Wang v. Wang, 14850

Citation2 UCCRep.Serv.2d 972,393 N.W.2d 771
Decision Date24 October 1985
Docket NumberNo. 14850,14850
Parties2 UCC Rep.Serv.2d 972 Robert L. WANG, Plaintiff and Appellant, v. Victor J. WANG and Albert Schramm, Defendants and Appellees. . Considered on Briefs
CourtSupreme Court of South Dakota

Bryce Flint of Jackley & Flint, Sturgis, for plaintiff and appellant.

Donald E. Covey, Winner, for defendant and appellee Schramm.

MORGAN, Justice.

Plaintiff, Robert L. Wang (Robert), appeals from a judgment entered on a jury verdict in favor of defendant Albert Schramm (Schramm) in Robert's suit to recover on a promissory note. Robert raises three issues: (1) the trial court improperly admitted parol evidence regarding the parties' intentions at the time they executed the note and assignment documents; (2) the trial court erred in giving certain instructions; and (3) the trial court erred in refusing to recuse itself prior to trial. We reverse and remand.

One of the documents that is the subject of this litigation is a promissory note executed by Victor Wang (Victor) to the Rosebud Federal Credit Union (RFCU) on January 18, 1978, in the amount of $97,425.09 with interest at nine percent per annum and due and payable on January 18, 1979. Victor is Robert's brother.

At this point we must digress for some background information. The RFCU was affiliated with the Farmer's Cooperative Oil Company (Coop) of Winner, South Dakota. There was an agreement between these entities that the Coop would guarantee patrons' notes to RFCU to the extent that the proceeds were used for Coop's purchases. This agreement had been formalized in writing and the practice was that after a note was signed by the patron, the Coop would co-sign the note. Schramm, an officer in both organizations, testified that after the patron had signed the note on the RFCU side of the office it would come to the Coop. The usual procedure would be for Schramm to first sign and then a stamp bearing the words:

"Farmer's Cooperative Oil Association of Winner by ______"

would then be affixed over his signature by someone else to designate the Coop as the comaker. There was no other notation on the instrument to indicate that the Coop was anything but a comaker on the note. Furthermore, it appears that in most instances, the patron-comaker was not even aware of the Coop's action until he would receive the cancelled instrument after it was discharged. In this instance, however, the stamp was not affixed to Victor's note and Schramm's signature as comaker was left bare.

The note was executed as a renewal of Victor's obligation under a prior note that was due and, in addition, Victor obtained additional funding to repair his equipment in preparation for a sale. The note was secured by financing agreements on various items of Victor's property and when the sale was completed the net proceeds were apparently deposited in an escrow account with the RFCU. Some of the property apparently was not sold, but was traded off, or was not otherwise accounted for. RFCU permitted Victor to pay out a considerable part of the escrow account for other obligations. On January 18, 1979, when the note became due, Victor was unable to meet his obligation. On demand by RFCU, the Coop paid $43,344.00 under the terms of the guaranty agreement previously discussed.

Robert first became involved when he was contacted at his home in Sturgis by Schramm who was looking for Victor to discuss the delinquent note. Robert indicated some interest in acquiring some of the collateral listed on RFCU's security agreement that had not been disposed of at Victor's sale. On July 3, 1980, Robert traveled to Winner and entered into negotiations with Larry Meiners (Meiners), the manager of RFCU, that culminated in an agreement to sell Robert the note and security agreements for the sum of $8,000.00. An assignment agreement was prepared that same day by a local attorney who had not even seen the note. Schramm, as president of the board of directors of RFCU, was called to the attorney's office to sign the assignment agreement on behalf of RFCU. He did so without reading the assignment or viewing the note. Meiners was also present and signed as a witness. Robert paid the $8,000.00, took his note and assignment, returned to Sturgis, and shortly thereafter made demand upon Schramm as comaker to pay the principal and interest then claimed due on the note in the amount of $106,193.33. This was obviously the first time Schramm was made aware of his precarious position. The RFCU sought to secure a cancellation of the assignment by refunding the $8,000.00 to Robert. He refused and this suit followed.

Schramm interposed a number of defenses by answer and by motion to amend at the close of all the testimony. The trial court ultimately instructed the jury on three defenses: (1) signature in a representative capacity; (2) unjustifiable impairment of collateral; and (3) lack of mutuality with respect to the assignment by reason of mistake of fact or mistake of law. The jury returned a verdict in favor of Schramm.

The various aspects of the pleadings and trial will be included where pertinent in the discussion of the issues raised by Robert, which were three in number, as follows: (1) Whether the trial court committed reversible error by allowing parol evidence to be considered by the jury regarding the parties' intentions at the time they executed the note and assignment documents? (2) Whether the trial court committed reversible error in giving Instructions 6, 9 and 10 to the jury and denying Robert's Proposed Instructions 1, 2, 3 and 4? (3) Whether the trial court committed reversible error in refusing to recuse itself from the case prior to trial? Because issues (1) and (2) are clearly related and intertwined, they will be discussed conjunctionally. Issue (3) will be dealt with separately.

Robert brought suit on the note by virtue of the assignment. His first issue relates to admission of parol evidence regarding the intentions of the parties at the time of the execution of both instruments. His second issue relates to jury instructions in relation to both instruments. For the purpose of clarity, we will first address those issues with respect to the promissory note and then with respect to the assignment.

The issues related to the promissory note all fall within the purview of the Uniform Commercial Code, particularly Chapter 57A-3, Commercial Paper. Robert first argues that Schramm is personally obligated on the note under the provisions of SDCL 57A-3-403(2) which provides, in pertinent part:

(2) An authorized representative who signs his own name to an instrument

(a) Is personally obligated if the instrument neither names the person represented nor shows that the representative signed in a representative capacity....

Inasmuch as Schramm's signature on the note was "bare," i.e., without any showing that he signed in a representative capacity, Schramm was indeed personally liable as a comaker. On this point, Robert proposed an instruction: "A signature may be made by an agent or other representative, however, an authorized representative who signs his name to an instrument is personally obligated if the instrument neither names the person represented nor shows that the representative signed in a representative capacity." This proposed instruction accurately sets out the essence of SDCL 57A-3-403(2). In rejecting Robert's proposed instruction, the trial court gave an instruction which exactly stated Robert's proposed instruction but added:

However, a person signing a note, without indicating in the note that he is signing in a representative capacity, is not personally or individually liable on the note if the person in whose favor the note is drawn has knowledge that the signer has signed in a representative capacity, or the person in whose favor the note is drawn has required or requested the person to sign in a representative capacity.

We agree with Robert that the trial court erred in giving its Instruction 6 and rejecting Robert's Proposed Instruction 1. Where the instrument does not name the principal or indicate the representative capacity the signature of an agent personally obligates the agent and parol evidence is inadmissible to disestablish his obligation. Mid-America Real Estate & Inv. Corp. v. Lund, 353 N.W.2d 286 (N.D.1984). In another similar case, the signer of a note was held personally liable on a promissory note where his signature alone was on the note and where there was no indication on the note that the signer had signed the note in a representative capacity, even though he contended the note was actually an obligation of his corporation. Farmers & Merch. Nat. Bank of Hatton v. Lee, 333 N.W.2d 792 (N.D.1983).

The objectionable part of Instruction 6 states, in effect, that Schramm would not be personally liable to the RFCU on the note drawn to RFCU if RFCU had knowledge that he signed in a representative capacity or if RFCU had required or requested him to sign in a representative capacity. We grant that there is some authority that, in an action between the original parties to the note, the intention to bind the principal instead of the agent may be relevant. In this case, however, the action is brought by a subsequent holder, not by an original party. We, therefore, do not reach that specific issue at this time. It is our holding that under the circumstances of this case and the provisions of SDCL 57A-3-403(2) that, as between Schramm and the Coop, Schramm was personally liable and the latter part of the trial court's instruction was erroneous.

Robert next claims error predicated on the admission of parol evidence relating to Schramm's signature on the note. While it is erroneous to admit parol evidence solely for the purpose of showing Schramm's representative capacity, such evidence is admissible to show Schramm's accommodation character in the transaction by virtue of the provisions of SDCL 57A-3-415(3). That stat...

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