Manufacturers Hanover Trust Co. v. Eisenstadt

• Decision Date: 14 October 1970
• Citation: 315 N.Y.S.2d 19,64 Misc.2d 397
• Parties: MANUFACTURERS HANOVER TRUST COMPANY, Plaintiff, v. Harvey J. EISENSTADT and Mrs. Judith Eisenstadt, Defendants.
• Court: New York Supreme Court

Page 19

315 N.Y.S.2d 19

64 Misc.2d 397

MANUFACTURERS HANOVER TRUST COMPANY, Plaintiff, v. Harvey J. EISENSTADT and Mrs. Judith Eisenstadt, Defendants.

Supreme Court, Trial Term, New York County, Part II.

Oct. 14, 1970.

Simpson, Thacher & Bartlett, New York City (Henry Landau, and Charles D. Edelman, New York City, of counsel) for plaintiff.

Sidney Miller, Brooklyn, for defendants.

MATTHEW M. LEVY, Justice:

(I)

The plaintiff has instituted this action to require the payment of a promissory note made by Carlton Management Corporation (Carlton) and the defendants, Harvey J. Eisenstadt and Mrs. Judith Eisenstadt, payable to the order of Greater New York Burner and Boiler Service, Inc. (Greater New York) and indorsed without recourse by Greater New York, by Abe Samuels, and delivered to the plaintiff bank. Carlton was also a defendant herein but judgment was obtained by the plaintiff against it by default; the action was accordingly severed and subsequent proceedings were directed by the plaintiff against the Eisenstadts only. These individuals will, at times, be referred to hereinafter as the defendants.

There is no dispute as to the making and indorsement of the note, of the consideration therefor, and of default thereon, but the defenses are grounded on two claims: that the individual defendants are not personally liable on the note and that the plaintiff is not a holder in due course. (If the plaintiff is not a holder in due course, the additional defenses--fraud in the inducement of the signatures of the defendants on the note and breach of contract by the payee--would preclude enforcement of payment of the note.) The controversy was submitted to me for trial and disposition on stipulated facts. The only issues to be resolved, therefore, are questions of law and their applicability to the conceded facts.

Prior to April 1, 1963, Greater New York (by Abe Samuels, an officer) applied for a loan for $13,450 from the plaintiff to cover the cost of a boiler and its installation, promising to give the plaintiff a note made by Calton and cosigned by the defendants, Harvey J. Eisenstadt (the president of Carlton) and Judith Eisenstadt (the secretary of Carlton). The defendants were persuaded by Malcolm Lauer (a brother of Mrs. Eisenstadt and the sole stockholder and manager of Carlton) to act as officers of Carlton and to sign the note both in their capacity as such officers and individually, with Lauer's assurance that they would not be personally liable on the note. Each of the defendants signed the note twice on the bottom thereof. On the left hand side of the note, beneath the writing of the name of Carlton, they signed in their representative capacities as such officers--the word 'Pres' following the signature of Harvey J. Eisenstadt at that place, and the word 'Secty' following the signature of Mrs. Judith Eisenstadt. On the right hand side of the note they signed individually.

On April 1, 1963, Samuels submitted to the plaintiff the proposal made by Greater New York and accepted by Carlton (signed Carlton by the defendant Harvey J. Eisenstadt as President), as well as a completed credit application (also signed Carlton, by the defendant Harvey J. Eisenstadt as President). On June 5, 1963, the plaintiff mailed a notice addressed to Carlton, in care of Harvey J. Eisenstadt, indicating that the plaintiff had found Carlton's credit to be satisfactory for a loan of $13,450. The notice said that the face amount of the note would be $17,292.24, payable in 84 monthly installments. ¹ The notice further stated that receipt by the plaintiff of all necessary documents, including the completion certificate, was a prerequisite for the loan. An additional condition was expressed, on the back of the notice, requiring that the Eisenstadts sign the note personally. On June 10, 1963, Samuels delivered to the plaintiff the conditional sales contract, the completion certificate and the promissory note. The note was in printed form and was signed, as I have hereinbefore stated, but it was otherwise blank--i.e., as to the date, the amount, the name of the payee, the number of installments, the amount of each installment, and the dates of payment thereof. The plaintiff filled in the omitted particulars in accordance with the prior notice. The note was then indorsed by Greater New York (by Abe Samuels) and the plaintiff thereupon delivered to Greater New York its check for $13,450.00, the amount of the loan.

It appears that there was a conspiracy between Greater New York, Carlton, Smuels and Lauer to obtain a property improvement loan from the plaintiff, to be guaranteed by the Federal Housing Administration (FHA), without intending to make or ever making the proposed improvement (the installation of the boiler in Carlton's apartment building in Manhattan). In the United States District Court for the Southern District of New York, Samuels pleaded guilty to, and Lauer was convicted of, a charge of conspiracy, as well as of uttering false statements for property improvement loans, and of false completion certificates, submitted to the plaintiff and forwarded to FHA in connection with such loans, and of receiving proceeds thereof contrary to the terms of the completion certificates signed by them. At the time the defendants signed the note and at the time the plaintiff made the home improvement loan, neither plaintiff nor defendants knew of the conspiracy, and neither knew that the proceeds of the loan would not be used to finance the boiler installation, that the boiler and heating equipment would not be and were not installed, and that Lauer would and did receive part of the proceeds of the loan.

After eighteen installment payments, Carlton defaulted, leaving a balance due on the note of $13,586.76 with interest. The note provides that, if the undersigned failed to pay any installments of the note when due, the holder at its option may declare the note immediately due and payable without notice or demand. The note also provides for late charges of 5% Of arrears if any defaulted payment is more than ten days in arrears, and for payment of attorneys' fees of 15% Of the principal and interest then due if an attorney is engaged to enforce or collect the note against the party. The amount that the plaintiff is entitled to recover--if judgment is to be rendered in favor of the plaintiff--is not contested.

(II)

The defendants deny, as I have said, that they are personally liable on the note. If their signatures on the left hand side of the note were their only signatures then their contention would be correct. It was made plain to the plaintiff that, as to the signatures on the left hand side of the note, the defendants were signing only as officers of Carlton, especially since their signatures and offices appeared immediately beneath that of Carlton. Where a person '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.' (Negotiable Instruments Law § 39.) ²

Prior to the enactment of section 39 of the Negotiable Instruments Law, when an agent or representative signed an instrument allegedly on behalf of a corporation or other entity, 'all manner of subtle distinctions had to be drawn before one could say where liability would rest (citations omitted)' (New Georgia National Bank of Albany, Georgia v. Lippmann, 249 N.Y. 307, 310, 164 N.E. 108, 109 (1928)). The resulting holdings were to the effect that even 'a note bearing the name of a corporation in the margin, but signed by the president and treasurer in their own names (though) with the addition of their official titles, and thereafter discounted by a bank without notice Dehors the instrument, was in law their individual promise.' (New Georgia National Bank of Albany, Georgia v. Lippmann, Supra, at pp. 310--311, 164 N.E. at 109, referring to Casco National Bank v. Clark, 139 N.Y. 307, 34 N.E. 908 (1893); Merchants' National Bank v. Clark, 139 N.Y. 314, 34 N.E. 910 (1893); First National Bank v. Wallis, 150 N.Y. 455, 44 N.E. 1038 (1896)).

The statutory standard, however, fixes the determination of liability of an individual signing on behalf of an entity on the fact as to whether he was given the authority to do so. '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.' (New Georgia National Bank of Albany, Georgia v. Lippmann, Supra, at p. 311, 164 N.E. at 109; citations omitted).

The defendants in the case at bar were duly authorized to sign the note as officers of Carlton; and that they did so act as to the signatures on the left side of the note was obvious. On the other hand, as to the signatures on the right side of the note, the 'eye of common sense' could in no way conclude that the defendants had signed as such officers or in any other representative capacity (see Kraushaar v. Lloyd, 152 Misc. 269, 273 N.Y.S. 231 (1934); Manufacturers Hanover Trust Co. v. Jose Burgos Real Estate Corp., N.Y.L.J. April 9, 1969, p. 17, col. 1).

Moreover, the plaintiff had no notice of any kind that the defendants did not intend to be personally liable on the note. In fact, the defendants were notified that one of the conditions under which the plaintiff would grant the loan was that the defendants sign the note personally. This was made evident to them in the 'Advance Notice to the Applicant for a Title I Home Improvement Loan', dated June 5, 1963, sent to Carlton in care of the defendant Harvey J. Eisenstadt. That notice read: 'Subject to: Harvey J. & Judith Eisenstadt also to sign personally.' ³

Finally, the claim of the defendants that they signed twice under the mistaken impression, induced by Laure, that they would not be personally liable, is meritless in this case. Even if they were under a misconception, they would still remain liable on...