Corporations – Officers and Directors – Effect of An Equitable Lien on Directors’ Liability

Defendants, directors of a corporation, appealed from a judgment against them in favor of their company’s creditor. The corporation had executed a note promising to repay plaintiff’s loan out of the funds from a forthcoming stock issue. The board of directors passed a resolution ordering the officers to repay plaintiff in this manner. The money was then spent for other purposes, with the knowledge of the individual directors, after which the corporation became insolvent. On appeal, held, affirmed. The note and resolution imposed an equitable lien on the fund from the stock sale. The corporation’s conversion of this interest permits a corporate creditor to hold the individual directors liable. Emmert v. Drake, (5th Cir. 1955) 224 F. (2d) 299.