Lyon, Potter & Co. v. First Nat. Bank

• Citation: 85 F. 120
• Decision Date: 03 January 1898
• Docket Number: 919.
• Parties: LYON, POTTER & CO. v. FIRST NAT. BANK OF SIOUX CITY, IOWA.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

85 F. 120

LYON, POTTER & CO. v. FIRST NAT. BANK OF SIOUX CITY, IOWA.

No. 919.

United States Court of Appeals, Eighth Circuit.

January 3, 1898

This was an action brought by the First National Bank of Sioux City, the defendant in error, against Lyon, Potter & Co., a corporation the plaintiff in error, upon a promissory note of $5,000, made by C. H. Martin Company, a corporation, payable to the order of C. H. Martin, indorsed by Lyon, Potter & Co. and then discounted by the bank at the request of Martin. The defense of Lyon, Potter, & Co. was that its indorsement was made for the accommodation of C. H. Martin, without consideration, and that this indorsement was beyond its powers, and beyond the powers of its treasurer, E. A. Potter who signed its name; that C. H. Martin did not indorse his name upon the note until after its maturity; and that the bank had notice that its indorsement was for the accommodation of Martin before it discounted the note. The bank replied to this defense that George W. Lyon and E. A Potter were the active stockholders and managers of Lyon Potter & Co., which was a commercial corporation, whose principal business was the selling of pianos and other musical instruments; that to increase the business of this corporation Lyon and Potter organized the corporation called the C. H. Martin Company whose sole business was to sell in the state of Minnesota the musical instruments furnished to it by Lyon, Potter & Co.; that Lyon and Potter owned or controlled all the stock of this corporation; and that the proceeds of the discount of the note in suit were paid over to the plaintiff in error, which thus obtained the benefit of its indorsement. At the trial the plaintiff in error established the fact that Martin did not indorse his name upon the note until after its maturity. There was also evidence tending to show these facts: The C. H. Martin Company was a corporation selling musical instruments at St. Paul, which had issued capital stock to the amount of $10,000. Lyon held $5,000, Potter $500, and Martin $4,500 of this stock, and Martin was the president and Potter was the secretary and treasurer of the corporation. Potter was also the treasurer of Lyon, Potter & Co., and the officer of that corporation who had the power to make and indorse commercial paper in its behalf in the ordinary course of its business. About the 1st of each month, Martin, who was engaged in managing the business of C. H. Martin Company at St. Paul, made a statement to Potter, who was engaged in conducting the business of Lyon, Potter, & Co. at Chicago, of the amount of the liabilities of C. H. Martin Company, and the dates when its debts matured. About May 2, 1891, Martin visited Chicago, and there told Potter that $5,000 would be required to pay the liabilities of C. H. Martin company, which were maturing about the 1st of that month. Fifteen hundred dollars of this amount was due upon a promissory note which had been previously made by C. H. Martin Company, and indorsed by Lyon, Potter & Co., and which was payable at Sioux City, in the state of Iowa; and $2,000 of it was owing to Lyon, Potter & Co. on the current account of C. H. Martin Company. C. H. Martin Company had no money to pay these maturing obligations. Potter asked Martin if he thought he could borrow this $5,000 of the First National Bank of Sioux City upon a note made by C. H. Martin Company, and indorsed by Lyon, Potter & Co., and Martin replied that he thought he could do so. Thereupon, the note in suit was made by C. H. Martin Company, was indorsed by Lyon, Potter & Co., and was taken by Martin to Sioux City, where he met the cashier of the defendant in error, told him that there were notes of C. H. Martin Company, indorsed by Lyon, Potter & Co., falling due, and that the C. H. Martin Company owed Lyon, Potter & Co., on account an amount which he expected to pay out of the proceeds of this note, and asked him to have the defendant in error discount it, to enable him to make these payments. The cashier granted his request, and out of the proceeds of the discount of this note which he obtained from this bank Martin paid the note for $1,500 made and indorsed by the same parties as this note, paid Lyon, Potter & Co. $2,000 on account of the indebtedness of C. H. Martin Company to it, and used the remaining $1,500 in paying other debts of his corporation. When he discounted the note he intended to indorse it, and the bank supposed he had done so, but in fact he did not do so until about 10 days after the note became due. At the close of the trial the jury returned a verdict for the bank, and the writ of error challenges some of the rulings of the court upon this trial.

William Connor (James B. Weaver, Jr., on the brief), for plaintiff in error.

Joseph S. Lawrence (J. S. Swan, C. M. Swan, A. B. Cummins, James P. Hewitt, and Craig T. Wright, on the brief), for defendant in error.

Before SANBORN, and THAYER, Circuit Judges, and PHILLIPS, District Judge.

SANBORN Circuit Judge, after stating the facts as above, .

The blank indorsement of a promissory note by a party who is neither a payee, indorsee, nor assignee thereof is declared by the statutes of the state of Iowa to constitute a guaranty of the payment of the note by the indorser. McClain's Code of Iowa, § 3265. Lyon, Potter & Co. therefore appeared to be an accommodation indorser or guarantor of the payment of the note in suit upon the face of the paper. That note, when it was presented to the bank for discount with this blank indorsement upon it, must, in view of the statute of the state of Iowa to which we have referred, be deemed to have been notice to the defendant in error that the presumption was that Lyon, Potter, & Co. was an indorser of the note without consideration for the accommodation of another, or a mere guarantor of the payment of the note. Bank b. Remsen, 158 U.S. 337, 344, 15 Sup.Ct. 891; Bloom v. Helm, 53 Miss. 21; Hendrie v. Berkowitz, 37 Cal. 113; Stall v. Bank, 18 Wend. 466; Overton v. Hardin, 6 Cold. 375; Lemoine v. Bank, 3 Dill. 44, Fed. Cas. No. 8,240; Erwin v. Shaffer, 9 Ohio St. 43; 1 Daniel Neg.Inst. § 365; 1 Edw.Bills & N.p. 105, Sec. 104. This presumption, however, was not conclusive, and the question was open for the consideration of the jury, under the evidence, whether the plaintiff in error indorsed the note in consideration of some benefit to itself, or without any consideration, and for the sole benefit of Martin, or of the C. H.

Martin Company. Lyon, Potter & Co. was a trading corporation. It and its treasurer, Potter, who indorsed its name upon this note had the power to make and indorse commercial paper with the name of this corporation for its benefit in the ordinary course of its commercial business. But neither of them had the power to make or indorse such paper in the name of the corporation without consideration, and for the sole benefit of another. It is ultra vires of a commercial corporation and its officers to make accommodation paper, or to guaranty the payment of the obligations of others. National Park Bank v. German American Mutual Warehouse & Security Co., 116 N.Y. 281, 292, 22 N.E. 567; Central Bank v. Empire Stone Dressing Co., 26 Barb. 23; Bridgeport City Bank v. Empire Stone Dressing Co., 30 Barb. 421; Farmers' & Mechanics' Bank v. Empire Stone Dressing Co., 5 Bosw. 275; Morford v. Bank, 26 Barb. 568; Bank of Genesee v. Patchin Bank, 13 N.Y. 309; Aetna Nat. Bank v. Charter Oak Life Ins. Co., 50 Conn. 167; Monument Nat. Bank v. Globe Works, 101 Mass. 57; Davis v. Railroad Co., 131 Mass. 258; Culver v. Real-Estate Co., 91 Pa.St. 367; Hall v. Turnpike Co., 27 Cal. 255; Madison W. & M. Plank-Road Co. v. Watertown & P. Plank-Road Co., 7 Wis. 59; Lucas v. Transfer Co., 70 Iowa, 541, 549, 30 N.W. 771. An indorsement of this character, however, is not malum in se, is not prohibited by statute, and is not beyond the general scope of the powers of such a corporation. It is merely an excessive exercise of one of those powers,-- an excessive exercise of the power of which it has, in proper cases, to make and indorse commercial paper. Where such an indorsement has been apparently made for the benefit of the corporation, and has been in fact made partly for its own benefit and partly for the accommodation of another, and the corporation has received and retained the benefits of the indorsement, the contract is not void, because it is no defense for a private corporation against the enforcement of an executed contract whose benefits it holds that, while its execution was within the general scope of its powers, it involved an excessive exercise of one of them. While such a corporation...