If an officer commit an illegal act without the knowledge or direction of the board of directors he may be prosecuted, but not the bank itself. Of course, he is still more liable to prosecution if he commits an illegal act contrary to actual orders of the directors. It is the duty of the directors, in case they are informed of the commission of an illegal act and can avert its evil consequences, to disavow at once the act of the officer, to remove him from office, to decline to accept any advantage from his act, and to seek to undo or correct it, and, if any benefit has been derived, to make restitution. If an officer accepts benefits illegally and the direc tors, but for their negligence, should have known of the fact, the directors are presumed to know it and cannot plead ignorance.
The directors are limited in their powers. They can use the funds and property of the bank only for proper banking functions and to the bank's advantage in the best way that their knowledge and abilities can devise. They cannot vote to contribute to charities or make gifts. They cannot needlessly and gratuitously assume actual or contingent liabilities for others.
The directors and officers may do wrongful things favoring third parties and bind the bank, provided the facts as actually or constructively known to the third parties did not constitute notice to them of the wrongfulness of the transaction. An officer clothed
with the indicia of authority can bind the bank by his representa tions to innocent persons.
Directors are liable to stockholders for such losses to stock holders or creditors, or both, as are incurred through the failure of the directors to manage the bank according to the charter and in good faith. They are not liable for losses arising through frauds by officers, provided they have not been grossly negligent in select ing and watching such officers. What constitutes reasonable care required of directors depends upon the matter in hand and can only be determined in the light of all the circumstances. Ill health or non-residence does not excuse a director from construc tive knowledge of the affairs of the bank.
The bank can be held liable if it publishes corporate reports, as such, falsely and with criminal intent. A report, for instance, regularly adopted by the directors and published makes the bank liable for its truth. If officers assist the directors in the prep aration of such false reports, they, with the directors, are under personal liability to indictment for conspiracy to defraud.