Peoples Bank of Point Pleasant v. Pied Piper Retreat, Inc.

• Decision Date: 23 July 1974
• Docket Number: No. 13387,13387
• Citation: 209 S.E.2d 573,158 W.Va. 170,14 UCC Rep. 1398
• Court: West Virginia Supreme Court
• Parties: , 14 UCC Rep.Serv. 1398 PEOPLES BANK OF POINT PLEASANT v. PIED PIPER RETREAT, INC., a corporation, et al.

Page 573

209 S.E.2d 573

158 W.Va. 170, 14 UCC Rep.Serv. 1398

PEOPLES BANK OF POINT PLEASANT v. PIED PIPER RETREAT, INC., a corporation, et al.

No. 13387.

Supreme Court of Appeals of West Virginia.

July 23, 1974.

Rehearing Denied Nov. 15, 1974.

Syllabus by the Court

1. 'Rule 52(a) mandatorily requires the trial court, in all actions tried upon the facts without a jury, to find the facts specially and state separately its conclusions of law thereon before the entry of judgment. The failure to do so constitutes neglect of duty on the part of the trial court, and if it appears on appeal that the rule has not been complied with, the case may be remanded for compliance.' Point 1 Syllabus, Commonwealth Tire Company v. Tri-State Tire Company, W.Va., 193 S.E.2d 544.

2. A director of a bank has a duty to make the fullest disclosure and deal fairly with the bank in all transactions in which he has an interest.

3. Failure of a holder of a note to perfect a purchase money lien by properly filing a financing statement in the manner prescribed by Code, 1931, 46--9--401, as amended, is an unjustifiable impairment of collateral as contemplated by Code, 1931, 46--3--606, as amended.

4. Discharge of a party to a negotiable instrument by reason of the unjustifiable impairment of collateral as provided in Code, 1931, 46--9--606(1) (b), as amended, is a defense available only to secondary and accommodation parties.

5. Where it is clear from the face of a negotiable instrument that the parties signed in a capacity other than as endorsers, but there is a dispute as to which capacity, parol evidence is admissible to show the intention of the parties as to the capacity in which the instrument was signed.

6. An accommodation party is one who signs an instrument in any capacity for the purpose of lending his name to another party to the instrument.

7. Findings of fact of a trial court sitting in lieu of a jury are entitled to peculiar weight upon appeal and will not be reversed unless plainly wrong.

Stone, Bowles, Kauffelt & McDavid, P. Michael Pleska, Charleston, for appellants.

Dean & Kingery, Don C. Kingery, Point Pleasant, for appellee.

SPROUSE, Justice:

This is an appeal from the judgment of the Circuit Court of Mason County where the plaintiff, Peoples Bank of Point Pleasant, was awarded $5,073.51 against Pied Piper Retreat, Inc., Frank R. Curatolo, and P. A. Sayre, he defendants, in an action on a promissory note. The action was tried by the trial court sitting in lieu of a jury.

The appellants, Curatolo and Sayre, do not dispute that they signed the note in question, but contend they signed it as accommodation parties. They further contend that they are released from any liability on the note under the provision of the Uniform Commercial Code (Code, 1931, 46--3--606, as amended), which releases certain parties to a negotiable instrument from liability, when the holder of the instrument has impaired collateral given as security. The appellee bank admits that it did not perfect the lien given in connection with the note, thereby losing the collateral securing the note, but contends the appellants are principal debtors on the note and, therefore, the defense provided by Section 606 is not available to them. The bank also contends that even if such a defense would be otherwise available, it should be denied the defendant Sayre, because as a director of the bank, he breached his fiduciary duty to the bank in not advising them of a previously existing lien held by the Small Business Administration.

Curatolo and Sayre, the appellants, were sole stockholders of Pied Piper Retreat, Inc., a corporation which purchased a motel, financing it by a purchase money loan from the Small Business Administration. The Small Business Administration retained a lien upon all tangible property of the resort, including 'after acquired' personal property.

Subsequently in April, 1968, the defendants negotiated a loan with the plaintiff bank for the purchase of a number of television sets for the motel, executing a note in the amount of $20,060. The proceeds of the loan were paid by the bank and all of the principal and interest except $5,073.51 had been repaid at the time suit was brought. The note, stating '* * * we promise to pay * * *', was signed 'Pied Piper Retreat, Inc., by Frank R. Curatolo, Pres.', and was signed on the reverse side by Frank R. Curatolo and P. A. Sayre.

Curatolo and Sayre sold their stock in Pied Piper in 1970, but the Small Business Administration later took possession of the property under the 1968 deed of trust. Acting under its 'after acquired' property lien in the 1968 deed of trust, it sold the television sets and applied the proceeds of the sale to its loan balance. The claim of the plaintiff bank for priority, resulting from its purchase money lien upon the television sets and other business equipment, was denied because it had not perfected its lien by properly filing the financing statement with the office of the Secretary of State.

There was a sharp conflict of evidence concerning the capacity in which the defendants signed the note. Mr. Curatolo began negotiations for the loan with Emil E. Martin, executive vice president and cashier of the plaintiff bank.

Martin testified that the loan committee recommended to the board of directors that the loan be approved, provided it be signed by both Mr. Sayre and Mr. Curatolo personally. The minutes of the board meeting approving the loan contained a notation indicating that the note must be signed by both parties and they would be personally responsible.

Martin and Jack Fruth, chairman of the executive committee, testified that the personal signatures of the appellants were required because the corporation had not been in operation for any extent of time; the bank was not in a position of marketing television sets; and the bank could not look to the corporation for money. Fruth stated in his testimony that the loan was not made upon the security of the signature of Pied Piper Retreat, but upon the security of the collateral involved and the signatures of the two individuals. Fruth testified as follows concerning his communication of this to the defendants:

'Q. Was that loan made on the security of Pied Piper Retreat?

'A. No, sir.

'Q. Did you communicate that thought to Mr. Sayre?

'A. Yes, sir.

'Q. What did you base your security on for that loan?

'A. It was based on the collateral involved and the signatures of the two individuals.'

Martin and Fruth both testified they were not advised, either by Sayre or Curatolo, as to the existence of any 'after acquired property' clause in the Small Business Administration deed of trust or security agreement.

According to the testimony of Curatolo, he signed the note with the understanding that it would be filled in when the billing invoices were received by the bank. He received a receipt which he testified was obtained because the instruments were signed in blank. He stated that he signed the note as president of the corporation, and was called in at a later time to sign as an endorser.

Sayre testified that he was in Hawaii when the loan was negotiated, returning to Mason County after the loan was approved. He testified he signed as an endorser and that he did not know if it was explained to him why his signature was required. He stated that no one at the bank ever inquired as to any negotiations with the Small Business Administration or as to any other liens against the corporation. He testified that he told Fruth shortly after the motel was acquired, that it had been purchased from the Small Business Administration and that they would have a first mortgage on it. He did not, however, tell him about the 'after acquired' property clause.

On rebuttal, Mario Liberatore, assistant cashier of the plaintiff bank, testified that he attended a meeting between the appellants, Mr. Martin and others. At this time, he testified that the note, a security agreement, and financing statement were executed. He stated that they were completed at the time of execution. This testimony was substantiated on rebuttal by Mr. Martin.

At the conclusion of all of the evidence, the court made oral findings of fact and conclusions of law as follows:

'(A) That the defendant, P. A. Sayre, breached a fiduciary duty then owing by him to the plaintiff when he failed, prior to the consummation of the loan, to inform the plaintiff bank of the existence of the prior Small Business Administration lien.

'(B) That both defendants, Frank R. Curatolo and P. A. Sayre were primary parties in their respective capacities on the note in question and that neither of them was an accommodation party as claimed in their defenses.'

The issues raised on appeal are whether: (1) The case should be remanded to the trial court because that court did not make written findings of fact and conclusions of law as required by Rule 52 of the West Virginia Rules of Civil Procedure; (2) the defendant, Sayre, breached a fiduciary duty to the bank in not affirmatively advising them of the existence of the prior Small Business Administration lien; (3) the bank's failure to record a financing statement in the office of the Secretary of State constitutes an unreasonable impairment of collateral, and if so, were Curatolo and Sayre accommodation parties so that they would be released from liability by virtue of such reasonable impairment.

After the trial court made its findings of fact and conclusions of law, announcing them orally in court, the court reporter failed to transcribe them. They are well documented, however, in the record by motion of the parties. While we do not appprove of this practice as a general rule, we do not conceive Rule 52 to impose merely formal requirements. Since the court's findings are sufficiently documented in the record to allow a complete review, the form of the findings, while constituting error, is not sufficient error for a reversal and...