He writes:
In Fox v. Hale & Norcross Silver Mining Co., 108 Cal. 369, 41 P. 308 (1895), the trial court held directors liable for a diversion of funds by the president of the corporation to himself. The court said: “None of the directors, however, had any substantial interest in the corporation.…Being chosen in this way [i.e., by the president and substantial shareholders] and receiving no compensation for their services, except $5 for each meeting of the board at which they attended, they gave to the affairs of the company the amount of attention that might have been expected. Several of them seemed to have known next to nothing about the operations at the mine. While others took a little more trouble to keep themselves informed in a general way about the mining of ores and the price paid for reduction, they seem one and all to have entrusted the management of the entire business to the president, Levy, and to the superintendent of the mines; and, if these officers, by abuse of their trust, caused the loss and damage to the mining company which the court has found, the evidence warrants the conclusion that the directors were at least guilty of gross negligence.” Despite this statement, the Supreme Court reversed the judgment against the directors on the technical pleading point that the complaint had alleged only that they were guilty of fraud, and not of negligence.
