We desire to supplement the opinion heretofore rendered in this case by a further consideration of the rule adopted from the case of Yates v. Jones National Bank, 206 U.S. 158, 51 L. Ed. 1002, as it has been interpreted in the subsequent case of Thomas v. Taylor, 224 U.S. 73, which has not heretofore been called to the attention of this court. From the Yates Case we derived the rule that the test of liability prescribed by the statute under which plaintiff instituted and prosecuted this action requires that the director sought to be charged have knowledge of the falsity of the report as well as participation therein. It will be noted in the quoted portion of the opinion, where the Supreme Court of the United States holds the instruction of the trial court (similar to instruction No. 11 in the instant case) to be erroneous, that the last sentence thereof is as follows:
"That this imposed a higher standard of conduct than was required by the statute is obvious, but is clearly also established by previous decisions of this court, pointing out that where by law a responsibility is made to arise from the violation of a statute knowingly, proof of something more than negligence is required; that is, that the violation mustin effect be intentional."
In the case of Thomas v. Taylor, supra, the latter part of this sentence is quoted and construed as follows:
"Not, therefore, that as a condition of liability there should be proof of something more than recklessness, — not that there should be an intentional violation, — but a violation 'in effect' intentional. There is "in effect" anintentional violation of a statute when one deliberatelyrefuses to examine that which it is his duty to examine."
To properly understand to what extent the requirement of knowledge has been relaxed by this case, an explanation of the facts is necessary. The action was originally framed in deceit under the common law to recover damages for being induced by false reports to purchase 30 shares of bank stock upon which he was promptly compelled to pay 100 per cent. assessment. Although the action was against the directors of a national bank, it was not based upon any liability stated in the National Banking Act. The trial court rendered judgment in favor of plaintiff. The defendants appealed to the Appellate Division of the Supreme Court of New York, where the judgment was affirmed. That court gave a broader effect to the action, "and decided that its requirements under the common law of the state coincided with the requirements of the statutes of the United States, and satisfied the measure of responsibility of those statutes as expressed in Yates v. Jones National Bank." The case was further appealed to the New York Court of Appeals and the judgment again affirmed. Upon appeal to the Supreme Court of the United States, it was admitted that the measure of liability was that laid down by the national banking laws, and the court considered the requirement of knowledge essential. In this opinion it was recited that the Appellate Division decided that the defendants had knowledge of the falsity, which they did not deny, and the case could have been affirmed upon this ground. But the court, "not insisting on this," proceeded to interpret the rule in the Yates Case, as quoted above, and it was decided that since the directors had a direct warning that certain assets were doubtful and should be collected or charged off, to represent these assets to be good, in disregard of the bank examiner's direction, was "in effect" intentional publication of false reports.
It thus appears that this case does not relax the rule in the Yates Case to the extent of supporting instruction No. 11. The instruction is still erroneous. This case does not impose upon bank directors the common-law liability for negligence, but relaxes the statutory test to the extent that *Page 595 knowledge will be inferred if the director refuses to examine that which it is his duty to examine. The duty referred to is not to exercise ordinary care to know the bank's condition, but is imposed only when one's attention is specifically directed to the matter complained of.
In the responses to the petition for rehearing it is claimed that the Thomas Case is not in point for the reason that it is a common-law action in deceit, and knowledge was not made an issue, and for the further reason that the interpretation of the rule in the Yates Case was dictum. With the first assertion we cannot agree, under what we consider the clear language of the opinion outlined in some detail above. With the latter assertion we do agree. But we are persuaded by this dictum and adopt the same view of interpretation.
The result, however, must remain the same. Under this view, J.E. McConnell would be presumed to have knowledge of the falsity of the report if the fictitious character of the notes had been called to his attention. Being thus warned, he would be under a duty to examine the report and could not defend on his ignorance of its contents. But he denies knowledge of the fictitious character of the notes, and we find no evidence that he was specifically warned against them. The letter from the Bank Commissioner, as pointed out in the former opinion, criticized other assets, and did not complain of the notes in question. Under the circumstances, knowledge is a question for the jury under proper instructions. The same may be said for the defendant Milam.
With this explanation the petition for rehearing is denied.
All the Justices concur.