.

The denials of the answer were accompanied by the affirmative allegation that the loan was secured, in addition to the mortgage, by certain bonds, as collateral therefor, of a par value of more than 25 per cent. above the amount of said loan, and the defendants and other agents of the company made reasonable investigation as to the amount and value of said security and collateral, and the defendants believed that said bonds had at the time of said loan a market value of more than 25 per cent. in excess of the amount of said loan, and the defendants believed that said loan, and the payment thereof, were fully secured by the security received. This allegation was denied by the reply.

The judgment, at the request of the defendant Platt, specially sets forth the facts found, as follows: This action was brought pursuant to an order of this court in an action of Frederick A. Betts, insurance commissioner, against said insurance company,

entered January 10, 1900. Said company carried on the business of life insurance in said Waterbury from January 16, 1894, to July 14, 1898. During the whole of said period said Doherty was the secretary of said company, and from January 16, 1894, to July 12, 1897, the said Platt was president, and from September 20, 1897, to July 26, 1898, was first vice president, of said company; and during the whole of said period from January 16, 1894, to July 14, 1898, both the said defendants were members of the board of directors-sometimes called the "executive committee"-and were actively engaged in the management of said company, in the investment of its funds, the collection of its income, and in the general management of its affairs, and it was their duty to see that its assets were safely invested, collected, and preserved.

On or about March 21, 1895, the defendants caused $9,815 of the money of said company (being the amount of the note hereafter mentioned, less discount at 6 per cent. for 111 days) to be loaned to S. A. Dutton, and accepted therefor on behalf of said company his promissory note for that sum, dated March 14, 1895, payable to the order of himself 4 months after date, and indorsed by him, and also by H. M. Munsell and M. I. Munsell, and also accepted from him, in behalf of said company, as security for said note, a mortgage deed dated March 22, 1895, of a certain vessel, known as the "Jessie B." The defendants also, in behalf of said company, accepted as additional security for said note $10,000, face or nominal value, of the bonds of the Waterbury Land Improvement Company of Waterbury, Conn., from one S. P. Williams. Said note, when due, was duly presented for payment, and payment thereof refused, and was duly protested for nonpayment, and no part thereof has ever been paid. Said vessel, when mortgaged as aforesaid, was registered and located in the state of New York, and was wholly inadequate security for said note, and when the same became due was worthless, and has so remained. At the time said loan was made and said bonds accepted as aforesaid by the defendants, said bonds did not have a market value of 25 per cent. in excess of the amount loaned thereon as aforesaid, and, when said note became due, were worthless. The defendants took no other security for said loan than that above stated, and negligently and wrongfully failed and omitted to obtain proper and sufficient security therefor; and by reason thereof the whole of said loan, with interest thereon, has been lost to said company. The plaintiff has been damaged thereby the sum of $14,280.83. As a conclusion of law from these facts, the court finds that the plaintiff is entitled to recover from the defendants said sum.

The finding for appeal states the subordinate facts found, bearing upon the conclusion of negligence, and such other facts as

are material to the presentation of questions of law arising in the trial.

Henry Stoddard, William H. Ely, and Lucien F. Burpee, for appellants. Henry C. White and Leonard M. Daggett, for appellee.

HAMERSLEY, J. (after stating the facts). A director of a stock corporation, when acting for it in the conduct of its business, is its agent, and indirectly the agent of all the shareholders. Like every agent, he may be personally responsible to his principal for negligence or misconduct in conducting the business intrusted to him. Ordinarily directors, acting in good faith and within the scope of their authority, are not liable for the disastrous consequences of a mere mistake in judgment. But there is no general rule of liability for wrongful neglect in the exercise of such agency, applicable to directors as a class by themselves, independently of the law which prescribes and defines the duties and liabilities of agents. ne duties and liabilities of directors must depend in each case upon the terms of their agency and the particular circumstances of the case. The fact that their services are gratuitous, when it is a fact, may have some weight. The fact that they have put themselves in the position of dealing as directors with themselves as individuals; that the funds in their charge are not committed to them for ordinary business operations, but have been contributed to the corporation by others in the trust and confidence that they will be safely invested and preserved to meet the liabilities incurred to the contributors, and which must arise in the near or far distant future, as in the case of savings banks and life insurance companies; that they act in excess of their authority or of the powers of the corporation; that they act in violation of the plain prohibition of statute law-together with other circumstances, may each effect the kind and degree of care required by law of a director in making or approving a particular investment, and his liability for any loss thereby caused.

In the present case the defendants were the principal officers of a life insurance company, actively engaged in its management and the investment of its funds, and presumably paid for their services. By virtue of their positions as principal officers, they were also directors. As officers they arranged for and carried out, and as directors they approved and voted for, an appropriation of the company's funds as a loan upon insufficient security, and in violation of section 2887 of the General Statutes (Rev. 1902, § 3564), forbidding the making of any loan without taking the security therein prescribed.

Under these circumstances, the duty of the defendants in respect to the loan was analogous to that of a trustee in respect to an

investment of the trust fund in a manner unauthorized by the terms of the trust. Mere good faith was not sufficient. At the very least, they were bound to exercise diligence in investigating as to the value of the securities and safety of the loan, and ordinary care and prudence in acting on the facts known to them. New Haven Trust Co. v. Doherty, 74 Conn. 353, 357, 50 Atl. 887; Id., 74 Conn. 468, 474, 51 Atl. 130; Allen v. Curtis, 26 Conn. 456, 461; State v. Washburn, 67 Conn. 187, 34 Atl. 1034; Mallory v. Mallory-Wheeler Co., 61 Conn. 131, 138, 23 Atl. 708; Williams v. McDonald, 42 N. J. Eq. 392, 7 Atl. 866; Lewin on Trusts, p. 766; Briggs v. Spaulding, 141 U. S. 132, 147, 11 Sup. Ct. 924, 35 L. Ed. 662; Hun v. Cary, 82 N. Y. 65, 70, 71, 37 Am. Rep. 546.

The money in charge of the defendants as officers and directors was, in view of the provisions of its charter, held by the corporation under limitations of investment analogous to those imposed by law upon a trustee in the investment of trust funds; and, in recognition of this trust relation, the statute had further restricted the power of the trustee by forbidding any loan “unless such lean shall be secured by mortgage of unincumbered real estate worth at least double the amount loaned thereon; or by pledge of bonds or stocks as collateral, having a market value at least twenty-five per cent. in excess of the amount loaned thereon: provided however, that such life insurance company may make such loans upon pledge of United States government bonds, and bonds of the state of Connecticut, at par."

The power of the corporation in the investment of its money, imbued for this purpose with the characteristics of a trust fund, was limited; and the authority of the defendants as its agents was likewise limited. In exceeding their authority by making the loan in question, under the circumstances of this case, the defendants surrendered the protection given them as agents acting in good faith within the scope of their authority, and assumed a personal responsibility to the corporation in respect to their unauthorized act. So far as they could be regarded as acting as agents, they were bound at least to exercise the diligence, care, and prudence which a man of ordinary prudence would exercise under such circumstances to secure a loan whose actual safety would make their act in fact, as well as intention, beneficial to their principal. In making a loan which was actually unsafe, without exercising this diligence, care, and prudence, they acted wrongfully and negligently, and became personally liable for the resulting loss; and the corporation had a right of action against them to recover the damage caused by their wrongful and negligent act. The action sounds in tort, and may properly be brought against any one or more of the officers and directors who may have incurred the personal liability.

The wrong which is the ground of this action consists in the unlawful appropriation of the plaintiff's money, whereby the same, and all beneficial use thereof, has been lost to the plaintiff. The amount of the money and interest so lost as the direct result of the wrong must therefore measure the damage. The acquirement of the indorsed note, mortgage, and bonds was a part of the transaction which establishes the wrong, and, if the company had in fact received any benefit from this acquirement, the amount of that benefit might go in reduction of damages; but, being worthless at the time and ever since the four months for which the loan was made expired, it is immaterial in this action whether or not the company or receiver has formally offered to hand over the worthless securities to the perpetrators of the wrong. It is also immaterial what questions might arise, had the receiver affirmed the wrongful act, and accepted for the company the worthless securities. He has not done this. He could not do it without a violation of his duty, and such violation cannot be implied from the performance of his duty in bringing this action to recover the damage resulting from the wrong.

The questions now discussed were substantially covered by our opinion in granting a new trial of this cause upon a former appeal. 74 Conn. 473, 51 Atl. 130. The trial court properly applied the law thus indicated for its guidance in a new trial. It follows that the court did not err in holding the defendants liable, notwithstanding it was proved and found by the court that they acted in good faith, and did not err in assessing the damages, or in refusing to hold that the difference between the amount of money appropriated to the loan and the market value at the time of the loan of the bonds received as collateral security was the true measure of the damage caused by the wrong.

The disposition of these two grounds of error necessarily disposes of such other claims under the assignments of error as depend on the decision of the main question.

The claim is made that the court erred in drawing the conclusion of careless and negligent conduct from the subordinate facts found. This claim is unfounded. The conclusion is one of negligence under all the circumstances of the case, and subject to the well-established rules governing any review of the action of a trial court in such case. We have carefully examined the facts known to the defendants, and upon which they acted, and other facts of the transaction, as set forth in the finding. They certainly are not inconsistent with the conclusion drawn by the court that the defendants did not exercise a reasonable degree of prudence and business judgment, but acted wrongfully and negligently. Counsel for the defendants cannot seriously complain of this conclusion, unless the fact that the defendants were acting beyond the scope of their authority is elimi

nated; but they claim that this fact should be eliminated because it appears that the defendants took the advice of counsel as to the power of the corporation to invest its funds in this loan, and were advised that it had power, and therefore the defendants were to be regarded as acting within their authority, and the standard of duty applied to their conduct should have been that applicable to agents acting in good faith within the scope of their authority. The court properly overruled this claim. The bonds were secured by a second mortgage on land, and the maker had no assets except the land so mortgaged. The bonds, at par value, were just equal to the amount loaned. The statute defining the power of the corporation over the investment of its quasi trust funds says that no loan shall be made, unless secured by a first mortgage upon land worth twice the amount of the loan, or by the pledge of bonds as collateral having a market value at least 25 per cent. in excess of the amount loaned. If this loan is treated as secured by mortgage on real estate, it is clearly unauthorized, because the mortgage is a second mortgage; if treated as secured by the pledge of bonds, it is clearly unauthorized unless the bonds had a market value of at least 25 per cent. in excess of their par value, because the bonds pledged have a par value just equal in amount to the loan.

The advice of counsel, as applicable to the loan in question, was this: The loan is within the power of the corporation, and authorized by the statute, if you believe, in good faith, that the land mortgaged to secure the bonds has a market value equal to the amount of the first and second mortgage and a sum equal to 25 per cent. of the amount of the bonds pledged. It is true that where the power of a trustee in dealing with a trust fund is doubtful, requiring some legal knowledge for the correct understanding of its limits, courts have held that the trustee might be entitled to some protection when acting under the advice of counsel. But the general principle is otherwise, and advice of counsel cannot avail where the terms of the trust are plain and explicit. Lewin on Trusts, s. p. 366; Watts v. Girdlestone, 6 Beaven, 188, 190; Ames v. Parkinson, 7 Beaven, 379. Indeed, it is difficult to imagine an instance of any kind where one charged with a specific duty can negligently violate that duty with impunity by simply obtaining from some attorney advice which is obviously repugnant to the plain facts of the case.

The material facts not admitted, on which the judgment was founded, were properly found under the issues framed by the allegations and denials of the complaint, amended answer, and reply.

The court did not err in overruling the defendants' claim that there was a fatal variance between the pleadings and the proof. Nor did it err in holding, if that ruling can

be regarded as material, that no presumption exists that a conference of a majority of the directors is a regular board meeting, and that legal notice has been given to the absent directors, when no record of the conference has been made. There may be a presumption, in support of a record produced in evidence, in the absence of testimony to the contrary, that a meeting duly recorded was rightly called. But there is no presumption that directors do not confer except at a regular board meeting. When a majority of directors confer, the inference, from the fact that the conference was not recorded, that other directors were not notified to attend, is as permissible as an inference from the fact of the unrecorded conference that they were notified to attend.

The plaintiff having proven that the defendants made a loan upon insufficient security, and in excess of their authority, resulting in total loss, the court did not err in refusing to hold that it was incumbent upon the plaintiff to prove the exact value of the securities at the time of the loan.

The court did not err in refusing to divide the loan into two separate loans, and treat the whole of the collateral as security for one of these loans, for the purpose of affecting the rule of damages or for any purpose.

The appeal contains numerous claims for the correction of the finding. It needs no correction. The printed transcript of testimony included in the appeal record serves only to illustrate the exceeding fairness and substantial sufficiency of the finding. An inspection of the whole record fails to show any material fact found without evidence, or that any fact claimed is excluded from the finding which is material to the presentation of questions of law, and has been found proven by the court, or treated in the trial as an admitted or undisputed fact.

There is no error in the judgment of the superior court. The other Judges concurred.

(75 Conn. 476)

JOSEPH BERNHARD & SON v. CURTIS. (Supreme Court of Errors of Connecticut. March 4, 1903.)

LANDLORD

1

FAILURE TO DELIVER POSSESSION TO TENANT-DAMAGES-ELEMENTS OF DAMAGE-PLEADING EVIDENCE. 1. A complaint against a landlord, averring the making of a lease to plaintiff from the 1st of April in a certain year, and in effect alleging that defendant refused to put plaintiff in possession, was sufficient, in the absence of a demurrer, to sustain a judgment for substantial damages, though it did not expressly allege that defendant agreed to deliver possession April 1st.

2. After default, the burden rested on defendant to prove any facts which would show he was free from any liability.

3. Gen. St. 1902, § 742, provides that in any hearing for damages after default suffered, or after demurrer overruled, defendant shall not be permitted to offer evidence to contradict any allegations of the complaint, save such as relate to the amount of damages, unless he shall have given written notice to plaintiff of his intention

so to do. Held that, where a landlord was unable to give the tenant possession at the commencement of the term because of the holding over of another tenant, and the lessee sued for damages, the landlord, in a hearing for damages, could not raise the question as to whether a wrongful holding over by the former tenant would relieve the landlord from liability where he had given no notice of such defense under the statute.

4. The fact that, at the commencement of the term of a lease to plaintiff, another tenant was in rightful possession of the premises, would not prevent plaintiff from recovering substantial damages.

5. In an action by a lessee against his landlord for failure to deliver possession at the commencement of the term, plaintiff is entitled to recover the difference between the rent agreed to be paid and the value of the term, together with such special damages as the circumstances may show him to be entitled to.

6. The special damages must be limited to such as are the direct and natural result of the breach of contract, since such damages are presumed to have been in the contemplation of the landlord.

7. The lessee is entitled to recover his reasonable costs for all steps necessarily taken by him in order to protect himself from loss or to diminish the loss resulting from failure to obtain the premises.

8. The lessee is entitled to recover damages sustained by him owing to all proper acts of preparation made by him to occupy the premises.

9. The leased premises being a store, the lessee is not entitled to recover expenses incurred by him in procuring another store merely for the purpose of carrying out his original plan of opening a certain business in the town.

10. Plaintiff leased a store from defendant, but before commencement of the term defendant informed him that the tenant in possession claimed to be entitled to occupy the store for the term for which it had been leased to plaintiff, and that the only chance of obtaining possession depended on the result of an action against the tenant in possession. Held, that in an action for failure to deliver possession plaintiff could not recover for expenditures made by him toward the occupancy of the store after the time when he was notified of the situation as to the tenant in possession.

11. Plaintiff could not recover for losses sustained by depreciation in value of all goods which he had on hand before he obtained the lease, but might be allowed the loss sustained by reserving goods for use in the store.

12. Expenses incurred by plaintiff in renting and fitting up another store, if necessary in order to protect him against loss from proper acts of preparation for the occupancy of defendant's store, were proper elements of damage.

13. In determining the loss sustained by reason of the purchase of fixtures to fit up the new store, the value of such fixtures should be deducted from the proper cost thereof.

14. No part of the expenses incurred by the lessee merely for the purpose of providing himself with another store equally well adapted to the business as that of the defendant should be allowed.

Appeal from superior court, Litchfield county; Ralph Wheeler, Judge.

Suit by Joseph Bernhard & Son against Lewis F. Curtis. From a judgment for substantial damages, defendant appeals. Reversed.

The complaint, dated May 10, 1897, alleges, in substance, that on the 9th of February,

5. See Landlord and Tenant, vol. 32, Cent. Dig. § 453.

1897, the defendant leased to the plaintiffs a certain store on Main street, in Bridgeport, for the term of three years from the 1st of April, 1897, at the annual rent of $900, payable monthly in advance; that the plaintiffs on April 1st demanded possession, and went upon the premises to take possession "as provided in said lease," but that the defendant failed, refused, and neglected to put the plaintiffs into possession, and has neglected to perform any of the terms of said lease. Paragraphs 5 and 6, added by way of amendment in August, 1899, are as follows:

"The plaintiffs leased said store for the purposes of establishing and conducting a large millinery business therein, and so notified the defendant at the time of signing said lease, and the plaintiffs had on hand at the time of signing said lease a large stock of millinery goods * * of the value of $15,000, to be used in said business; and by reason thereof notified the defendant that unless they obtained possession of said premises, as provided in said lease, they would suffer a large monetary loss.

"The plaintiffs, confiding in the covenants of said lease, after the signing thereof, also purchased and manufactured a further stock of millinery goods, and shipped them and a portion of the stock previously on hand, and reserved to be used in said business, to Bridgeport, Conn., and made contracts with various persons to manage and conduct said millinery business, and, by reason of the defendant's failure to fulfill the terms of said lease, the plaintiffs were obliged to expend large sums of money in hiring and fitting up two other stores in which to dispose of said stock and to fulfill said contracts, and, by reason of the defendant's said failure to fulfill said lease, said stock of millinery goods

* became of little or no value to the plaintiffs, and they were obliged to dispose of them at a great loss or sacrifice."

Ten thousand dollars damages are demanded.

A copy of the lease was attached to the complaint.

It was agreed by the parties that the case should be heard in damages, after a default, upon the evidence taken at a former trial, to which objections might be made during the reading of the evidence and upon the argument of the case, to be ruled upon by the court in its memorandum of decision. Νο notice was filed by defendant under section 742, Gen. St. 1902.

It appears that the plaintiffs were engaged in importing and selling, at wholesale, millinery goods in New York City. In the winter of 1896-97 they purchased in Europe, for the firm, goods to the value of $2,500, and before April 1, 1897, purchased other goods in New York, of the value of $2,000, all of which they reserved from their wholesale stock in New York, for the purpose of opening a retail millinery store in Bridgeport.

On February 9, 1897, the plaintiffs, after

certain negotiations with the defendant, in which they informed him that they intended to establish a large and up to date millinery business in Bridgeport, and had made certain purchases of goods in Europe therefor, entered into a written lease with the defendant for a store on Main street, in Bridgeport, for the term of three years from the 1st day of April, 1897, at the rent stated in the complaint. The plaintiffs did not state to defendant that they intended to purchase or manufacture goods before entering into possession of defendant's store. At the time of the execution of this lease, and until the following August, the defendant's store was the only available one in that section on Main street.

Immediately upon the execution of the lease the plaintiffs made a verbal agreement with one Mary E. Hogan that she should manage their business for one year from March 1st at $30 a week, and on March 1st signed a written contract with her containing those terms. On the 22d of February the plaintiffs had measurements made of defendant's store, and thereafter ordered fixtures and furnishings therefor at a cost of $827.24, which were made after the 26th of February.

Subsequent to February 26th the plaintiffs hired a store on State street, in Bridgeport, for the month of March, in which to store, manufacture, and arrange stock for the opening of the Main street store on April 1st, and to this store, before April 1st, shipped goods of the value of $3,370.97 reserved for the Bridgeport store, and afterwards, in the months of April, May, and June shipped to this store goods of the value of $1,120.56, and also expended before April 1st a large sum of money in the manufacture of hats and in preliminary work at the State street store, and in New York for the Bridgeport business.

At the time the lease was executed by the defendant to the plaintiffs, one Harris was in possession of the defendant's store, having taken a written lease thereof from the defendant for one year from April 1, 1896. On February 22d the plaintiffs were informed that Harris claimed to have a further verbal lease until February 1, 1898, and that he did not intend to vacate the store until that date. The plaintiffs thereupon, on the 25th of February, saw the defendant, who informed them that Harris had no verbal lease; that he, the defendant, would institute a summary process proceeding to dispossess Harris; that "under such proceeding a tenant holding over could legally be dispossessed in six days, but that sometimes it was attended with some difficulty." On February 26th defendant's counsel wrote the plaintiffs that the defendant had seen Harris; that the latter said he intended to stay; and that, while the defendant would do what he could to get possession, the plaintiffs must take note of the situation. The defendant afterwards