Thilmany v. Iowa Paper Bag Co.
79 N.W. 68
Iowa
1899
Check Treatment
Deemer, J.

— Plaintiff is a manufacturer of paper, doing business at Kaukauna, Wis.; and tbe defendant, tbe Iowa Paper-Bag Company, is a manufacturer of paper bags, doing business at tbe city of Ottumwa, in this state. In tbe year 1894 tbe paper-bag company, desirous of purchasing paper of plaintiff, secured from tbe vice president of defendant bank tbe following guaranty: “Edwin Manning, Prest. Wm. Daggett, Vice Prest. Calvin Manning, Cashier. W. B. Daggett, Asst. Cashier. No. 1,726. Iowa National Bank. Capital Stock, $200,000.00. Ottumwa, Iowa, December 8, 1894. Thilmany Pulp and Paper Company, Kaukauna, Wis. — Dear Sirs: Tbe Iowa Paper-Bag Company, of this city, desire to establish business relations with you, and request us to write you. We will guaranty tbe fulfillment of their obligations to you, to tbe extent of tbe cost of a car load of bag paper, for the next twelve months. They are doing a good and safe business, and changed from an Ohio paper mill .to your mill at our request. - We hope you will give them all *335advantage possible, as tbeir competition comes from Ohio bag factories, and is sharp in this district; looking, doubtless, to driving this bag company out of the Southern Iowa market. Yours, etc., Iowa National'Bank, by Wm. Daggett, Y. P.” This letter was inclosed with an order for a car of paper, in a letter addressed to the plaintiff; and plaintiff thereupon shipped a car of paper to the bag company. The purchase price for this car was promptly paid, and thereafter plaintiff shipped five other cars, ail of which were paid for, except the last car. This action is to recover for the last car, from the bag company on its order and from the bank on the letter of credit above set out. When plaintiff offered the letter in evidence, it was objected to by the bank on.the following grounds: “Incompetent, immaterial, and because the national bank has no authority • or power to guaranty the payment of comercial bills, or to bind itself by a guaranty such as [the letter referred to].” This objection was sustained, and the ruling is assigned as error.

Counsel concede that' the controlling question in the case is whether or not a national bank has power to issue such a letter of credit or of guaranty as the one offered in evidence. National banks are creatures of the general government, and their powers are enumerated as follows: A national bank can “exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debt; by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security; and by obtaining, issuing and circulating notes.” Revised Statutes of N. S., section 5136. This act expressly confers on such banks all incidental powers necessary to carry on the banking business. “These powers,” as said by the supreme court of the United States in Bank v. Armstrong, 152 U. S. 351, 38 L. Co. Ed. 470 (14 Sup. Ct. Rep. 574), “are such as are required to meet all the legiti*336mate demands of tbe authorized business, and to enable a bank to conduct its affairs, within the scope of its charter, safely and prudently. This necessarily implies the right of a bank to incur liabilities in the regular course of its business, as well as to become the creditor of others.” The statute we have quoted does not give national banks express authority to issue letters of credit or to make instruments of guaranty. Neither does it expressly authorize the indorsement of notes or bills of exchange. But, as indorsement is often necessary to the transfer of negotiable instruments, it is clearly within the power of such banks to make this kind of contract. And so it has been held that, as a guaranty is a less onerous and stringent contract than that created by an indorsement “waiving demand and notice,” such a contract is also good when made with reference to the transfer of notes in which the bank has an interest. People’s Bank v. Manufacturers’ Nat. Bank, 101 U. S. 181. When either contract has relation to a transaction in which the bank has a pecuniary interest, as where made to transfer or negotiate choses in action, or negotiable instruments which it owns or in which it has an interest, there is no longer room for doubt as to the validity of the transaction. But a guaranty of a note or bill or of an account as of a mere loan of credit to another, disconnected with any transfer of title or ownership of the paper or account guarantied, may well be doubted. Indeed, we think there is a manifest distinction between the right of a bank to guaranty choses in action belonging to it and its right to guaranty those belonging to another. It has been squarely held by the supreme court of the United States .that a cashier has no power to indorse accommodation paper so as to bind the bank. West St Louis Sav. Bank v. Shawnee County Bank, 95 U. S. 557. The supreme court of Michigan has also held that a cashier has no authority to accept bills of exchange for the accommodation merely 'of the drawers, and that there can be no recovery thereon by one having knowledge. Farmers & M. Bank v. Troy City Bank, 1 Doug. 457,

*337But, as not all contracts of guaranty or letters of credit axe void, resort must be bad to tbe instrument itself, and, it may be, to evidence aliunde, to determine tbe effect of tbe particular instrument in question. Letters of credit are of two binds. When purchased by tbe person desiring credit, or procured by tbe use of checks or other securities lodged with tbe person who grants it, it is, in effect, a bill of exchange; and as it is based on a consideration passing directly to tbe bank that issues it, and has gained recognition in tbe commercial world, it is a valid and binding contract, and may be entered into by national banks. Daniel Negotiable Instruments, section 1794. When tbe letter is not purchased, but is purely an accommodation, or simply a guaranty of tbe payment of an account to b'e created in tbe future, it is not binding on a national bank, for such1 an institution 'has no power to thus jeopardize its capital. Such transactions are not necessary to tbe exercise of powers granted to national banks, and are therefore without their charter powers, and invalid. Tbe controlling question in tbe case is, to which class of contracts does tbe one in suit belong? We are of tbe opinion that tbe letter, on its face, shows it belongs to the latter class. There is nothing on tbe face of tbe instrument to indicate that tbe paper-bag company purchased tbe letter, or that it bad deposited any money or collaterals to secure tbe same. It is simply a promise to guaranty tbe fulfillment of an obligation of tbe bag company. True, when accepted by tbe plaintiff, a consideration is presumed, and need not ordinarily be alleged or proven. But this consideration may have been simply tbe disadvantage to tbe seller, or tbe benefit conferred upon tbe purchaser. There is no presumption that tbe paper-bag company gave anything for tbe letter, or that anything was withheld from it on account of the issuance thereof. Tbe case does not differ materially from one where a member of a firm has signed tbe name of bis partnership to a note as surety. In such case the bolder cannot recover showing tjiaf all the menb *338bers of the firm assented. Bank v. Law, 127 Mass. 72; National Park Bank v. German-American Mutual Warehousing & Security Co., 116, N. Y. App. 281 (22 N. E. Rep. 567) ; Bank v. McDonald, 127 Mass. 82. As the instrument in suit clearly shows on its face that it is simply a contract of guaranty, there can be no recovery without proof that it was, in effect, a bill of exchange; and it may be (a point, however, which we do not decide) that evidence to establish such fact would be’ inadmissible because of the form of the letter.

Again the plaintiff sues upon the instrument as a contract of guaranty; and it is well settled, as we have heretofore observed, that such contract is invalid unless made in connection with the transfer of a chose in action or other property belonging to the bank. See, as further sustaining this proposition, Madison, W. & M. Plank-Road Co. v. Watertown & P. Plank-Road Co., 7 Wis. 59; Madison & I. R. Co. v. Norwich Sav. Soc., 24 Ind. 457; Norton v. Bank, 61 N. H. 589; Aetna Nat. Bank v. Charter Oak Life Ins. Co., 50 Conn. 167; Beecher v. Dacey, 45 Mich. 92 (7 N. W. Rep. 689). The cases referred to by appellant all involve the negotiation or transfer of negotiable instruments belonging to the bank, or in which it had an interest, and are therefore not in point. As the contract is strictly one of guaranty,, the presumption is that the bank had no authority to issue it, and the trial court correctly refused to admit it in evidence.— AeEIRMED.