Bacon, Dawson & Co. v. Farmers' Bank

GILL, J. Plaintiffs were copartners and engaged at Chicago in loaning money to stock feeders. The Earmers’ Bank of King City was a corporation organized under the banking laws of this state. In October, 1895, said plaintiffs loaned to one Oates at King City, Missouri, the sum of $1,600 and took Cates’ note, payable ninety days after date to the order of said Bacon, Dawson & Company, and to secure the same Cates executed to said payees a chattel mortgage on a lot of cattle. The loan was effected through a correspondence between plaintiffs at Chicago and D. E. Bobertson, cashier of the King City bank; and by agreement between the parties, said Robertson, as cashier, undertook to guaranty the payment of the Oates note, and for that purpose wrote the following indorsement on the back thereof: “We guarantee payment of this note at maturity or any time thereafter, waiving notice of protest and demand. (Signed.) D. E. Robertson, Oas’r.” After the execution of the papers at King City, Missouri, Robertson forwarded them by mail to plaintiffs at Chicago, the money was paid over and the same went to the satisfaction of a former debt owing by Oates to the King City bank. Cates failed to pay the $1,600 note when it matured and plaintiffs were enabled to realize only about $600 out of the mortgaged cattle. In the meantime the King City bank had become insolvent and made an assignment for the benefit of its creditors. Thereupon plaintiffs presented a demand to the assignee, claiming the bank was indebted to them for the balance due on the note, amounting to something over $1,000, basing said claim on the writing indorsed by Bobertson as cashier on the back of the Cates note. The assignee disallowed the claim; and on an appeal to the circuit court, where the case was tried by the court without a jury, a like judgment was had in defendant’s favor, and from this plaintiffs have appealed. [410] Banks and bankcaIiiiPer7er of guaranty. The case turns on the authority of the cashier of the Farmers’ Bank of Xing City to bind it by the written guaranty indorsed by said cashier on the back the note made by Cates to Bacon, Dawson & Company. The trial court held that the kajjj was not bound by the pretended guar- anty of the cashier, and we are of the same opinion. It was an attempt by the cashier to pledge the bank’s credit for the benefit and accommodation of Cates.Neither the bank, its cashier, or any officer thereof, had authority to make such a contract. It was not the case of an ordinary discount of paper payable to the bank, or owned by it, and which the bank' or its officers might indorse and dispose of. On the other hand the transaction was between Bacon, Dawson & Company and Oates; the latter was seeking to borrow money from the former, made his note and mortgage to them for that purpose, and the cashier comes forward and attempts to loan the credit of his bank for the benefit of the borrower. This was not within the scope of the bank’s business; it was not organized to conduct business of that character. It had only such powers as were granted expressly or impliedly by its charter — the statute of the state; and among these will not be found authority to go security for another in a case like this. “Lending credit is the exact opposite of lending money, which is the real business of a bank, for while the latter creates a liability in favor of the bank, the former gives rise to a liability of the bank to another. It is uniformly held, therefore, that a bank can not be an accommodation indorser -x- -x- -x- nor ke gurety for another in any business in which it has no interest and can derive no profit.” 1 Morse on Banks and Banking [3 Ed.], sec. 65. “Unless a corporation is expressly authorized to become a party to accommodation paper, it has not the power to bind itself by its issue, for accommodation paper can not be considered [411] to be issued iri the course of the regular business of the corporation, unless the corporation has been expressly authorized, and has been expressly created, to do that hind of business. * * * The same rule applies to. corporations becoming guarantors or sureties for another. Unless expressly authorized, their guaranties are ultra vires, and therefore illegal acts.” Tiedeman on Com. Pap., sec. 116. See, also, title “Accommodation Paper,” 1 Am. and Eng. Ency. of Law [2 Ed.], and authorities there cited. The author thus states the rule (page 348) : “A corporation has no power to bind itself by becoming an acceptor, maker or indorser of accommodation paper for the benefit of other persons or corporations, even though a consideration is received for the loan of its credit upon the paper. And since the corporation itself has no such power, of course it can not authorize its officers to bind it by making or indorsing such paper.” See, also, 7 Am. and Eng. Ency. Law [2 Ed.] 788. And under these authorities, it can make no difference that the party accommodated uses the money borrowed, as here, for the payment of a demand which the accommodation indorser holds against the party for whose benefit the pretended promise is made. Gillespie v. Campbell, 39 Fed. Rep. 724; Youngs v. Ball, 9 Watts (Pa.) 139; 7 Am. and Eng. Ency. Law [2 Ed.] 789. The judgment is for the right party and will be affirmed. All concur.