Rotuba Extruders, Inc. v. Ceppos
Decision Date | 27 December 1978 |
Citation | 46 N.Y.2d 223,413 N.Y.S.2d 141,385 N.E.2d 1068 |
Parties | , 385 N.E.2d 1068, 25 UCC Rep.Serv. 765 ROTUBA EXTRUDERS, INC., Appellant, v. Kenneth CEPPOS et al., Respondents. |
Court | New York Court of Appeals Court of Appeals |
This appeal, in an action between the immediate parties to a series of negotiable instruments, calls upon us to determine what measure of proof is required to free from personal liability an authorized representative who signs his own name to a series of negotiable instruments that name the principal represented but do not show that the representative signed in a representative capacity. The issue falls squarely within section 3-403 (subd. (2), par. (b)) of the New York Uniform Commercial Code.
Pursuant to CPLR 3213, plaintiff, the Rotuba Extruders, Inc., initiated the action by the service of a summons, complaint and notice of motion for partial summary judgment in lieu of complaint. The summary judgment was sought on the first cause of action, which was brought against the defendant Kenneth Ceppos on seven promissory notes in the aggregate face amount of $33,898.80. These notes had been delivered to plaintiff between February and May, 1976, in payment for goods sold and delivered to Kenbert Lighting Industries, Inc., a close corporation of which Kenneth Ceppos was the chief executive officer and of which Robert Ceppos and Daniel Ceppos were the other principals. Rotuba apparently then considered Kenbert so precarious a credit risk that, as set forth in its verified complaint, it was insistent that one of the three Ceppos' guarantee payment for goods sold to Kenbert. When the first notes went unpaid upon presentation for payment, Rotuba first brought an action against Kenbert. Shortly thereafter, as the due date of the remaining notes approached, Kenbert filed a voluntary petition under chapter 11 of the Federal Bankruptcy Laws. Rotuba thereupon initiated the present action against the individual defendants. 1
Except for the dates, amounts and bank where they were to be presented which were in handwriting, and the face amount for which each was made, which had been inserted by a mechanical check-writing device, the notes were each on an identical printed form. In addition, the word "we" had been written in a blank space obviously provided for the insertion of a plural or singular pronoun. On the single printed line provided for a signature in the lower right-hand corner of each note appeared the signature of Kenneth Ceppos and, in a space immediately above this, in what is apparently a different handwriting, were the words "Kenbert Lighting Ind. Inc." No word or symbol, not even as much as "by" or "for", appeared to signify that Kenneth Ceppos was acting in a representative capacity in affixing his signature. Nor was there any designation of any office or position that Kenneth Ceppos held with Kenbert.
The exact language of the first note, which save for differences in the amount and date of each is for all practical purposes a duplicate of the other six, appears as follows It is Rotuba's position on the motion for summary judgment that the notes indicate on their very faces that Kenneth Ceppos is personally liable on them. In opposition, Ceppos contends that a triable issue of fact exists because, as he asserts, the notes are ambiguous on their faces and his intention was only to sign them in a representative capacity. The Supreme Court rejected this argument and granted Rotuba's motion. On appeal, however, the Appellate Division unanimously reversed in a short memorandum which concluded that "a question of fact is inherent on the face of each note as to who is liable for payment" (58 A.D.2d 537, 396 N.Y.S.2d 1). For the ensuing reasons, we disagree with that determination.
The pertinent subdivision of section 3-403 of the New York Uniform Commercial Code provides:
Section 3-403 aims to foster certainty and definiteness in the law of commercial paper, requirements deriving from the "necessity for takers of negotiable instruments to tell at a glance whose obligation they hold" (White & Summers, Uniform Commercial Code, § 13-2, p. 399). 2 To make commercial paper "freely negotiable without undue risk" (Financial Assoc. v. Impact Marketing, 90 Misc.2d 545, 547, 394 N.Y.S.2d 814, 815), the basic law is that resort to extrinsic proof is impermissible when the face of the instrument itself does not serve to put its holder on notice of the limited liability of a signer (Uniform Commercial Code, § 3-403, subd. (2), par. (a); cf. Uniform Commercial Code, § 3-402).
As the statute states, the only exception has to be one that is "otherwise established between the immediate parties". In adopting this exception, the drafters of the code followed the more liberal pre-existing New York rule permitting proof of an agreement or understanding that personal liability of the signer was not intended (Official Comment 3, McKinney's Cons.Laws of N.Y., Book 62 1/2, Uniform Commercial Code, § 3-403; see Megowan v. Peterson, 173 N.Y. 1, 5-6, 65 N.E. 738, 739; Central Bank of Rochester v. Gleason, 206 App.Div. 28, 31, 200 N.Y.S. 384, 386). 3
But the type of showing needed to bring the note within the "except" clause of section 3-403 (subd. (2), par. (b)) must necessarily amount to more than the mere self-serving allegation of the signer's subjective intent to sign as representative. To escape personal liability, the signer has the burden to "establish" an agreement, understanding or course of dealing to the contrary (cf. Uniform Commercial Code, § 1-201, subd. (3); § 2-208). Thus, without an affirmative demonstration that the taker of the note knew or understood that the signer intended to execute the instrument in a representative status only, there can be no defense that, notwithstanding the form of the note, representative liability was "otherwise established between the * * * parties" (see Jackson Chevrolet v. Oxley, 564 P.2d 633, 635-636 (Okl.); Fanning v. Hembree Oil Co., 245 Ark. 825, 434 S.W.2d 822).
Clearly, the notes in this case fall within the situation contemplated by the statute and, in factual circumstances that meet its requirements, would have permitted Ceppos to rebut the presumption of individual liability (see Official Comment 3, subd. (f), McKinney's Cons.Laws of N.Y., Book 62 1/2, Uniform Commercial Code, § 3-403). Yet, Ceppos neither alleged nor made any evidentiary showing of the mutuality of intent necessary to constitute such an agreement or understanding and, consequently, his affidavit, even when considered with that of his attorney, 4 does not serve to deny Rotuba summary judgment (Commonwealth Bank & Trust Co. v. Plotkin, 355 N.E.2d 917, 919 (Mass.); Seale v. Nichols, 505 S.W.2d 251, 253 (Tex.), revg.493 S.W.2d 589 (Tex.Civ.App.); cf. Slayton v. Lomar Constr. Corp., 4 UCC Rep.Serv. 955 (NYLJ, Dec. 20, 1967, p. 18, col. 8)).
Indeed, the affidavits submitted by Ceppos and by his attorney contain no factual allegations that, given the explicit statutory language, would create a triable issue on whether Rotuba knew or should have known that it was Ceppos' intention to sign the notes in a representative capacity only. The undisclosed intention of Ceppos, without more, does not establish the understanding between the parties required by section 3-403 (subd. (2), par. (b)) of the Uniform Commercial Code (Southern Nat. Bank of N. C. v. Pocock, 29 N.C.App. 52, 57-58, 223...
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