Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/660

 § 637.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. invalidity affected with notice of the ireneral rule of law that of tnutsac- ° tiona in an officer cannot bind his corporation by a contract officers are in which he is personally interested. Thus, a gen- interested. eral aat i lor i t y to a bank president to certify checks drawn on it does not extend to checks drawn by himself. Consequently, the face of the check showing the president's attempt to use his official character for his private interest, every one taking it is put on his inquiry ; and when the certi- fication is false, no one can, as a bona fide holder of the check, recover against the bank on the certification. 1 Accordingly, the first question will ordinarily be, did the person contracting with the corporation through its officers, know, or have reason to know, that in the same transaction the officers were personally interested in a way that might lead them to regard their own interests rather than those of the corporation? If this be answered in the negative, and the other contracting parties acted in good faith, they will be pro- tected, having acted on the reasonable assumption that the cor- porate officers were not violating their duty. 2 § 637. In many cases of this nature, however, that have come before the courts, the outside parties have occupied no such favorable and honest position ; but have acted with their eyes only too open, and often have actively combined with the offi- cers to defraud the corporation. Under such circumstances, ing Act. Bank v. Slemmons, 34 Ohio St. 142; compare Lester v. Howard Bk., 33 Md. 558. 1 Claflin v. Farmers' and Citizens' Bk., 25 N. Y. 293. See, also, West St. Louis Bank v. Shawnee County Bank, 95 U. S. 557; McKee v. Grand Rapids, etc., Ry. Co., 41 Mich. 274; Smith v. Los Angeles Im. Ass'n, 78 Cal. 289; cf. Rochester & C. T. R. Co. v. Paviour, 104 N. Y. 281; Ran- dall v. Rhode Isl. Lumber Co., 20 R. I. 625; Hebbard u. So. Land & Cattle Co., 55 X. J. Eq. 18. But it is held that if a person take a note of a corporation executed and indorsed by its president in such a 640 way as to put the purchaser on his inquiry, the purchaser may recover if he can show that, had he made in- quiry, the facts which he would have discovered would have pro- tected him; as, for instance, if the note indicates that the president was about to use the proceeds for his own benefit, plaintiff is protected if there was in fact a resolution of the board of directors authorizing the president so to use the note. Wilson v. Metropolitan El. R'y Co., 120 N. Y. 145. 2 Genesee Savings Bank v. Michi- gan Barge Co., 52 Mich. 438. See §204.