Edward A. Kemmler Memorial Found. v. 691/733 East Dublin-Granville Road Co.
| Decision Date | 12 February 1992 |
| Docket Number | DUBLIN-GRANVILLE,No. 90-2011,90-2011 |
| Citation | 62 Ohio St.3d 494,584 N.E.2d 695 |
| Parties | , 17 UCC Rep.Serv.2d 489 EDWARD A. KEMMLER MEMORIAL FOUNDATION, Appellant, v. 691/733 EASTROAD COMPANY; Mitchell et al., Appellees. |
| Court | Ohio Supreme Court |
SYLLABUS BY THE COURT
Under R.C. 1303.18 (UCC 3-119), the terms of a promissory note or other negotiable instrument, as between the immediate parties to the instrument, may be modified or affected by another writing executed as part of the same transaction.
Defendants-appellees, Clifford W. Davis and Dr. William D. Mitchell, formed a partnership to purchase and operate rental properties for investment purposes. The Edward A. Kemmler Memorial Foundation ("the foundation"), plaintiff-appellant in this case, was the owner of the property at 733 East Dublin-Granville Road in Columbus, Ohio. The property at 691 East Dublin-Granville Road was owned by appellee Davis. In October 1986, Davis approached the foundation on behalf of the partnership to purchase the property at 733. The partners had agreed that upon obtaining $150,000 in seller financing from the foundation, Mitchell would receive $90,000 in full settlement of a prior debt which Davis owed Mitchell. The partners had also agreed between themselves that Mitchell would not be personally liable on the promissory note to be signed at closing. The foundation was told of the partnership between Mitchell and Davis, but never dealt directly with Mitchell or his attorney. Nor was the foundation aware that Davis and Mitchell had agreed to relieve Mitchell from personal liability on the note.
At the closing for the 733 property, Davis executed a promissory note for $150,000 as partial financing for the purchase. As a part of the transaction, a general warranty deed, a mortgage, and a statement of settlement were also executed and delivered. The note was executed by Davis as "Cliff W. Davis, Partner." No other reference to the partnership appears on the note, but each of the other documents specifically refers to the name of the partnership. The mortgage also specifically refers to the note, and was executed by both Davis and Mitchell.
Some months after the purchase, the partnership defaulted on the note. The foundation sued to recover the balance due, and to foreclose on the mortgage. In their answer, appellees admitted that the note was a partnership obligation. However, Mitchell argued that he should not be personally obligated on the note because of his agreement with Davis. The referee appointed by the court of common pleas found that Mitchell and Davis were jointly liable as partners on the note, and that Mitchell was personally liable as a partner for the balance due. The trial court adopted the referee's report and recommendation, but the court of appeals reversed and remanded.
The cause is before us pursuant to the allowance of a motion to certify the record.
Johrendt, Cook & Eberhart Co., L.P.A., Michael J. Johrendt and Joan D. Veri, Columbus, for appellant.
Tom Moody, Columbus, for appellee William D. Mitchell.
We must determine whether, as between immediate parties to a promissory note, the agency relationship between a party executing the note and another alleged to be his partner can be established by other documents executed as a part of the same transaction. Specifically in this case, can the mortgage and other documents executed as part of closing on the building at 733 East Dublin-Granville Road be admitted to prove an agency relationship between Mitchell and Davis? The resolution of this case involves analysis of partnership and agency law, as well as contract law and the Uniform Commercial Code as adopted in Ohio. For the reasons which follow, we find that the mortgage and other documents are admissible, and that the partnership and Dr. Mitchell are liable for the debt on the note.
Our analysis begins with an examination of two sections of the Revised Code as pertinent to the inquiry in this case. R.C. 1775.08(A) defines the agency relationships of partners within a partnership:
"Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority."
The liability of partners in this case is set out in former R.C. 1775.14:
"(B) Jointly for all other debts and obligations of the partnership, but any partner may enter into a separate obligation to perform a partnership contract." 1 140 Ohio Laws, Part II, 2850, 2854.
These two statutes must be construed together in order to determine the partnership liability and Dr. Mitchell's potential liability as a partner. A promissory note falls under R.C. 1775.14(B), which renders a partner "[j]ointly [liable] for all other debts and obligations * * *." Therefore, if the partnership in this case is held liable for the note, Dr. Mitchell would be jointly liable.
However, under R.C. 1775.14(B), a partner may also enter into a "separate obligation to perform a partnership contract." The act of signing the promissory note could be seen as Davis's assumption of a separate obligation to perform a partnership contract. Mitchell and Davis may well have intended that it be a separate obligation given the terms of the agreement between them. Moreover, under R.C. 1775.08(A), the act of a partner will generally not bind the partnership if he in fact has no authority to act in the particular matter. Davis arguably had no authority to act on behalf of the partnership in signing the note, because of his agreement with Dr. Mitchell.
However, R.C. 1775.08(A) goes on to provide that the act of a partner without authority will still bind the partnership unless the person with whom the partner is dealing has knowledge of the fact that the partner had no authority to act. Absent such knowledge, the "execution in the partnership name" of any instrument used for business purposes would bind the partnership. Thus, if a promissory note is executed in the name of the partnership, the partnership is bound, unless a contradictory agreement between the partners is known to the parties with whom they are dealing. The trial court found that the foundation had no knowledge of the agreement between Davis and Mitchell regarding Mitchell's liability for the note.
Our analysis does not end there, however, because it is not clear that the instrument in question was executed "in the partnership name." As the court of appeals recognized, certain provisions of Article 3 of the Uniform Commercial Code must be considered.
R.C. 1303.37 (UCC 3-401) is the section pertaining to liability on an instrument and signature:
R.C. 1303.39 (UCC 3-403) pertains to signatures by agents and other representatives, and provides in pertinent part:
The court of appeals, in applying these sections to the instant case, concluded that the note was not executed in the partnership name. The court held that * * * "
" * * * Davis signed his own name to an instrument and is personally obligated because the instrument does not name the person represented, but does show that the representative signed in a representative capacity."
Appellant foundation argues that even though it may be unclear from the face of the note that Davis was acting in a representative capacity, parol evidence proves that Davis signed as an agent for the partnership. Specifically, appellant contends that the mortgage and other documents that were executed at the same time as the note clearly identify the partnership and confirm Davis's agency on behalf of the partnership.
Official Comment 3 to R.C. 1303.39 explains that in a case where the signature reads "Arthur Adams, Agent," parol evidence is admissible in litigation between the immediate parties to prove signature by the agent in his representative capacity. The signature in this case, "Cliff W. Davis, Partner," is in the same general form and indicates the same general relationship as "Arthur Adams, Agent." Thus, R.C. 1303.39 would permit parol evidence to prove Davis's agency.
But parol evidence as such is...
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...it will consider "the authorities from other states more fully than is customary." Edward Kemmler Mem'l Found. v. 691/733 East Dublin-Granville Road Co., 62 Ohio St.3d 494, 499, 584 N.E.2d 695, 698 (1992). As Plaintiffs point out, the Ohio Supreme Court has been expanding the scope of the d......
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Cheatham I.R.A. v. Huntington Nat'l Bank
...See Casserlie v. Shell Oil Co. , 121 Ohio St.3d 55, 2009-Ohio-3, 902 N.E.2d 1, ¶ 18 ; Edward A. Kemmler Mem. Found. v. 691/733 E. Dublin–Granville Rd. Co ., 62 Ohio St.3d 494, 499, 584 N.E.2d 695 (1992). In fact, R.C. 1301.103(A)(3) requires that the UCC provisions in the Revised Code be co......
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Casserlie v. Shell Oil Co.
...our interpretations of the Uniform Commercial Code to those of our sister states." Edward A. Kemmler Mem. Found. v. 691/733 E. Dublin-Granville Rd. Co. (1992), 62 Ohio St.3d 494, 499, 584 N.E.2d 695. Relying on the Official Comments to the UCC helps to achieve this uniformity, as does revie......
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State v. Phillips, 2006 Ohio 6338 (Ohio App. 12/4/2006)
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