the corporation as to its creditors, and hence was liable, as trustee, to refund to them the money received as his share of the corporation's assets.― Mitchell v. Jordan, 36 Wash. 645, 79 Pac. 311.

[u] (W. Va. 1893) Where the directors of an insolvent corporation, order a conveyance of its property to a trustee, to secure its debts, giving a preference to the claim of two directors who, in violation of Code, c. 53, § 52, were present at the meeting, but who did not vote on that question, a conveyance giving such preference is prima facie void as to the preference, and will be so declared, unless it be shown by the clearest proof that the preference is not only free from fraud, but is in itself, under the circumstances, both fair and reasonable.-Hulings v. Hulings Lumber Co., 38 W. Va. 351, 18 S. E. 620.

II. PRIMA FACIE VALIDITY OF PREFERENCE.

[a] The fact that creditors of a corporation, who obtained a preference at the time when the corporation was in fact insolvent, were stockholders and directors, did not render the transaction void, there being no intention to defraud creditors, and the transaction being in good faith.

(U. S. 1908) El Cajon Portland Cement Co. v. Robert F. Wentz Engineering Co., 92 C. C. A. 447, 165 Fed. 619;

(Ala. 1899) Anderson v. Bullock County Bank, 122 Ala. 275, 25 South. 523; (1901) Wilson v. Stevens, 129 Ala. 630, 29 South. 678, 87 Am. St. Rep. 86;

(Conn. 1879) Smith v. Skeary, 47 Conn. 47;

(Ill. 1883) Reichwald v. Commercial Hotel Co., 106 Ill. 439; (1885) Bouton v. Smith, 113 Ill. 481; (1895) Parsons v. Hatton-Snowden Co., 58 Ill. App. 272;

(Mich. 1892) Bank of Montreal v. J. E. Potts Salt & Lumber Co., 90 Mich. 345, 51 N. W. 512; (1904) Campau v. Detroit Driving Club, 135 Mich. 575, 98 N. W. 267, 10 Detroit Leg. N. 870; Moran v. Campau, Id; (Mo. 1887) Foster v. Mullanphy Planing-Mill Co., 92 Mo. 79, 4 S. W. 260; (1895) Schufeldt v. Smith, 131 Mo. 280, 31 S. W. 1039, 29 L. R. A. 830, 52 Am. St. Rep. 628; (1897) Butler v. Harrison Land & Mining Co., 139 Mo. 467, 41 S. W. 234, 61 Am. St. Rep. 464; (1899) State ex rel. Grimm v. Manhattan Rubber Mfg. Co. 149 Mo. 181, 50 S. W. 321; (1905) Pitman v. Chicago-Joplin Lead & Zinc Co., 113 Mo. App. 513, 87 S. W. 10;

(Neb. 1899) Nebraska Nat. Bank v. Clark, 58 Neb. 183, 78 N. W. 527; (Pa. 1898) Moller v. Keystone Fibre Co., 187 Pa. St. 553, 41 Atl. 478; (W. Va. 1885) Pope v. Valley City Salt Co., 25 W. Va. 789.

[b] (U. S. 1901) A corporation is not precluded from preferring a bona fide creditor because he is also one of its directors, although in such case the transaction will be subjected to the most rigid scrutiny by a court of equity, and the creditor must assume the burden of proving his absolute good faith and the justice of his demand. In many cases the condition of the corporation may be such that it cannot borrow money from outside sources when a timely loan will save it from serious loss, and a director or stockholder who under such circumstances advances money to the corporation in good faith and for its benefit is entitled to all the rights of any other creditor in obtaining security for his demand, either at the time or subsequently.-American Exch. Nat. Bank v. Ward, 49 C. C. A. 611, 111 Fed. 782, 55 L. R. A. 356.

[c] (U. S. 1896) The assets of a corporation do not constitute a trust fund for the benefit of its creditors in such a sense that any disposition thereof to secure an antecedent indebtedness in favor of one or more of its officers, though made while the corporation is still a going concern, and its officers still have hopes of continuing business, may be set aside at the instance of creditors.-Childs v. N. B. Carlstein Co. (C. C.) 76 Fed. 86.

[d] (Ill. 1895) A manufacturing corporation which, although insolvent, is still engaged in business, may give judgment notes to its directors for money lent to it by them, in good faith, for the purpose of carrying on its business while it was insolvent, and may also give them judgment notes in renewal of similar notes given by the corporation while it was solvent.-Illinois Steel Co. v. O'Donnell, 156 Ill. 624, 41 N. E. 185, 47 Am. St. Rep. 245.

[e] (Iowa, 1886) Where a director of a corporation holds its paper, and, in good faith, takes a mortgage to secure it, he may enforce the same as against general creditors, although he so participated in the management of the corporate business as to permit the debt, and although the corporation was insolvent when the mortgage was given.-Garrett v. Burlington Plow Co., 70 Iowa, 697, 29 N. W. 395, 59 Am. Rep. 461.

[f] (Iowa, 1887) A mortgage given by a corporation to persons who are its officers and directors, to secure a bona fide indebtedness, and with no fraudulent intent, will not be set aside at the suit of another creditor merely because of the relationship of the parties.-Warfield v. Marshall County Canning Co., 72 Iowa, 666, 34 N. W. 467, 2 Am. St. Rep. 263.

[g] (Iowa, 1897) Where the cashier of a bank holding the notes of a manufacturing corporation advised their renewal and indorsement by the directors, and that the directors take security from the corporation, offering, if so arranged, to carry the indebtedness indefinitely, the bank cannot attack the validity of a mortgage given by the corporation to the directors to protect them on their indorsement of the notes on the ground that it was an illegal preference of officers of the corporation.-In re Bloomfield Woolen Mills, 101 Iowa, 181, 70 N. W. 115; Allender v. State Bank of Bloomfield, Id. [h] (Mass. 1847) The directors of a corporation authorized the treasurer to make an assignment of all the property to plaintiff, who was one of the stockholders, to secure him on his indorsement for the benefit of the corporation, directing that a bond could be taken from plaintiff, conditioned that the proceeds of the assignment should be applied to the payment of the indorsements. Under this authority the treasurer made a deed of release and quitclaim to defendant of all the property, real and personal, of the corporation, signing such deed with his own name, and reciting that he acted as treasurer and agent of the corporation, and was duly authorized. Plaintiff gave the treasurer a power of attorney, authorizing him in the name of plaintiff to settle all accounts and demands of the corporation against all persons, and to sell and dispose of the property of the corporation as plaintiff himself might do. Held that, by the assignment, the title to the personal property of the corporation vested in plaintiff, entitling him to the possession of the property as against an attaching creditor of the corporation.-Sargent v. Webster, 54 Mass. (13 Metc.) 497, 46 Am. Rep. 743.

[i] (Mo. 1889) In a suit by creditors of an insolvent corporation against directors for an account of corporate assets alleged to have been illegally appropriated by the latter to their own use, it appeared that one such director had made large loans to the corporation, the principal of which was never repaid, and there was no evidence, beyond some circumstances claimed to be suspicious, that he received any of its assets except some bills receivable and accounts transferred to him at their face value in payment of accrued interest on the loans. Held, that the bill was properly dismissed as against him. -Kraft-Holmes Grocery Co. v. Crow, 36 Mo. App. 288.

[j] (N. J. 1894) Corporation Act, § 80 (Revision, p. 191), provides that, in making distribution of the funds of an insolvent corporation, the receiver shall pay the "creditors proportionately to the amount of their respective debts, except mortgage and judgment creditors, when the judgment has been by confession, for the purpose of preferring creditors." Held, that the directors of a corporation may execute to themselves mortgages to secure the liability of the corporation to them, even though this be done in contemplation of immediate application for the appointment of a receiver, and the lien secured thereby will be prior to those of general creditors.-Whittaker v. Amwell Nat. Bank, 52 N. J. Eq. (7 Dick.) 400, 29 Atl. 203.

[k] (N. J. 1898) On a bill charging that conveyances by a corporation to its controlling director two months before it became insolvent were voluntary and in fraud of creditors, they will not be set aside as an inequitable preference, where the proof was that they were made in satisfaction of an existing debt, and where all the claims proved before the receiver were subsequent ones.-Tennant v. Appleby (Ch.) 41 Atl. 110.

[1] (N. Y. 1893) A transfer of property of a corporation to secure a debt to the transferee, incurred while he was director, but who was not a director at the time of the transfer, is not a violation of Laws 1892, c. 688, § 48, which

prohibits a corporation, after refusal to pay any of its obligations, to transfer any of its property to any of the officers or directors, on any other consideration than full value paid in cash.-Milbank v. Welch, 74 Hun, 497, 26 N. Y. Supp. 705.

[m] (N. Y.) Where directors of an insolvent corporation made a loan, to tide over an emergency in its affairs, on the supposition that it was solvent, their contract with the corporation to take security therefor, made in good faith at the same time, is not void.-(1899) Converse v. Sharpe, 37 App. Div. 399, 55 N. Y. Supp. 1080, judgment affirmed (1900) 161 N. Y. 571, 56 N. E. 69. [n] (N. Y. 1900) The rule that a director of an insolvent corporation cannot obtain a preference by acts of the directors is not a defense to an action by a director against the corporation on a contract made by the directors, but is only available to defeat an execution or attachment in such action, by satisfaction of which a preference would be given. Judgment, Welling v. Ivoroyd Mfg. Co. (Sup. 1897) 15 App. Div. 116, 44 N. Y. Supp. 374, 4 N. Y. Ann. Cas. 145, affirmed.-Welling v. Ivoroyd Mfg. Co., 162 N. Y. 599, 57 N. E. 1128.

[o] (S. C. 1844) When renewal notes by a corporation were indorsed in consideration of the corporation's securing the same, it cannot be inferred from the fact that several of the indorsers were directors of the corporation that the security given was a fraudulent device on their part to secure a preference over other creditors.-Central Railroad & Banking Co. of Georgia v. Claghorn, 1 Speer, Eq. 545.

III. VOTE OR RESOLUTION AUTHORIZING PREFERENCE.

[a] (U. S. 1896) Where three directors, who constituted a majority of the board, and whose votes were necessary to the action taken, transferred to themselves, in payment of an antecedent debt, all the available assets of the corporation, though they had previously assured a creditor that his claim should be paid before that of the directors, the preference so obtained by the directors was invalid, and the assets so transferred to the directors should be ratably distributed among all the creditors of the corporation.-Rickerson Roller-Mill Co. v. Farrell Foundry & Machine Co., 23 C. C. A. 302, 75 Fed. 554. [b] (Ala. 1899) A transfer of property by an insolvent corporation to one of its officers in payment of a bona fide debt is valid; and this, though the officer so preferred participated in and controlled the directors' meeting at which the transfer was authorized.-Corey v. Wadsworth, 118 Ala. 488, 25 South. 503, 44 L. R. A. 766.

[c] (Ind. 1897) That preferences inured to the benefit of some of the direc tors voting in favor thereof does not render them invalid, where the vote of such directors was not necessary to the passage of the resolution authorizing the preferences.-Levering v. Bimel, 146 Ind. 545, 45 N. E. 775.

[d] (Ind. 1902) An insolvent private manufacturing corporation may prefer its directors, or creditors on whose claims the directors are sureties, though their votes are necessary therefor, and though loss is thereby caused to persons having claims against the corporation; the directors owing no duty to creditors. Nappanee Canning Co. v. Reid, Murdock & Co., 159 Ind. 614, 64 N. E. 870, 1115, 59 L. R. A. 199.

[e] (Ind. 1904) An insolvent manufacturing corporation may lawfully prefer bona fide claims due to creditors who are directors and officers of the corporation though the vote of one or more of such directors is required to pass the resolution or order authorizing_such preference.-City Nat. Bank v. Goshen Woolen Mills Co., 163 Ind. 214, 71 N. E. 652.

[f] (Mich. 1897) A mortgage by an insolvent corporation to secure a debt is not invalid, as against a director voting in favor thereof, because it inures to the benefit of other directors, who were secondarily liable for the debt, and whose votes were necessary to the passage of the resolution authorizing the mortgage.-Lucas v. Friant, 111 Mich. 426, 69 N. W. 735, 3 Detroit Leg. N.

729.

[g] (Mo. 1899) On the issue of good faith of directors in control of a corporation in executing preferential mortgages to themselves, evidence tending to show that an absent director had changed his mind, and was opposed and objected to the scheme, to their knowledge, was competent, notwithstanding

he had first voted for it.-State ex rel. Grimm v. Manhattan Rubber Mfg. Co., 149 Mo. 181, 50 S. W. 321.

[h] (Mo. 1902) Where the directors of an insolvent corporation conveyed property to one of its members in payment of an alleged corporate debt, such director has the burden of proving the good faith of the transaction, and that he did not vote for such preference, nor improperly influence his associates to do so; and a showing that the debt was genuine, and that the preference was made by a quorum of the directors without the vote of such director, is insufficient.-Pitman v. Chicago Lead Co., 93 Mo. App. 592, 67 S. W. 946.

[i] (N. J. 1897) A mortgage ordered by the board of directors of an insolvent corporation is voidable, if given to secure either an antecedent debt due a director, whose vote was necessary to a legal expression of the corporate will, or a corporate note, on which the voting directors are indorsers, or a corporate note due a daughter of a voting director, who was also her attorney in the matter, or a debt due to another corporation, in which one of the voting directors and officers of the insolvent corporation was a director.-Savage v. Miller, 56 N. J. Eq. 432, 36 Atl. 578, 39 Atl. 665.

[j] (Pa. 1898) A director of an insolvent corporation cannot, by his own vote, obtain a preference for his claim against the corporation over claims of other creditors.-Moller v. Keystone Fibre Co., 187 Pa. St. 553, 41 Atl. 478.

[k] (Pa. 1898) Where a manufacturing corporation, the principal stockholder of which, who was also a director and the president thereof, was a stockholder, director, and the president of an insolvent mining corporation, which was largely indebted to it on book account, proposed to take certain machinery belonging to such debtor corporation, which was not then in use, at a certain price, which was the full value thereof, to be credited on such indebtedness, which proposition was accepted, the presumption that such transaction was fraudulent as to other creditors of such insolvent corporation was not rebutted by the fact that the president thereof, though present, did not vote to accept such proposition.-Finch Mfg. Co. v. Stirling Co., 187 Pa. St. 596, 41 Atl. 294, 43 Wkly. Notes Cas. 113.

IV. PROMOTING SUITS OR ATTACHMENTS AND CONFESSING JUDGMENTS.

[a] (Minn. 1902) In an action by a receiver of an insolvent corporation to vacate a judgment obtained in the name of a third person, for the use of six members of a board of directors of the corporation, where the evidence showed that the corporation was insolvent when the notes on which the judgment was based were executed and delivered, and that the directors did not act with the good faith demanded of them as trustees of the property, which it was their duty to preserve for the equal benefit of all the creditors, the judgment will be set aside.-Taylor v. Fanning, 87 Minn. 52, 91 N. W. 269.

[b] (Neb. 1898) The validity of a confession of judgment by a corporation is not affected, as against other creditors of the corporation, by the fact that a stockholder of the corporation is a surety for the debt for which the judgment is confessed.-Solomon v. C. M. Schneider & Co., 56 Neb. 680, 77 N. W. 65.

[c] (Neb. 1899) A director of a corporation, who had made it a loan, and lawfully received a note therefor, died, and his son was appointed his administrator. The son became a director of the company, and applied for, and there was executed and delivered to him as administrator, a note of the corporation in the amount of the loan debt. The corporation became insolvent, and thereafter the administrator recovered a default judgment against it for the amount due on the note. Held not to show any advantage taken by the son, as administrator, of his father's former position of director, to obtain in the suit and judgment on the note a preference over the other creditors of the corporation.-Nebraska Nat. Bank v. Clark, 58 Neb. 183, 78 N. W. 527.

[d] (N. J. 1863) Where a corporation confessed judgment, on the eve of its insolvency, to one of its creditors, who was a director and secretary of the company, and who must have been fully acquainted with its financial condition and operations, it was held that the judgment confessed under such circumstances afforded the strongest evidence that it was done in contemplation of insolvency, and with the view of preferring creditors, and that the

judgment should be paid proportionably with the other debts.-Stratton v. Allen, 16 N. J. Eq. (1 C. E. Green) 229.

[e] (N. J. 1889) Where a company, having assets of $15,000, and owing $160,000, confesses judgment for $40,000 to one who owns the greater part of its stock and knows the condition of its affairs, and it does not appear that he advanced any money to the company at the time of such judgment, a sale under such judgment will be restrained until the rights of all the creditors may be determined.-Krause v. Malaga Glass Co. (Ch.) 18 Atl. 367.

[f] (N. Y.) The rule that a director of an insolvent corporation cannot obtain a preference by acts of the directors is not a defense to an action by a director against the corporation on a contract made by the directors, but is only available to defeat an execution or attachment in such action, by satisfaction of which a preference would be given.-(1897) Welling v. Ivoroyd Manuf'g Co., 15 App. Div. 116, 44 N. Y. S. 374, 4 N. Y. Ann. Cas. 145, judgment affirmed (1900) 162 N. Y. 599, 57 N. E. 1128.

[g] (N. C. 1898) A confession of judgment by an insolvent corporation to one creditor is not void as to another because the president, who is surety on the debt confessed, buys in the property at sheriff's sale, and also the unsatisfied part of the judgment, no fraud being claimed.—-Howard v. Central Warehouse Co., 123 N. C. 90, 31 S. E. 371.

[h] (Pa. 1902) Judgment confessed by corporation to a director is good against creditors, being for money advanced by him under resolution of directors and agreement of corporation, recognizing its insolvency, that, if he would furnish funds to operate its plant, he should be secured by first judgment.-Hogsett v. Columbia Iron & Steel Co., 203 Pa. 148, 52 Atl. 179.

[i] (Pa. 1903) Where directors of a solvent corporation advanced money to pay an obligation of the company without any agreement that they were to be protected, they cannot, when the company thereafter becomes insolvent, to their knowledge, take a judgment note for such advances, thereby securing priority over general creditors.-Pangburn v. American Vault, Safe & Lock Co., 205 Pa. 83, 54 Atl. 504.

[j] (S. D. 1903) Two directors of an insolvent corporation owned two-thirds of certain causes of action against it, all of which were assigned to a third party for the sole purpose of placing the same in judgment. The summons was served on the directors as vice president and secretary, respectively, and a default judgment entered, under which all of the corporate property was sold on execution in satisfaction of the judgment, which amounted to less than half the value of the property. Held, that the judgment was fraudulent and void as to other creditors of the corporation.-Portland Consolidated Min. Co. v. Rossiter, 16 S. D. 633, 94 N. W. 702, 102 Am. St. Rep. 726.

[k] (Tex. 1898) A director of a corporation in a state of insolvency, but yet a going concern, may, by attachment and levy on its property, gain a preference over other creditors for a debt incurred by such corporation in good faith to such director, since it was permissible for the corporation to voluntarily prefer one of its directors.-A. B. Frank Co. v. Berwind (Civ. App.) 47 S. W. 681.

V. PAYMENTS TO PROTECT FROM PERSONAL LIABILITY.

[a] (U. S. 1886) Where corporate notes are indorsed by the president and directors of a corporation, and, after its dissolution by insolvency, they confess judgment in favor of the holders of such notes for the purpose of saving themselves from liability as indorsers, and the property of the corporation is levied upon and sold to satisfy such judgment, it amounts to a misapplication of assets.-Sprague-Brimmer Mfg. Co. v. M. J. Murphy Furnishing Goods Co. (C. C.) 26 Fed. 572.

[b] (Colo. 1895) The fact that, by a preference given by a corporation, its officers are relieved of their individual liability on the preferred debt, does not render the preference invalid.-West v. Hanson Produce Co., 6 Colo. App. 467, 41 Pac. 829.

[c] (Ga. 1897) An insolvent company gave mortgages to creditors who held notes indorsed by the directors. The preferred creditors had made no demand for preference, and did not know of the giving of the mortgages until they were filed. It was recited in the mortgages that they were "for the pur104 C.C.A.-2