#### George Orr and William Orr, Appellants, *v.*The South Amboy Terra Cotta Co., Respondent.

(Supreme Court, Appellate Term,

June, 1905.)

Negotiable instruments — Note of corporation to director — Bona fide holder.

Where the transferee of a promissory note made by a corporation knows that the payee is a director of the corporation, he is put upon inquiry and cannot avoid the effect of any legal infirmity in the note at its inception, by claiming to be a *Iona fide*holder without notice.

(MacLean, J., dissented..)

*605Appeal by plaintiffs from a judgment in favor of defendant entered in the City Court of the city of New York, and also from an order denying a motion for a new trial.

Seth B. Robinson (Alexander S. Bacon, of counsel), for appellants.

Emmet & Robinson (Grenville T. Emmet, of counsel), for respondent.

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.

Dugro, J.

I am of the opinion that the law ought to be as Mr. Justice MacLean suggests but that it is as Mr. Justice Scott decides, therefore, I concur.

MacLean, J.

(dissenting). Affirmance of the judgment herein involves disregard of the exception to the refusal to charge upon request of the defendant: The mere fact known *606to the purchaser that Poerschke was a director of the corporation is not sufficient to throw discredit on the note or put a *bona fide*holder upon his inquiry. Had this request been submitted in writing instead of *ore tenus*its ingenuity under the surroundings might have been more noticeable and have been followed by other instructions. Circumstances quite sufficient to put the taker upon his inquiry had been testified to in a way likely to impress those who heard the testimony and also those who perused it in the printed case. The jury, however, were not bound to believe it. If by their disbelief it was eliminated, the overt refusal to charge the request amounted practically to an- instruction as the laiv that where a person has sold or has discounted a note of a corporation, in which he is a director to the knowledge of the other party, bank or tradesman, contractor creditor, the latter, it is to be held, had actual “ knowledge of such facts that his action in taking the instrument amounted to bad faith.” Ueg. Inst. Law, § 95 (L. 1897, ch. 612). To that-1 am not willing to subscribe until it has been authoritatively decided in a case directly involving the point, rather than indicted by general expressions in cases where executive officers of corporations have issued paper to themselves. In such cases the appearances of evil are more patent and they may be saved even in them by perfunctory inquiry. Wilson *v.*Metropolitan El. R. Co., 120 N. Y. 152. That dealings between corporations and their directors are sometimes disadvantageous, even fraudulent and corrupt, is too well known. It is still better known that they are most commonly for the advantage of the corporation themselves. Directors are selected and put upon boards of banks, of manufacturing concerns and of companies generally for the advantage they bring. ' In particular as to dealings in commercial paper their indorsements are often asked upon offering for discount and upon paper given in the ordinary course of business, not for the sake of their individual credit but frequently, well nigh generally, because of their supposed knowledge respecting the corporation’s solvency of which their indorsements are practically guarantees.

Judgment affirmed, with costs.