Orr v. South Amboy Terra Cotta Co.

47 Misc. 604, 94 N.Y.S. 524

Opinions

Scott, J.

A note or other obligation given by a corporation to an officer is not necessarily :void on that account. It may be. perfectly lawful and valid. But as it is out of the usual course of business for a corporation to issue its obligations to its- officers, the fact that an obligation is so made suggests that it may be irregular, and consequently a third person taking such an obligation and knowing that the payee is an officer of the maker corporation is put upon his inquiry as to whether or not the obligation has been lawfully issued. There is no reason why this rule should not apply as well to directors as to any other officer. When the note or obligation shows upon its face that it is made to an officer, the note itself conveys the notice to all persons into whose hands it may come. When, as in the present case, it is made to a person without designation indicating that he is an officer, the transferee may or may not know the fact from other sources. If he does know it as the appellants did in this case, he is put upon his inquiry, and if it afterward turns out that the obligation was subject to legal infirmity at its inception he cannot avoid the effect of the infirmity by claiming to be a bona fide holder without notice.

Judgment affirmed, with costs.