Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/657

 CHAP. X.] CORPORATION AND OFFICERS. [§ 633. A., who at the time was the president of a railroad company, but not a shareholder, made advances to it in perfect good faith of eighty-one thousand dollars to aid it in constructing its road. At a meeting of the executive committee of the board, consisting of himself and two other directors, who were guarantors on a note to him for a portion of his claim, a resolu- tion was passed directing the treasurer to deliver to him eight hundred and ten thousand dollars of its bonds as collateral security. This action the board subsequently sanctioned. The company afterwards became insolvent ; the trustee for the bondholders brought suit to foreclose the mortgage given to secure the bonds ; and on appeal taken from an order entered in the suit, determining the relative rights and priorities of certain of the bondholders, A. was allowed to prove his bonds to the full amount, and share in the distribution of the assets of the compan}^ to the extent of its real indebtedness to him. 1 On a former appeal of the same case, Judge Finch said : "Where the trustee's act consists, not in possessing himself of the property of the beneficiary as owner, but in taking col- lateral security for a debt honestly due him or a liability justly incurred, the rule [that the beneficiary may as of course avoid the contract] can have no application, since the payment of the debt or the discharge of the liability is an essential prere- quisite of the avoidance. And this is true whether the pledge is taken for a present or precedent debt." 2 Nevertheless, in the appeal, from which the preceding citation is taken, it is said that as a general rule a director buys cor- porate bonds below par only at the peril of their avoidance by v. Patrons' Mercantile Assn., 50 Iowa, 607; Hill v. Nisbet, 100 Ind. 341; Lusk's Appeal, 108 Pa. St. 152. 1 Duncomb v. New York, H. and N. R. R. Co., 88 N. Y. 1. 2 Duncomb ». New York, H. and N. R. R. Co., 84 N. Y. 190, 199. See, also, Budd v. Walla Walla Print- ing Co., 2 Wash. Ter. 347; Harpend- ing v. Munson, 91 N. Y. 650; Weihl v. Atlanta Furniture Co., 89 Ga. 297. The language here of the learned judge, perhaps, is somewhat broad. The money loaned may indeed have been advanced in good faith for the benefit of the corporation; but under some circumstances, to force the corporation to pay its debt be- fore demanding back its security, might be very oppressive. In the case in the text, the court laid stress on the fact that the security taken was not under the circumstances excessive; and that the corporation was not insolvent at the time it was taken. Compare Hope v. Val. City Salt Co., 25 W. Va. 789; Richardson v. Green, 133 U. S. 30. 637