Case Name: LOUIS DE JONGE & COMPANY v. THE WOODPORT HOTEL AND LAND COMPANY
Court: New Jersey Supreme Court
Jurisdiction: New Jersey
Decision Date: 1909-02-23
Citations: 77 N.J.L. 233
Docket Number: 
Parties: LOUIS DE JONGE & COMPANY v. THE WOODPORT HOTEL AND LAND COMPANY.
Judges: Before Gummeke, Chibe Jostioe, and Justices Swayze and TeeNCi-iaRd.
Reporter: New Jersey Law Reports
Volume: 77
Pages: 233–235

Head Matter:
LOUIS DE JONGE & COMPANY v. THE WOODPORT HOTEL AND LAND COMPANY.
Argued November 4, 1908
Decided February 23, 1909.
1. Section 59 of the Negotiable Instrument act of April 4th, 1902, declares that every holder of a promissory note shall be deemed prima facie to be a holder in due course, i. e., among other things, that he took the note in good faith and for value, without notice of any infirmity in the instrument, or defect in the title of the person negotiating it; but provides that when it is shown that the title of the person who has negotiated it was defective, the burden shall be upon the holder to prove that he or some person under whom he claims acquired the title as a holder in due course. By force of this statutory provision a corporate defendant in an action brought against it by an endorsee is entitled to show (for the purpose of overcoming the presumption that the plaintiff is a “holder in due course”) that the note in suit was executed without authority by its treasurer in discharge of his own personal debt.
2. The giving by the treasurer of a corporation of a promissory note of the corporation in payment of his individual debt is, prima facie, unlawful; and unless his act is authorized or ratified by the corporation the note is void in the hands of the payee.
On error to Morris County Circuit Court.
Before Gummeke, Chibe Jostioe, and Justices Swayze and TeeNCi-iaRd.
For the plaintiff in error, Elmer King.
For the defendants in error, Willard W. Cutler.

Opinion:
The opinion of the court was delivered by
Gummere, Chief Justice.
This suit was brought upon a promissory note dated August 16th, 1906, for $750, payable twelve months after date to the order of C. I. McLoughlin, and signed "The Woodport Hotel & Land Co., Thomas Bright, Treas.," and endorsed by McLoughlin to the plaintiffs. At the trial the plaintiffs proved that the signature to the note was written upon it by Thomas Bright; that Bright was then the treasurer of the defendant company, and that they became the holders of the note before maturity. Plaintiffs then rested.
On the part of the defendant it was opened to the jury that the note in suit was made by Bright without authority from the defendant; that it was not given to secure any obligation of the company, but in payment for a motor boat purchased by Bright for his own use from McLoughlin, and that the plaintiffs took the note with knowledge of these facts. Thereupon the trial court directed counsel for the defendant to first put in his proofs relating to the knowledge of the plaintiffs as to the consideration for which the note was given, before proving the transaction itself. This course being pursued the court considered that the proofs submitted did not justify the conclusion that the plaintiffs knew, when they took the note, or had any reason to believe that it was not an obligation of the defendant company, and held that as the defendant had failed to show that the plaintiffs were not Iona fide holders for value, it was not entitled to prove the real consideration of the note. Holding this view the court then directed a verdict for the plaintiffs for the full amount of the note with interest. Upon this ruling and instruction the defendant assigns error.
The exclusion of proof that the note in suit was given by the defendant's treasurer to pay his own individual debt, without authority from the defendant, resulted from a misconception of the respective rights of the parties, as established by the law relating to negotiable instruments. By force of section 59 of the Negotiable Instrument act (Pamph. L. 1902, p. 594) every holder of a promissory note is deemed prima fade to be a holder in clue course, i. e., among other things, that he took the note in good faith, and for value, without notice of any infirmity in the instrument, or defect in the title of the person negotiating it, but that section further provides that when it is shown that the title of the person who has negotiated the instrument was defective, the burden is on the holder to prove that he, or some person under whom he claims, acquired the title as a holder in due course. The effect, therefore, of the rejected proof, would have been to destroy the then existing presumption that the plaintiffs were "holders in due course," and to throw upon them the burden either of proving that fact or of overcoming the proof of the defendant that the note was given for Bright's personal debt, and that his act in making it was not authorized or ratified by the company, provided that the making of the note under the conditions recited rendered it invalid in the hands of McLoughlin, the payee. That it did have such effect is beyond dispute. It is a settled rule of commercial law that one who receives from an officer of a corporation the note of such corporation in payment of, ot as security for, a personal debt of such officer, does so at his peril. Prima facie the act is unlawful, and unless actually authorized or ratified by the corporation, such note is void in the hands of the payee. Wilson v. Metropolitan, &c., Ry. Co., 120 N. Y. 145; Rochester, &c., Turnpike Co. v. Paviour, 164 Id. 281; Campbell v. Manufacturers National Bank, 38 Vroom 301.
The exclusion of the offered testimony was harmful error, and for this reason the judgment under review must be reversed.