Cent. Metro. Bank v. Chippewa Cnty. State Bank

• Decision Date: 27 June 1924
• Docket Number: No. 24043.,24043.
• Citation: 160 Minn. 129,199 N.W. 901
• Parties: CENTRAL METROPOLITAN BANK v. CHIPPEWA COUNTY STATE BANK.
• Court: Minnesota Supreme Court

160 Minn. 129

199 N.W. 901

CENTRAL METROPOLITAN BANK

v.CHIPPEWA COUNTY STATE BANK.

No. 24043.

Supreme Court of Minnesota.

June 27, 1924.

Appeal from District Court, Chippewa County; G. E. Qvale, Judge.

Action by the Central Metropolitan Bank against the Chippewa County State Bank. From an order denying its motion for amended findings and for judgment or for a new trial, defendant appeals. Affirmed.

Syllabus by the Court

Record examined, and held: (1) That transaction was between plaintiff and defendant; (2) that notes sued on were included in guaranty given to plaintiff; (3) that an indorsement ‘without recourse’ on a negotiable instrument protects the indorser against liability by reason of the indorsement, but has no tendency to relieve the indorser from his obligation arising from his separate contract of guaranty; (4) that such indorsement does not prevent the indorser from assuming liability by some other written contract of guaranty.

The president of a local bank was also secretary and treasurer and a large stockholder in a manufacturing corporation, a customer of the bank, and the bank was carrying a large amount of its paper. The customer negotiated a line of credit for discounting its paper with plaintiff bank, who declined unless the paper came through the local bank and was guaranteed by it. The president of the local bank, in its behalf, signed a guaranty of such paper without any resolution of authority from the board of directors or stockholders, and caused a letter in detail to be written to plaintiff, inclosing the guaranty, and procured the cashier's signature thereto, without his reading it. Paper to the extent of $50,000.00 was turned over and much returned and replaced and considerable business transacted between the two banks in reliance on the guaranty. In suit on guaranty, held: (a) That, if the president had adverse interests and was the sole representative of the local bank in this transaction, his knowledge would be the knowledge of the local bank of which he was president; (b) that, if the cashier was a party to the transaction, his knowledge would be the knowledge of the bank; (c) that the bank is chargeable with all the knowledge its cashier would have reasonably acquired had he read the letter which he signed and given its contents the ordinary attention that its importance required; (d) that the local bank, under such circumstances, is estopped from questioning the validity of the contract of guaranty. H. V. Mercer, Johnson & Co., of Minneapolis, and C. A. Fosnes, of Montevideo, for appellant.

Christofferson, Walsh, Christofferson & Jackson, of St. Paul, and Oluf Gjerset, of Montevideo, for respondent.

WILSON, C. J.

This is an action brought to recover $6,291.41 and interest according to the tenor of 13 promissory notes aggregating that amount. Plaintiff is a banking corporation in St. Paul, and the successor of the Metropolitan Bank, and all transactions with the latter will be referred to as with the plaintiff. Defendant is a banking corporation at Montevideo.

On November 16, 1920, the Moyer Manufacturing Company was a corporation engaged in business at Montevideo, and was a customer of defendant. In September, 1920, some negotiations took place between the Moyer Manufacturing Company and plaintiff, in which plaintiff was solicited to carry some of its notes or trade acceptances. Plaintiff refused to do this unless through the defendant bank, and upon the written guaranty of defendant guaranteeing payment of such paper.

Lloyd G. Moyer was secretary and treasurer and a large stockholder in the Moyer Manufacturing Company. He was also president of defendant bank. His son, Malcolm B. Moyer, was president of the Moyer Manufacturing Company, but was not in any way connected with the defendant bank, which was operated by its officers, the said Lloyd G. Moyer, president, S. L. Moyer, vice president, Victor Freeberg, cashier, B. A. Whitmore, assistant cashier. These four men, together with Iver Larson, a local merchant, constituted the board of directors. The written guaranty is signed by defendant through its president. This guaranty relates to paper which plaintiff was purchasing of defendant up to $35,000, and it says that defendant will carry a balance with plaintiff in its regular checking account of an amount equal to at least 75 per cent of the amount of paper which plaintiff is holding under this arrangement. This guaranty also authorizes plaintiff to charge all such notes against the defendant's account without notice if the contract was violated. This account was opened November 18, 1920, with a deposit of acceptances aggregating $20,219.03. This account was active, but total deposits were only about $50,000; all deposits were paper of Moyer Manufacturing Company owned by defendant bank. These notes would be turned back to defendant about seven days prior to maturity and charged back to defendant's account on plaintiff's books. Defendant would send in other paper from time to time. The amount returned seven days before maturity totaled about $27,000. There were 25 or 30 transactions returning notes, usually sending three or four notes at a time. The return of an item in this way was a closed transaction with plaintiff. The account was closed and the notes in this suit remained unpaid. Most of the notes were indorsed by defendant without recourse. One note was indorsed by the payee, Moyer Manufacturing Company, but not by the bank. This note, however, was a renewal.

Defendant in its answer claims that this was a transaction between plaintiff and Moyer Manufacturing Company, and that defendant was a mere agency between them. It claims that the guaranty was unauthorized and void, and that defendant stood upon its indorsement without recourse.

The case was tried to the court without a jury. The court found for the plaintiff. He found the allegations of the complaint true, and then added this language:

‘That, although the defendant's contract of guaranty of the payment to plaintiff of the notes described in the complaint, as well as the guaranty of payment of numerous other notes, was not authorized by any resolution of the board of directors of the defendant, still the defendant was aware of its existence and it had had and received benefits from and under said contract.’

Defendant has appealed from an order denying its motion for amended findings and for judgment or for a new trial.

The appellant has made a number of assignments of error, but the conclusion which we have reached in the ones discussed by us makes it unnecessary to discuss all of them.

[1] The claim that this transaction was between plaintiff and the Moyer Manufacturing Company is without merit. The correspondence and testimony established beyond question that the defendant was the party plaintiff was dealing with, and that there are elements of this transaction that were essentially advantageous to defendant. It was being aided in carrying the paper of a customer. It was in no sense the agent of a disclosed principal as suggested in the appellant's brief.

It is also claimed that the notes now unpaid and held by plaintiff are not included in the guaranty, and that these notes, and particularly the ones which were indorsed and delivered subsequent to the delivery of the first paper, amounting to $20,219.03, were controlled entirely by the special...