§  56.]  RIGHTS   0?   BONDHOLDERS. 85

ness  of  a  railroad  company,  it  has  been  held  that  the  purchaser  of
bonds  of  one  company  guarantied  by  another  is  bound  to  inquire
into  the  corporate  powers  of  the  guarantor  company. In  other
words,  the  commercial  character  of  the  bond  and  guaranty  do  not
relieve  a  purchaser  from  the  risk  of  the  want  of  corporate  au-
thority to  execute  the  bonds ;  and  although  a  purchaser  for  value
and  without  actual  notice  of  the  want  of  authority,  he  will  not  be
accorded  the  rights  of  an  innocent  purchaser  as  regards  tlic  obli-
gation of  the  guaranty,-^

§  50. Bona  Fide  Holders  of  Corporate  Bonds  protected  if  Issue  -was
merely  irregular. —  In  the  courts  of  this  country  and  of  England
the  law  is  settled  that,  where  the  corporation  has  power  under
any  circumstances  to  issue  negotiable  securities,  a  bona  fide  holder
has  a  right  to  ])resume  that  they  were  issued  under  the  circum-
stances which  give  the  requisite  authority .^

The  distinction  is  between  limitations  and  conditions  in  the
statute  from  which  the  corporation  derives  its  powers  —  external
matters  of  which  the  public  had  notice  by  the  public  record  —  and
acts  to  be  done  by  the  corporation  or  its  officers,  as  conditions
precedent  to  the  making  of  such  securities,  in  the  internal  affairs
of  the  company .2

The  most  common  example  of  the  rule  that  a  lona  fide  holder
is  not  obliged  to  take  notice  of  the  "  indoor  management  of  the
company"  is  found  in  that  class  of  cases  where  certain  formalities
in  the  making  of  corporate  contracts  are  prescribed  for  the  secu-
rity of  the  stockholders. It  is  well  settled  that  the  non-observance

1  Louisville,  etc. R. Co. v. Ohio  Valley  capital  was  subscribed  and  paid  up  to  the
Improvement,  etc. Co. (ISQ-l),  69  Fed. Rep. extent  demanded  by  the  charter. The
431. The  Indiana  statute,  under  which  bonds  were  secured  by  a  mortgage,  exe-
this  case  was  decided,  provided  that  the  cuted  with  all  due  formalities,  and  having
directors  of  a  railroad  company  might,  on  its  face  every  appearance  of  having
upon  the  petition  of  the  holders  of  a  been  made  in  strict  pursuance  of  the
majority  of  the  stock  of  the  company,  power  of  the  company. 