| The Charitable Corporation v Sutton | |
| Court: | Court of Chancery |
| Date Decided: | 13 August 1742 |
| Citations: | (1742) 26 ER 642; 2 Atk 404 |
| Opinions: | Lord Hardwicke |
| Keywords: | Directors' duties, negligence, gross negligence, hindsight |
The Charitable Corporation v Sutton (1742) 26 ER 642 is an important old English law case which holds in substance that a director of a company owes duties to the company in the same measure and quality as does a trustee to a trust. It makes the point that judges should not be quick to judge decisions of directors with hindsight.
The Charitable Corporation was a company set up by royal charter, to give loans of money to poor people, to prevent them falling into the hands of pawnbrokers. The directors (or committee-men as they were called at the time) were accused of failing to properly monitor the procedures for loans by the corporation. It had suffered a loss of around £350,000. A warehouse keeper was responsible for giving unsecured loans to fellow directors. Only five directors were actively involved in the corporation's affairs. It was alleged that the failure of the remaining forty-five directors to maintain oversight made them guilty of gross negligence.
Lord Hardwicke held that because the directors are agents of the people who grant them power to manage the corporation's affairs they are liable for any negligent acts or omissions. He held that the five who were engaged in taking money were liable to make good all losses, and that the remaining forty-five were liable to make up any shortfall. His judgment read as follows.