Are Directors of a Bank Liable for Losses Due to Dishonesty of the Cashier ?

In Warner v. Penoyer, 91 F. 587, 591 (2d Cir. 1898), directors of a bank were sued for the fraud of the bank's executive officer known as the cashier.

The court said:

"The cashier is the bank's executive officer, who transacts its daily affairs.

the directors cannot divest themselves of the duty of general supervision and control by committing this duty to him, but they properly may intrust to him all the discretionary powers which usually appertain to the immediate management of its business.

Before the directors can be made responsible for losses which have occurred through the mismanagement or dishonesty of the cashier, it must appear that such losses resulted as a consequence of the omission of some duty on their part.

If, in all probability, these would have occurred just the same, notwithstanding that they had been ordinarily diligent and vigilant, there is no justice in shifting them upon the directors, and no principle of law to justify it.

They are responsible for their own acts and omissions, but not for those of co-directors in which they have not actively or passively participated." Warner, 91 F. at 591.

The court held that the evidence established the personal liability of the directors serving on the bank's discount and examining committee, which made weekly visits to the bank and reviewed the documents prepared by the cashier.

The remaining directors were not liable, because there was no evidence that they "were cognizant of the neglect of duty" by their colleagues. Warner, 91 F. at 593.