Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/659

 CHAP. X.] CORPORATION AND OFFICERS. [§ 636. § 634. The following rules regarding loans to a corporation from its officers seem deducible from the preceding and other cases. Directors or other officers may, when they honestly deem it for the interest of the corporation to borrow, 1 advance it money on terms as favorable as any on which they could have pro- cured the money for it from other sources ; and they may take from the corporation security for their loan. 2 But they cannot — at least when the corporation is insolvent — take advantage of their inside position to secure their existing debts to the in- jury of other creditors of the corporation; 3 and no more in recovering their debts or enforcing their security than in the original transaction of loaning the money, can they disregard the interests of the corporation. 4 Under such circumstances not only may they not avail themselves of their control over the affairs of the corporation to oppress it, but they cannot make unconditional and unrestricted use of legal means open to outside creditors. 5 § 635. Exceedingly difficult and complicated questions arise in regard to transactions in which corporate officers, while personally interested adversely to their corporation, contract on its behalf with outsiders, whose interests in the transac- tion may be the same as the personal interests of the contract- ing officers ; and also in regard to transactions in which the same officers act for two adversely interested corporations. § 636. Every person, even though he act in good faith, is i See Harts v. Brown, 77 111. 226; Illinois Steel Co. v. O'Donnell, 156 111. 624. See Rylander v. Sheffield, 108 Ga. Ill, where the text is cited. In this case an injunction to prevent directors from foreclosing a mort- gage held by them was refused. 2 McMurtry u. Temple Co., 86 Ky. 206; Foster p. Sugar Co., 118 Mo. 238; Jones v. Hale, 32 Or. 465. But if the terms of the loan, the rate of interest and security taken, are op- pressive or exorbitant, they may be disaffirmed by the corporation and set aside on repayment of the amount loaned with legal interest. Sutter St. R. R. Co. v. Baum, 66 Cal. 44. 3 See § 759. 4 Hallam v. Indianola Hotel Co. (Sup. Ct. Iowa), 21 Am. Law Reg. N. S. 443. See Butler Paper Co. v. Bobbins, 151 111. 588. 5 See Hallam v. Indianola Hotel Co., supra. But see McMurtry v. Temple Co., 86 Ky. 206. In matters in no way relating to his official po- sition, however, a director may sue a corporation just as a shareholder or any other person having a cause of action against it. Burbank v. West Walker Ditch Co., 13 Nev. 431. And it has been held that a director can plead to a recovery of interest on a loan from his bank to himself, that the interest was agreed on in contravention of the National Bank- 639