Akers v. Sinclair

• Decision Date: 28 December 1950
• Docket Number: 31419.
• Citation: 226 P.2d 225,37 Wn.2d 693
• Parties: AKERS, v. SINCLAIR et al. AKERS v. SEDGE et al. NEBEKER v. SEDGE et al.
• Court: Washington Supreme Court

226 P.2d 225

37 Wn.2d 693

AKERS, v. SINCLAIR et al.

AKERS v. SEDGE et al.

NEBEKER v. SEDGE et al.

No. 31419.

Supreme Court of Washington.

December 28, 1950

Department 2.

Rehearing Denied February 21, 1951. Cheney & Hutcheson, Harcourt M. Taylor Yakima, for appellants.

Halverson & Applegate, Jack M. King, Yakima, for respondents.

HAMLEY, Justice.

These three actions, consolidated for trial and appeal, began as suits in equity to reform three certain promissory notes on the ground of mutual mistake.

Each plaintiff sought an adjudication that the note in question constituted an obligation of Dr. Wells Yakima Bottling Company, a corporation, and not of the plaintiff as an individual. In each case the defendant payee denied that there had been a mutual mistake, and cross-complained for judgment on the note. The corporation and its receiver were made parties to the action, but did not enter appearances and are not involved in this appeal.

After trial to the court, a single judgment was entered disposing of all three cases. In each case reformation was denied and the payee defendants, Sinclair and Sedge, were awarded judgments against the respective plaintiffs, and the corporation, for the principal amounts of the notes, with interest and attorneys' fees. Plaintiffs have appealed.

The Dr. Wells Yakima Bottling Company was organized by Thurston Lane in June, 1946. The corporation issued fifty-one per cent of its common stock to Lane in exchange for the franchise to distribute the Dr. Wells drink in the Yakima area. Lane had obtained this franchise from the parent Dr Wells Bottling Company. The balance of the common stock was issued to certain individuals, including appellants, who paid for their stock in cash. The corporation also issued and sold certain preferred stock. In order to obtain additional financing for the company, Lane negotiated loans with several individuals, including these loans with the respondents, K. E. Sinclair and Willard M. Sedge.

All three notes were made out on printed forms. The note dated June 27, 1948, involved in the Akers v. Sinclair case, is in the amount of three thousand dollars, and was to become due on June 27, 1950. This note, omitting portions not essential for our purpose, and with the parts filled in by pen indicated by italics, reads as follows:

'Dr. Wells Bottling Co. after date, without grace we promise to pay to the order of K. E. Sinclair * * * We, Dr. Wells Bottling Co. promise and agree to pay in addition to the costs and disbursements provided by statute, a reasonable attorneys fee * * *

'Thurston Lane, Pres. [Signed]

'E. F. Akers [Signed]'

The note dated July 9, 1948, involved in the Akers v. Sedge case, is in the amount of one thousand dollars, and was to become due on July 9, 1950. The essential portions of this note read as follows:

'* * * We, Dr. Wells Bottling Co. promise to pay to the order of Willard Sedge * * * We promise and agree to pay in addition to the costs and disbursements provided by statute, a reasonable attorneys fee * * *

'Thurston Lane, Pres. [Signed]

'E. F. Akers [Signed]'

The note dated July 16, 1947, involved in the Nebeker v. Sedge case, is in the amount of one thousand dollars, and was to become due on July 16, 1949. The essential portions of this note read as follows:

'* * * We promise to pay to the order of Willard M. Sedge * * * and do we hereby agree that if collected by an attorney * * * do we further promise and agree * * *

'Dr. Wells Bottling Co. [Signed]

'Thurston Lane, Pres. [Signed]

'Raymond L. Nebeker [Signed]'

The Akers-Sinclair note of June 27, 1948, was a renewal note issued upon the maturity of a note executed one year earlier. The negotiations regarding this original note took place early in June, 1947, Before the company began bottling. Lane visited Sinclair at the latter's home for the purpose of securing a loan for the company. Sinclair is a retired stock rancher and has had little experience in dealing with corporations. At this conversation Sinclair declined to make a loan, but indicated Lane might call back later for a further discussion. No mention was made, in this conversation, as to how the note would or should be signed.

Lane returned to Sinclair's home a week or ten days later for a second conversation. Sinclair testified that, at this conversation, he told Lane that 'if I had Akers' name on the note and made Akers responsible for it' he (Sinclair) would make the loan. Sinclair testified that he did not know any other parties in the corporation, 'and I knew Mr. Akers and I knew he was good * * *.' Lane testified that Sinclair asked him who would sign the note, and that he, Lane, had explained that the note had to be signed by Lane and another officer of the corporation. Lane further testified that he told Sinclair that either Akers or Nebeker would sign it 'for us,' and that Sinclair had indicated a preference for Akers. Lane stated that Sinclair at no time indicated that the loan would be made only if Akers obligated himself individually.

At this time Lane was president of the corporation, Akers was vice-president, and Nebeker was secretary-treasurer. Lane indicated several times in his testimony that either Akers or Nebeker was authorized to join Lane in the execution of corporate notes. However, the by-laws provided that corporate obligations should be executed by the president and secretary. Lane prepared the original note (dated June 27, 1947) signed it with the designation 'Pres.' after his signature, took it to Akers for his signature, and then delivered it to Sinclair.

This original note was mislaid and believed lost during the early part of the trial, and the parties testified from memory as to how it was signed. Both Akers and Lane testified that Akers placed the letters 'V. P.' after his signature at the time of signing the note. Sinclair testified unequivocally, however, that there was no designation of any kind after Akers' signature. He stated that he was sure of this, not only because he had examined the note when it was delivered to him, but also because he had compared it with the renewal note a year later and had observed that both were alike in so far as Akers' signature was concerned.

This original note was discovered among the papers of the receiver Before the close of the trial. The note had the letters 'V.P.' after Akers' signature, thus confirming Akers' and Lane's recollections. When confronted with the actual note, Sinclair at first testified: 'I don't remember seeing this 'V.P.' on it.' Later, Sinclair reaffirmed his earlier testimony that when the original note was renewed he had compared the two notes and found that neither carried any designation after Akers' signature. Akers then testified that he had never seen the original note after its execution. When that note was paid off by issuance of the renewal note, Lane received it back from Sinclair, marked a large 'X' across it, and placed it in the files of the corporation. Akers had legal access to these files, but he and Lane testified that Akers did not make use of them for any purpose. A few months later, and Before this controversy arose, the corporation went into receivership. The receiver then took possession of the corporate papers, including this original note.

As Before indicated, the Akers note of June 27, 1948, here in controversy, was issued in renewal of the original note discussed above. Sinclair, testifying prior to the discovery of the original note, stated that he agreed to the renewal 'if the note was made out and signed just the same as the first one.' No specific mention of Akers' name was made during the negotiations for the renewal note. Sinclair testified that it was his intention that it would be a corporation note, but that 'Akers was to be responsible for it.' Sinclair indicated that at the time the renewal note was executed nothing had happened to cause him to question the solvency or financial responsibility of the company.

Both Lane and Akers testified that they intended the original and renewal notes as only corporate obligations. Lane testified that, after the controversy arose, he went to Sinclair and reminded Sinclair that the note was not to be the personal obligation of Akers, and that Sinclair replied: 'Yes, but he did sign it as an individual.' The purport of this conversation was denied by Sinclair. Akers stated that his omission of the letters 'V. P.' after his signature on the renewal note was due to the fact that at the time he was at the company office signing company checks, wherein it was not the practice to indicate his official capacity.

The Nebeker-Sedge note, dated July 16, 1947, was also executed Before the completion of the company's plant. Sedge is a fruit farmer with only limited experience regarding corporate affairs. Lane and Sedge had three conversations Before this loan was made and note issued. These conversations took place in Sedge's home or on his grounds, with Mrs. Sedge present for some of them. Sedge at first declined to make the loan, being apparently unimpressed with the company's prospects. He criticized the flavor of the drink and the small size of the bottle. Sedge testified that in one of these conversations he agreed to make the loan if he had 'security' or 'somebody [to] go the company note.' Sedge further testified that Lane then mentioned the names of those backing the company, including Nebeker and Akers. Sedge knew Akers, and Lane described Nebeker as a prosperous retired farmer. Mrs. Sedge testified that she did not know whether the word 'security' was used. She also testified that Lane had said that Nebeker and Akers were behind the 'note.' Later she modified this, saying she had meant to say that Lane told her and her husband that...