Hawthorne v. Austin Organ Co.

• Decision Date: 25 June 1934
• Docket Number: No. 3599.,3599.
• Citation: 71 F.2d 945
• Parties: HAWTHORNE et al. v. AUSTIN ORGAN CO.
• Court: U.S. Court of Appeals — Fourth Circuit

71 F.2d 945 (1934)

HAWTHORNE et al. v. AUSTIN ORGAN CO.

No. 3599.

Circuit Court of Appeals, Fourth Circuit.

June 25, 1934.

Murray M. McGuire, of Richmond, Va., and John S. Battle, of Charlottesville, Va. (Robert E. Taylor, of Charlottesville, Va., on the brief), for appellants.

H. W. Walsh, of Charlottesville, Va. (W. Eskridge Duke and Lyttelton Waddell, both of Charlottesville, Va., on the brief), for appellee.

Before PARKER and SOPER, Circuit Judges, and WEBB, District Judge.

SOPER, Circuit Judge.

This action in assumpsit was instituted on June 22, 1932, in the District Court by Austin Organ Company, a Maine corporation, as plaintiff, against H. K. Hawthorne, M. L. Rea, and R. Merritte Robinson, citizens of Virginia, to recover the sum of $12,870, with interest. The suit was based on five promissory notes payable to the plaintiff; one of April 10, 1930, for $2,700, payable six months after date, with an attorney's fee of 10 per cent. for collection if not paid at maturity, and four notes of December 10, 1929, for $2,475 each, payable at intervals of one, two, three, and four years, respectively. The notes were signed by the three defendants as "Trustees High Street Baptist Church." The defense pleaded was that the notes were not the individual personal obligations of the defendants, but were the obligations of the congregation of the church, executed upon its authority by the defendants, as its agents, in evidence of the purchase price of an organ, pursuant to a contract under which the plaintiff agreed to sell and deliver the organ to the congregation; and that the notes were accepted by the plaintiff, not as the obligations of the defendants, but as the obligations of the congregation.

At the trial of the case, the plaintiff proved the notes and rested. The defendants thereupon offered in evidence a contract of February 1, 1929, between the Organ Company, as party of the first part, and High Street Baptist Church, as party of the second part, signed by a representative of the Organ Company and by the three defendants, as trustees of the church. The contract provided that the Organ Company should construct, erect, and sell to the church, a pipe organ, according to certain specifications, and that upon the acceptance of the organ the church should pay therefor the sum of $12,900 as follows: $3,000, in cash, and the balance in four notes of $2,475 each, payable at yearly intervals, with interest at 6 per cent. It was further provided that in the event of default in the payment of any note given for the balance of the purchase price, all of the sums represented by the notes should become due and payable. The contract was approved by the congregation at a meeting held on February 1, 1929, at which the report of a music committee recommending the purchase of the organ on the terms expressed was adopted, and the trustees of the church were authorized and requested to sign the contract.

The organ was installed and accepted by the church on August 11, 1929. The cash payment of $3,000, however, was not made, and after certain negotiations the Organ Company accepted in lieu thereof $100 in cash and a four months' note of December 10, 1929, for $2,900. On the same date the remaining four notes in suit were executed and delivered for the balance of the purchase price. The execution of the notes by the trustees was authorized at a meeting of the congregation on December 6, 1929, at which a motion requesting the trustees to sign the notes was adopted. The sum of $200 was subsequently paid on the note of $2,900, and on April 10, 1930, a renewal note for six months for $2,700 was given in its place.

The plaintiff objected to the introduction of the contract in evidence on the ground that it had been finally merged in the notes, which became the obligations for payment upon which the defendants were bound. It seems to be true that the notes were accepted as payment for the organ, but the evidence referred to above was relevant to the defense, and the default provision of the contract was necessary to justify an action upon the last two notes prior to their maturity.

At the conclusion of the evidence in the court below, a motion of the plaintiff for a directed verdict in its favor was granted, and this action is assigned as error in this appeal. The District Judge was of the opinion that the defendants were individually liable on the notes by reason of the established principle that a trustee is subject to personal liability upon a contract made by him in the course of the administration of the trust, unless, by the contract, it is provided that he shall not be personally liable. The rule is so stated in Tentative Draft No. 4, Restatement of Trusts of the American Law Institute, §§ 253, 254, and 255, and the authorities support the statement. Taylor v. Davis, 110 U. S. 330, 4 S. Ct. 147, 28 L. Ed. 163; Petition of Eddy (C. C. A.) 6 F.(2d) 196-198; Allegheny Tank Car Co. v. Culbertson (D. C.) 288 F. 406; Hussey v. Arnold, 185 Mass. 202, 70 N. E. 87; Philip Carey Co. v. Pingree (1916) 223 Mass. 352, 111 N. E. 857; Equitable Trust Co. v. Taylor (1928) 330 Ill. 42, 161 N. E. 62, 64; Feldman v. Preston (1916) 194 Mich. 352, 160 N. W. 655; Truesdale v. Phila. Trust Co. (1895) 63 Minn. 49, 65 N. W. 133; Stanton Nat. Bank v. Swallow (1925) 113 Neb. 336, 203 N. W. 561; Riedell v. Stuart (1931) 151 Okl. 266, 2 P.(2d) 929, 76 A. L. R. 1469; Catlett v. Hawthorne, 157 Va. 372, 161 S. E. 47. Compare Boyle v. Rider, 136 Md. 286, 110 A. 524, where it was held that the intent of the parties not to hold a trustee personally liable upon a contract need not necessarily be shown in the contract itself, but may be evidenced by circumstances known to the parties at the time the contract was executed.

The general rule, however, has been modified, so far as negotiable instruments are concerned, by section 20 of the Negotiable Instruments Law, codified in section 5582 of the Virginia Code, which provides as follows: "Where the instrument contains, or a person adds to his signature, words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability."

It is said in the Tentative Draft of the Restatement of Trusts, § 255, page 153, that this statute is applicable to a trustee who signs a negotiable instrument in such a manner as to manifest an intention to be liable not in his personal capacity, but only as trustee. The authorities likewise support this statement of the rule. Thus in New Georgia Nat. Bank v. Lippmann, 249 N. Y. 307, 310, 164 N. E. 108, 109, 60 A. L. R. 1344, the court was construing the liability of a person who signed an instrument containing words indicating that he was signing in a representative capacity, when in fact he signed without authority. In holding that in such circumstances the signer was liable on the instrument, the court, through Cardozo, C. J., discussed the purpose of section 20, as follows:

"Before the statute was adopted, all manner of subtle distinctions had to be drawn before one could say where liability would rest. Brannon Negotiable Instruments Law (4th Ed.), supra; Mechem, Agency, vol. 1, §§ 1122, 1123. Many forms of signature indicating an intention to sign as agent for a designated principal were held to charge the agent personally. The hardship was mitigated by resort to extrinsic evidence when the controversy was one between the original parties to the paper, but not when the paper was in the hands of a holder in due course. Thus, a note bearing the name of a corporation in the margin, but signed by the president and treasurer in their own names with the addition of their official titles, and thereafter discounted by a bank without notice dehors the instrument, was in law their individual promise. Casco Nat. Bank v. Clark, 139 N. Y. 307, 34 N. E. 908, 36 Am. St. Rep. 705; Merchants' Nat. Bank v. Clark, 139 N. Y. 314, 34 N. E. 910, 36 Am. St. Rep. 710; First Nat. Bank v. Wallis, 150 N. Y. 455, 44 N. E. 1038. Many decisions to the like effect are collated in the text-books, see, e. g., Brannon's Negot. Instr. Law (4th Ed.) by Prof. Chafee, note to section 20, Mechem, supra. Slight variations of form led to variant conclusions. See, e. g., Barker v. Mechanic Fire Ins. Co., 3 Wend. N. Y. 94, 20 Am. Dec. 664; Miller v. Roach, 150 Mass. 140, 22 N. E. 634, 6 L. R. A. 71; Mechem, § 1124. The refinement of distinction was mystifying even to the courts. It must have been more mystifying to business men in the quick transactions of the market.

"The statute, as we read it, sweeps these subleties away. Whenever the form of the paper is such as fairly to indicate to the eye of common sense that the maker signs as agent or in a representative capacity, he is relieved of personal liability if duly authorized. Jump v. Sparling, 218 Mass. 324, 326, 105 N. E. 878; Consumers' Twine Co. v. Mount Pleasant Co., 196 Iowa, 64, 194 N. W. 290; Austin, Nichols & Co. v. Gross, 98 Conn. 782, 120 A. 596."

See, also, American Trust Co. v. Canevin (C. C. A.) 184 F. 657; Gutelius v. Stanbon (D. C.) 39 F.(2d) 621; First Nat. Bank of Pennsboro v. Delancey, 109 W. Va. 136, 153 S. E. 908; Wilson v. Clinton, etc., Church, 138 Tenn. 398, 198 S. W. 244; Adams v. Swig, 234 Mass. 584, 125 S. E. 857; Bank of Spruce Pines v. Vance, 205 N. C. 103, 170 S. E. 119; Megowan v. Peterson, 173 N. Y. 1, 65 N. E. 738; Charles Nelson Co. v. Morton, 106 Cal. App. 144, 288 P. 845; Grafton Nat. Bank v. Wing, 172 Mass. 513, 52 N. E. 1067, 43 L. R. A. 831, 70 Am. St. Rep. 303; Bowen v. Farley, 256 Mass. 19, 152 N. E. 69; Kerby v. Ruegamer, 107 App. Div. 491, 95 N. Y. S. 408; Wolff v. Flateau, 206 App. Div. 134, 200 N. Y. S. 646; Orgill Bros. v. Perry, 157 Miss. 543, 128 So. 755; ...