Case Name: ORR et al. v. SOUTH AMBOY TERRA COTTA CO.
Court: New York Supreme Court, Appellate Term
Jurisdiction: New York
Decision Date: 1905-06-28
Citations: 94 N.Y.S. 524
Docket Number: 
Parties: ORR et al. v. SOUTH AMBOY TERRA COTTA CO.
Judges: 
Reporter: West's New York Supplement
Volume: 94
Pages: 524–525

Head Matter:
ORR et al. v. SOUTH AMBOY TERRA COTTA CO.
(Supreme Court, Appellate Term.
June 28, 1905.)
Corporations—Transactions with Officers—Execution of Notes—Validity—Notice of Infirmities.
A note or other obligation given by a corporation to an officer or director is not necessarily void, but, as it is out of the usual course of business, a third person taking the obligation, and knowing either from recitals on its face or from extrinsic facts that the payee is an officer of the maker, corporation, is put upon inquiry as to whether or not the obligation has been lawfully issued; and, if it is subject to any legal infirmity, he cannot avoid the effect thereof by claiming to be a bona fide holder, without notice.
MacLean, J., dissenting.
Appeal from City Court of New York, Trial Term.
Action by George Orr and another against the South Amboy Terra Cotta Company. From a judgment for defendant, and from an order denying a new trial, plaintiffs appeal.
Affirmed.
See 92 N. Y. Supp. 521.
Argued before SCOTT, P. J., and MacLEAN and DUGRO, JJ.
Seth B. Robinson (Alexander S. Bacon, of counsel), for appellants.
Emmet & Robinson (Grenville T. Emmet, of counsel), for respondent.

Opinion:
SCOTT, P. 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 afterwards 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 MacLEAN, J., suggests, but that it is as SCOTT, P. J., decides. Therefore I concur.