This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
A corporation has no power to issue accommodation paper.1 Hence a corporation cannot guarantee commercial paper executed by another.2 So a corporate note, signed for the corporation by its president, payable to himself, is prima facie void, even if the holder of the note requested that it be made payable to the president.3 Some authorities seem to dissent from this view, and to hold that the assent of all the stockholders and directors may bind the corporation on accommodation paper.4 But where the corporation is really the principal debtor its note is binding, though it takes the form of accommodation paper.5 Thus a corporation is liable on an indorsement made in part for the benefit of corporation and in part for the benefit of another, where the corporation received and retained benefits ;6 it may buy goods by indorsing a note of another ;7 and it is liable where the money was nominally lent to its stockholders8 or its directors,9 but really to the corporation, though the transaction takes the form of the corporation's securing their personal debts. A real estate company may give its note for the debt of another, which is secured by attachment on land previously purchased by such corporation;10 and where a partnership incorporates and the corporation becomes liable for partnership obligations,11 a note for such obligation, signed by the corporation as surety, is binding on the corporation, since as to the payee it is a corporation debt.12 So a corporation may buy a business, and assume the debts thereof.13 A corporation is liable on its accommodation paper if in the hands of a bona fide holder for value and before maturity.14 But where certain warehouse receipts were given by a corporation as collateral security to a bank, for its loan, and before the loan was entirely paid, the treasurer of the corporation notified the bank that the corporation was indebted to him and that the receipts were to remain to secure his existing indebtedness to the bank and this statement was false, it was held that the pledging of the receipt for his debt was ultra vires.15
1 Tod v. Land Co., 57 Fed. 47; Lyon, etc., Co. v. Bank, 85 Fed. 120; 29 C. C. A. 45; Park Hotel Co. v. Bank, 86 Fed. 742; 30 C. C. A. 409; Steiner v. Lumber Co., 120 Ala. 128; 26 So. 494; Hall v. Turnpike Co., 27 Cal. 255; 87 Am. Dec. 75; Aetna, etc., Bank v. Ins. Co., 50 Conn. 167; Wheeler v. Bank, 188 111. 34; 58 N. E. 598; Lucas v. Transfer Co., 70 Ia. 541; 59 Am. Rep. 449; 30 N. W. 771; Trapp v. Bank, 101 Ky. 485; 41 S. W. 577; modified on rehearing 43 S. W. 470; M. V. Monarch Co. v. Bank, 105 Ky. 430; 88 Am. St. Rep. 310; 49 S. W. 317; Monument, etc., Bank v. Globe Works, 101 Mass. 57; 3 Am. Rep. 322; Preston v. Cereal Co., - Neb. -; 93 N. W. 136; Blake v. Mfg. Co. (N. J. Ch.), 38 Atl. 241; National, etc., Bank v. German, etc., Co., 116 N. Y. 281; 5 L. R. A. 673; 22 N. E. 567; Bank of Genesee v. Bank, 13
N. Y. 309; Benedict v. Bank, 4 Ohio N. P. 231; 6 Ohio Dec. 320; Culver v. Reno, etc., Co., 91 Pa. St. 367; Madison, etc., Co. v. Road Co., 7 Wis. 59.
2 M. V. Monarch Co. v. Bank, 105 Ky. 430; 88 Am. St. Rep. 310; 49 S. W. 317.
3 Porter v. Grain Co., 78 Minn. 210; 80 N. W. 965.
4 Murphy v. Improvement Co., 97 Fed. 723; Martin v. Mfg. Co., 122 N. Y. 165; 25 N. E. 303 (obiter).
5 Beacon Trust Co. v. Souther, 183 Mass. 413; 67 N. E. 345; Bank v. Flour Co., 41 O. S. 552.
6 Lyon, etc., Co. v. Bank, 85 Fed. 120; 29 C. C. A. 45.
7 National Bank v. Allen, 90 Fed. 545; 33 C. C. A. 169.
8 Stough v. Mill Co., 54 Neb. 500; 74 N. W. 868.
9 Allen v. Hotel Co., 95 Tenn. 480; 32 S. W. 962.