general rule a preference may not be given a general creditor of an insolvent corporation, the courts nevertheless allow an apparent preference where the corporation, though insolvent, is still engaging in business. Russe & Burgess v. Miesner Lumber & Mfg. Co. (1922) Mo. App., 243 S. W. 353; Terhune v. Weise (Wash.) supra. Thus, in the case last cited the rule was applied where a plumbing and heating corporation in financial difficulties borrowed money and gave security therefor, so that creditors claimed there was an illegal preference. The court said: "This court has never said, and is now unwilling to say, that where a bona fide transaction is entered into between an insolvent corporation and a person willing to exchange for the company's assets the needed financial assistance, that such agreements are illegal or void for the reason that they constitute a preference. . . Where a present valuable consideration passes to the insolvent corporation from the creditor, the amount paid by, or secured from, the insolvent to such creditor, cannot constitute a preference."

b. To director.

1. Director as creditor.

(a) View that preference may be given.

No later decisions herein. For earlier cases, see annotation in 19 A.L.R. 334. As to security for contemporaneous loan, see annotations in 5 A.L.R. 561, and 19 A.L.R. 1087.

(b) View that preference may not be given.

(1) View stated. (Supplementing annotation in 19 A.L.R. 338.)

The recent decisions on this point follow the great weight of authority, to the effect that a preference by an insolvent corporation to a creditor who is a director is invalid. Re Lamie Chemical Co. (1924) 296 Fed. 24; Bortner v. J. C. Leib Co. (1924) Md. 126 Atl. 890. And see NELSON V. JONES (reported herewith) ante, 85.

In NELSON V. JONES (reported here

with) it is held that an insolvent corporation has no power to grant a preference to the defendant, president, director, and general manager of the corporation, by executing a chattel mortgage on the personal property of the corporation as security for his claims.

It was held in Bortner v. J. C. Leib Co. (Md.) supra, that an insolvent corporation had no right, even with the consent of all of its shareholders, to prefer the claims of one of its officers.

So, it has been said that officers and directors of an insolvent corporation have no right to grant themselves preferences or advantages in the payment of their own claims as against other creditors of the company. Re Lamie Chemical Co. (1924) 296 Fed. 24; STUART V. LARSON (reported herewith) ante, 79.

(2) Exception to view. (Supplementing annotation in 19 A.L.R. 349.)

It has been held, however, that preferences may in good faith be given to officers and directors who are bona fide creditors of an insolvent corporation which is continuing to do business as a going concern. Russe & Burgess v. Miesner Lumber Co. (1922) Mo. App., 243 S. W. 353.

2. Director as surety for debt. (a) View that preference may be given.

No later decisions herein. For earlier cases, see annotation in 19 A.L.R. 350.

(b) View that preference may not be given.

No later decisions herein. For earlier cases, see annotation in 19 A.L.R. 352.

3. Director interested in debt. (a) View that preference may be given.

No later decisions herein. For earlier cases, see annotation in 19 A.L.R. 353.

(b) View that preference may not be given.

No later decisions herein. For earlier cases, see annotation in 19 A.L.R. 354.

against creditors the sale or conveyance of assets of an insolvent corporation, it has been held that an assignment of automobile tires, as security for an overdraft of the corporation's account with a trust company, was void as against other creditors. Evans v. Stanwood Rubber Co. (1923) 94 N. J. Eq. 630, 121 Atl. 2.

7. New York statutes. (Supplementing annotation in 19 A.L.R. 366.)

Interest paid on a note by an insolvent corporation has been held to constitute a preference of creditors, in violation of § 66 of the New York Stock Corporation Law, which prohibits the preference of any particular creditor over another. Re GermanAmerican Improv. Co. (1923) 2 F. (2d) 991, affirmed on other grounds in (1924) 3 F. (2d) 572.

8. North Carolina statute. (Supplementing annotation in 19 A.L.R. 375.)

Without referring to the statute, it was held in Bassett v. Pamlico Cooperage Co. (1924) 188 N. C. —, 125 S. E. 14, that it was an unlawful preference of creditors where a corporation which was practically insolvent and going out of business paid in full all other creditors except the plaintiff.

9. English statute. (Supplementing annotation in 19 A.L.R. 377.)

See Re H. J. Webb & Co. [1922] 2 Ch. 369, 127 L. T. N. S. 373, [1922] W. N. 135, 66 Sol. Jo. 438, 38 Times L. R. 579, 91 L. J. Ch. N. S. 741, [1922] B. & C. R. 162-C. A., wherein it was held that, under the Companies Act of 1908, an insolvent corporation was not authorized to give a preference to a claim of the Crown.

10. Canadian statutes. (Supplementing annotation in 19 A.L.R. 378.)

-

In Canadian Bank v. Treacy [1924] 2 West. Week. Rep. 193, Alberta,, [1924] 2 D. L. R. 759, it was held that the statute (Alberta Rev. Stat. 1922, chap. 149, 10) prohibiting an insolvent corporation from giving a

preference to a particular creditor did not apply where the assignment was with the bona fide intention of continuing business, to pay off all claims, and not to defraud any

creditor.

III. Preference by solvent corporation. (Supplementing annotation in 19 A.L.R. 380.)

Contrary to the prevailing view, it was held in Reid v. Perrow (1923) 136 Va. 449, 118 S. E. 120, that it was an unlawful preference for a creditors' committee of a corporation, solvent, but in financial difficulties, even in good faith, to pay off corporate debts on which they were sureties. The court said: "The resolution of the board of directors which appointed the creditors' committee . . did not undertake to impose upon the committee all of the duties, or to confer upon the committee all of the powers, of the board of directors, but only a limited duty and limited powers. . . . They did not embrace the power to distribute the assets of the corporation in the payment of debts of the corporation existing when the committee was appointed, or any part

or parts of such debts. It is urged that the corporation was not insolvent, . . . it is urged that, in the case of a corporation, the directors, acting in good faith and without any fraudulent intent, may make preferences between creditors of the corporation, even in their own favor, where the directors are themselves creditors of the corporation,citing Planters Bank v. Whittle.(1884) 78 Va. 737, and other authority to the same effect. But these well-settled principles have no application to the case before us, for the reason that we have not before us the case of any preference made or attempted by the debtor corporation in the distribution of its assets between its creditors, through the action of its board of directors, or otherwise. We have before us the attempt of members of a committee of the board of directors of the debtor corporation to act for the corporation in making such a preference, without any authority whatsoever to do, a wholly different situation. The conversion, being without authority and in breach of trust, was wrongful.” R. E. La G.

V.

Corporations, § 360

Corporations, § 359 fund.

assets as trust

2. The assets of an insolvent corporation are a trust fund for the benefit of all its creditors, and no creditor can secure a preference over others.

[See 7 R. C. L. 198, 756, 757; 2 R. C. L. Supp. 310.]

Corporations, § 358 - extending assistance to insolvent to insolvent corporation for security.

3. A bona fide transaction by which one exchanges needed financial assistance to an insolvent corporation for an assignment of its assets is not illegal or void because constituting a preference.

Plumbing & Heating Company, in 1922, and, being in need of additional funds with which to carry on his business, made an arrangement with the appellant to advance money to him. This agreement was reduced to writing, and provided that the appellant should furnish $1,000, or such additional sums as might be desired, to be used by Vaughn for the purpose of obtaining materials and supplies and paying for labor upon his plumbing and heating contracts; that for the use of such money Weise was to receive, in lieu of interest, the cash discounts obtained upon materials and supplies purchased. To secure the repayment of the advances, Weise was to have all lien rights for materials or labor which Vaughn might acquire under his contracts, and, as further security to be given by assignment, 60 per cent of the accounts receivable and other rights in contracts entered into by Vaughn, "upon which material, supplies, and labor which have been paid for or agreed to be paid for by the said second party [Weise] are used, and the party of the first part [Vaughn] further agrees to execute such further assignment or assignments as may be necessary or proper for carrying out the foregoing provisions in particular cases."

The

agreement then provides that Weise should make the collections on the contract, and retain from from the amount collected a sum sufficient to reimburse him for material and labor for which he had paid, up to an amount not in excess of 60 per cent of the contract price, and if, in any case, the 60 per cent should not be sufficient to reimburse him, then he should have a right to deduct from future collections such amounts in addition as might be necessary to reimburse him for the deficiencies. The agreement then states that it is contemplated by the parties that a corporation might be formed to take over Vaughn's business, and in that event Vaughn agreed to assign the contract to the corporation, and cause the corporation to assume

his obligations thereunder, and that Weise should become secretary and treasurer of the corporation. Thereafter the Commercial Plumbing & Heating Company was incorporated and assumed the contract, and subsequently went into the hands of the respondent, as receiver.

The case is here without a statement of facts, and solely upon the findings of fact, conclusions of law, and judgment. The findings, after setting forth the agreement which has been outlined, proceed to state that at the time the corporation accepted the Vaughn-Weise contract it was without funds to conduct its business, and its assets were of very little value; that, pursuant to the agreement, Weise furnished to the corporation at different times $6,000, which sum was used by the company for the purchase of materials and the payment of labor upon various plumbing and heating contracts of the company; that, under the terms of the contract, Weise received, from one to two months after he had advanced the funds, assignments of contracts upon which he collected and retained payments to apply upon his advances; that Weise acted as secretary and treasurer of the company, and that the company was insolvent and unable to pay its debts in the usual course of business, and this fact was known to Weise, and at the time the assignments were actually made the company was insolvent and known to be such by Weise; that Weise received in assignments and collections made thereunder sufficient to reduce the company's indebtedness to him to the sum of $3,027. The court concluded from these facts that the contract was void, and entered judgment against Weise for the recovery of the amount which he had received under the assignments.

It is urged in support of the judgment that the contract between the company and the appellant was illegal, as being in fraud of creditors, that it violated the trust-fund theory, that it was against public pol