McCornick & Company v. Citizens Bank of Hutchinson

• Decision Date: 10 June 1924
• Docket Number: 24007
• Parties: McCORNICK & COMPANY v. CITIZENS BANK OF HUTCHINSON, KANSAS, Appellant
• Court: Missouri Supreme Court

263 S.W. 152

304 Mo. 270

McCORNICK & COMPANY v. CITIZENS BANK OF HUTCHINSON, KANSAS, Appellant

No. 24007

Supreme Court of Missouri

June 10, 1924

Appeal from Jackson Circuit Court; Hon. Thomas B. Buckner Judge.

Affirmed.

James A. Goodrich, Lebrecht & Kaspar and Milford W Rider for appellant.

(1) A Kansas state bank has no power to lend its credit by guaranteeing obligations of another thereafter to be created. Sec. 514, General Statutes Kansas 1915, as amended by Secs. 1 and 2, Chap. 79, Laws of Kansas 1917; Sec. 556, General Statutes Kansas, 1915; Ingersoll v. Kansas State Bank, 202 P. 837, 110 Kan. 122; Long Bros. v Hubbard, 6 Kan.App. 878; Cattle Co. v. Loan Co., 65 Kan. 359. (2) The trial court erred in its finding that the issue of such guaranty was not ultra vires. Sec. 514, General Statutes Kansas 1915, as amended by Secs. 1 and 2, Ch. 79, Laws of Kansas 1917; Sec. 556, General Statutes Kansas, 1915; Ingersoll v. Kansas State Bank, 110 Kan. 122; Long Bros. v. Hubbard, 6 Kan.App. 878; Cattle Co. v. Loan Co., 63 Kan. 359; Sponge Exchange Bank v. Commercial Credit Co., 263 F. 20; Greely v. Bank, 63 N.H. 145; Willet v. Bank, 107 Iowa 69; Laidlaw v. Pacific Bank, 137 Cal. 392, 70 P. 277; Met. Stock Exchange Bank v. Bank, 76 Vt. 303, 57 A. 101; Appleton v. Bank, 190 N.Y. 417; Franklin Company v. Bank, 68 Me. 43, 28 Am. Rep. 9; McGee on Banks & Banking (3 Ed.) sec. 361, p. 690; 1 Morse on Banks & Banking, sec. 365. (3) Under the law of Kansas the doctrine of estoppel to set up ultra vires as a defense to liability on contract, because the other party has fully performed the contract or because defendant has received the benefits of performance by the other party, has no application to the case of officers of a bank attempting to lend its credit by guaranteeing obligations of another thereafter to be created. Tracy Loan & Trust Co. v. Merchants Bank, 167 P. 353; Bowen v. Needles National Bank, 94 F. 925; Bacon v. Bank, 79 Mo.App. 406; National Bank of Moscow v. Am. Bank, 173 Mo. 153; Ingersoll v. State Bank, 202 P. 837, 110 Kan. 122; State ex rel. Hadley v. Bankers Tr. Co., 138 S.W. 669.

McCune, Caldwell & Downing for respondent.

(1) Even if the issuance of said guaranty of November 18th were considered to be ultra vires or beyond the power of the officer who executed it, defendant, having received benefits from it, is estopped from setting up the defense of ultra vires or want of authority and cannot avail itself of those defenses. The defense of ultra vires must yield to considerations of right and justice. Sec. 11829, G. S. Kansas 1915; Harris v. Independence Gas Co., 76 Kan. 750; Sherman Center Town Co. v. Russell, 46 Kan. 382; Hanna v. Ry. Co., 89 Kan. 503; Saylors v. State Bank of Allen, 99 Kan. 515; Ballard v. Bank, 91 Kan. 91; Security Natl. Bank v. McCutcheon, 106 Kan. 303; Avery v. Moore, 87 Kan. 337; Jones & Brother v. Kuhn, 34 Kan. 414; 3 Fletcher Enc. Corp., secs. 1592, 1596. (2) The Kansas decisions and statutes relied upon by appellant convict the trial court of no error. (3) The decisions cited by appellant from jurisdictions other than Kansas do not rule this case, because the so-called Federal rule pertaining to ultra vires is not the law of Kansas. Harris v. Independence Gas Co., 76 Kan. 750. Likewise it is not the law in a number of other jurisdictions. Farmers & Merchants Bank v. Illinois Natl. Bank, 146 Ill.App. 136; Creditors Co. v. Northwest Loan & Tr. Co., 81 Wash. 247; El Paso Bank v. Bank, 202 S.W. (Tex. App.), 522; Bank of Italy v. Bank, 188 N.Y.S. 183; Bushnell v. National Bank, 10 Hun, 378; Whitney Arms Co. v. Barlow, 63 N.Y. 62; First Natl. Bank v. Womack, 157 Pac. (Ok), 207.

OPINION

Graves, J.

Pleadings and facts can best be stated together. The plaintiff is a banking corporation of the State of Utah, at Salt Lake City, Utah. Defendant is a banking corporation of the State of Kansas, at Hutchinson, Kansas. Wm. D. Ebbert, Inc., of Idaho Falls, Idaho, was engaged in buying and selling potatoes and similar commodities. Among its customers was the Grovier-Starr-Parvin Company of Hutchinson, Kansas, with which quite a business was done in the year of 1920. The method of business was about as follows: Grovier-Starr-Parvin Company arranged with their bank (the bank where their deposits were kept) which is the defendant herein, to guarantee the payment to McCornick & Company, Bankers, the drafts which Wm. D. Ebbert, Inc., might draw through McCornick & Company, to which drafts were to be attached the bills of lading for the produce shipped. The first guaranties made by defendant to plaintiff were in the aggregate sum of $ 75,000. Produce was shipped by Wm. D. Ebbert, Inc., to the Grovier-Starr-Parvin Company, to that amount, and drafts were drawn and paid to that amount. These drafts were drawn payable to plaintiff, and Wm. D. Ebbert, Inc., was given credit therefor as if cash -- this under the strength of the guaranty of payment aforesaid. The petition pleads fully the arrangement and course of conduct. Following this arrangement and course of conduct, on November 19, 1920, the defendant sent to plaintiff the following telegram:

"McCornick & Co. Bankers,

"Salt Lake City, Utah.

"Abaco Misquote papitate W. D. Ebbert gang-board on Grovier Starr Parvin total not exceeding thirty thousand.

"The Citizens Bank."

Which translated according to the code in use by plaintiff and defendant reads:

"We guarantee payment to be made W. D. Ebbert bill of lading attached to draft on Grovier-Starr-Parvin total not exceeding thirty thousand."

It is averred that it was understood by the parties, plaintiff and defendant, that drafts signed by Wm. D. Ebbert, Inc., payable to plaintiff, and drawn against the Grovier-Starr-Parvin Company when bills of lading were attached thereto, were covered by this guaranty made by the telegram aforesaid. After the receipt of this telegram, the plaintiff cashed drafts of Wm. D. Ebbert, Inc., in the total sum of $ 16,122.58; that drafts to the amount of $ 2,550.28 were paid after this guaranty of $ 30,000 was made; that the remaining drafts (34 in number) were refused payment.

The suit by plaintiff is to recover on the guaranty of $ 30,000 the aggregate of the drafts refused payment, in the alleged sum of $ 13,572. The suit was instituted by attachment in Kansas City, Missouri.

The answer was (1) a general denial; (2) that the telegram of guaranty was sent without authority of the board of directors of defendant bank; (3) that the act, if done by the bank was, ultra vires, and (4) that it was without consideration.

Reply was (1) a general denial of new matter in the answer; (2) an admission that the contract of guaranty was a Kansas contract, and to be governed by Kansas laws; (3) that the common law was adopted and inforced in Kansas, and that under the decisions of that state (which decisions are pleaded) the doctrine of ultra vires will not avail defendant under the facts and the law, and (4) estoppel in the following language:

"That the defendant is estopped to rely upon and cannot avail itself of the alleged defense set up in the allegations of new matter in the answer, because before obligating itself to plaintiff it took and received indemnity and guaranties satisfactory to it against loss by reason of said guaranty, and the one which preceded it as a part of an established course of dealing between plaintiff and defendant.

"That the defendant is estopped to rely upon and cannot avail itself of the alleged defenses set up in the allegations of new matter in the answer, because in order to secure and hold the lucrative banking business of a good customer and after taking and receiving indemnity and guaranties satisfactory to itself, plaintiff executed the guaranty sued upon and those which preceded it as a part of an established course of dealing between plaintiff and defendant, thereby securing and holding said banking business -- all for the purpose and with the intent of having plaintiff advance and pay out money on account thereof and in reliance thereon, which money was so paid out by plaintiff, as alleged in its petition.

"Wherefore, plaintiff renews the prayer of its petition."

The record recites that "by agreement of the parties a jury was waived and the cause submitted and tried before the court without a jury." Finding and judgment was for the plaintiff in the sum of $ 12,530.50, and from such judgment defendant has appealed. Upon the request of plaintiff, the court made the following findings of fact:

"The court finds from the evidence:

"1. That in the fall of 1920 Wm. D. Ebbert, Inc., of Idaho Falls Idaho, was engaged in the business of buying from growers in its territory potatoes and similar commodities, and in selling the same to, among others, Grovier-Starr-Parvin Company of Hutchinson, Kansas, said shipment having been made to such place as the latter company directed, consigned to it, and drafts for the purchase price of said commodities were drawn on said Grovier-Starr-Parvin Company at Hutchinson, Kansas.

"2. That just prior to October 6, 1920, Ebbert, Inc., applied to plaintiff bank to accept the drafts referred to in the preceding finding as cash deposits and to extend to Ebbert a line of credit, all of which plaintiff refused to do, but plaintiff did agree to so handle such drafts if payment of the same was guaranteed by a responsible bank.

"3. That just prior to October 6, 1920, said Grovier-Starr-Parvin Company applied to and arranged with defendant for defendant from time to time as required, to guarantee to plaintiff the payment of drafts, representing the purchase price of commodities, drawn by Wm. D. Ebbert, Inc., upon Grovier-Starr-Parvin Company with bills of lading attached covering said commodities so sold...