In re Turner

• Decision Date: 09 May 1985
• Docket Number: Bankruptcy No. 82-0930-L.
• Citation: 49 BR 231
• Court: U.S. Bankruptcy Court — District of Massachusetts
• Parties: In re John C. TURNER, Debtor.

49 B.R. 231 (1985)

In re John C. TURNER, Debtor.

Bankruptcy No. 82-0930-L.

United States Bankruptcy Court, D. Massachusetts.

May 9, 1985.

Jon D. Schneider, Goodwin, Procter & Hoar, Boston, Mass., for debtor-Turner.

Robert Somma, Goldstein & Manello, Boston, Mass., for petitioning creditors.

Christopher W. Parker, Craig & Macauley, Boston, Mass., for debtor-Thrifty Liquors.

Terry Philip Segal, Segal, Weyland, Moran & McMahon, Boston, Mass., trustee.

MEMORANDUM DECISION

THOMAS W. LAWLESS, Chief Judge.

This matter originally came before the Court when John C. Turner ("Turner") opposed the involuntary petition filed against him by certain alleged creditors ("the Petitioning Creditors") under Chapter 7 of the Bankruptcy Code. After a Motion for Summary Judgment was filed by Turner, and an opposition thereto was filed by the Petitioning Creditors with supporting affidavits, this Court ruled that four of the claims asserted by the Petitioning Creditors were contingent as to liability within the meaning of Section 303 of the Bankruptcy Code. As to the fifth claim, this Court held that there was a genuine issue of material fact as to whether Turner was personally liable for certain dishonored checks which he had signed. In re Turner, 32 B.R. 244 (Bankr.D.Mass.1983) The Petitioning Creditors alleged that Turner was so liable pursuant to Massachusetts General Laws ("M.G.L.") c. 106, Section 3-403(2), which provides, inter alia, that an authorized representative will be personally obligated on an instrument if he fails to indicate his representative capacity.

The Court directed that a hearing be held on the issue of Turner's personal liability on the debt represented by the dishonored checks. This matter was tried before this Court on November 8, 1983, January 26, 1984 and April 3, 1984.

FINDINGS OF FACT

The issue presented is whether Turner is personally liable on twelve corporate checks. Each disputed check bears Turner's signature in the lower right-hand corner, without any qualification that in signing he was acting as an agent of any entity or as an officer, director or shareholder of any corporation. The upper-middle portion of each check is imprinted with one of the following three legends:

1. THRIFTY LIQUORS, INC. TURNER'S PACKAGE STORE 13 WHITE STREET CAMBRIDGE, MASSACHUSETTS 02140 2. THRIFTY LIQUORS 215 ALEWIFE BROOK PARKWAY CAMBRIDGE, MASSACHUSETTS 02138 3. NEPONSET THRIFTY LIQUORS 755 GALLIVAN BOULEVARD DORCHESTER, MASSACHUSETTS 02122

Turner claimed to have signed the eight checks imprinted with the legend "THRIFTY LIQUORS, INC., TURNER'S PACKAGE STORE, 13 WHITE STREET, CAMBRIDGE, MASS." as an officer of Turner's Package Store, Inc. Turner claimed to have signed the two checks imprinted with the legend NEPONSET THRIFTY LIQUORS, 755 GALLIVAN BOULEVARD, DORCHESTER, MA 02122", as an authorized representative of John F. McCarthy, Inc. Turner claimed to have signed the two checks imprinted with the legend "THRIFTY LIQUORS, 215 ALEWIFE BROOK PARKWAY, CAMBRIDGE, MA", as an officer of Thrifty Liquors, Inc.¹

CONCLUSIONS OF LAW

The liability of a drawer of a check is established by M.G.L. ch. 106, sec. 3-413(2), which provides that the drawer of a check engages that upon dishonor of the draft and any necessary notice of dishonor or protest the drawer will pay the amount of the draft to the holder or to any endorser who takes it up. See Griffen v. Ellinger, 538 S.W.2d 97 97 A.L.R.3d 791 (Tex. 1976). In the instant case, dishonor and notice of dishonor have occurred, and the drawer of these checks is primarily obligated to the petitioning creditors.²

Because Turner's signature appears on the dishonored checks, the burden is upon Turner to disestablish his personal liability as drawer. M.G.L. c. 106, Sec. 3-307(2); Commonwealth Bank & Trust Co. v. Plotkin, 371 Mass. 218, 355 N.E.2d 917 (1978); Carleton Ford, Inc. v. Oste, 1 Mass.App. 819, 295 N.E.2d 402 (1973). Turner's defense is that he signed the checks not as an individual but as an agent or representative of certain corporations.

M.G.L. ch. 106 § 3-403(2) provides the circumstances under which personal liability may be avoided by way of this defense. That statute provides in pertinent part that:

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;

(b) except as otherwise established between the immediate parties, is personally obligated if the instrument names the person represented but does not show that the representative signed in a representative capacity. . . .

This section aims to foster certainty and definiteness in the law of commercial paper, requirements deriving from the necessity that holders of negotiable instruments be able "to tell at a glance whose obligation they hold." Rotuba Extruders, Inc. v. Ceppos, 46 N.Y.2d 223, 413 N.Y.S.2d 141, 385 N.E.2d 1068 25 UCC Rptr. 765 (1978), quoting, J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code, Sec. 13-2 (2d ed. 1980). See Wurzburg Brothers, Inc., v. Coleman, 404 So.2d 334 32 UCC Rptr. 182 (Ala.1981).

To make commercial paper freely negotiable without undue risk, § 3-403(2) therefore incorporates the common law rule that unless something on an instrument's face or in the manner of its signature creates uncertainty as to whether the signer intended to sign in a representative capacity, parol evidence is inadmissible to alter the presumption that he is personally liable thereon. Thus, where an instrument both fails to disclose the representative capacity of the signer and also fails to name the principal, the signer's personal liability is conclusively established, and the admission of parol evidence is precluded. M.G.L. c. 106, sec. 3-403(2)(a). Norfolk County Trust Co. v. Vichinsky, 5 Mass.App. 768, 359 N.E.2d 59 (1977) (rescript). See Lerman Container Corp. v. Letourneau (D.C.Mass. 1st Cir.1982) 725 F.2d 664, 35 UCC Rep. 547; K-Ross Bldg. Sup. Ctr., Inc. v. Winnipesaukee Chalets, 121 N.H. 575, 432 A.2d 8, 11 (1981). (even where the person taking the instrument knows that the agent is signing in a representative capacity, the agent cannot introduce parol evidence to show that his signature was made for another); Southern Oxygen Supply Co. v. DeGolian, 230 Ga. 405, 197 S.E.2d 374 (12 U.C.C. Rptr. 916) (1973).

In the instant case, it is undisputed that the checks fail to disclose that Turner signed in a representative capacity. Thus, the threshold issue before this Court is whether the disputed checks sufficiently "name" the corporations on whose behalf Turner claims he signed to enable extrinsic evidence to be admitted to rebut the presumption of individual liability. Although Section 3-403(2) clearly states that parol evidence is not allowed where the principal represented is not so named, it fails to specify what is necessary to satisfy the requirement that the principal represented by the signer be "named." See, 97 A.L.R.3d 798, 815 (1980); 2 R. Anderson, Uniform Commercial Code § 3-403:6-8 (1971); Schwarzwalder v. Waitkoss, 101 Ill.App.3d 337, 57 Ill.Dec. 83, 428 N.E.2d 633, 636 (1981).

The few decisions which have addressed this issue are in conflict. The decisions fall into two categories. The majority of courts follow a strict reading of § 3-403(2), while the minority view favors a more lenient approach.

The majority position, exemplified by Southern Oxygen Supply Co. v. DeGolian, 230 Ga. 405, 197 S.E.2d 374 12 UCC Rptr. 916 (1973), requires a strict reading of the statute; parol evidence negativing the personal liability of the signer is admissible only where the name of the entity claimed to have been represented appears correctly. In Southern Oxygen, the plaintiff brought an action on a note against an individual named Felix de Golian, Jr. who asserted that he had signed the note not individually but in his representative capacity as president of Golian Steel & Iron Company. At the bottom of the note was printed "Golian Steel Co." and the address of the corporation. Thereunder appeared the bare signature "Felix De Golian, Jr." The Court of Appeals found that the words "Golian Steel Co." "named" the corporation represented and held that parol evidence was admissible on the contention that the note was signed in a representative capacity. The Georgia Supreme Court reversed, finding that, notwithstanding the fact that "Golian Steel Co." was a designation very similar to the corporate name "Golian Steel & Iron Company," the note failed to name the entity actually represented as required by 3-403(2)(b). Therefore, no question of fact was created as to whether the signer was acting in a representative capacity, and parol evidence was inadmissible.

Similarly, in Custom Equipment Company v. Young, 564 P.2d 1020, (Okla.App. 1976) defendant was sued individually on a check upon which appeared his bare signature and, at the top of the check, the words "H & R Disposal Service." Defendant claimed to have signed as agent for "H & R Disposal Service, Inc." The court held that the check failed to disclose that defendant was acting in a representative capacity, stating that the words appearing on the check implied no more than an account designation or at most a trade name. "The appellation does not end with any word statutorily connoting incorporation as required by state statute. If anything the check strongly suggests the maker is a sole proprietor . . ." Id. at 1023. Accord: Federal Deposit Ins. Corp. v. West., 244 Ga. 396, n. 4, 260 S.E.2d 89 (1979) (court noted that where checks were imprinted "Davidson-Sarasota" and contained bare signature of defendant, parol evidence was inadmissible to show that defendant signed his name in representative capacity as president of Davidson Land Company, since the instrument neither named the person represented nor showed that the...