Womack v. First Nat. Bank of San Augustine

• Decision Date: 12 March 1981
• Docket Number: No. 1287,1287
• Citation: 613 S.W.2d 548
• Parties: 31 UCC Rep.Serv. 1029 Leo WOMACK, Administrator of the Estate of H. Lane McClanahan, Deceased, Appellant, v. FIRST NATIONAL BANK OF SAN AUGUSTINE, Texas, Appellee.
• Court: Texas Court of Appeals

Page 548

613 S.W.2d 548

31 UCC Rep.Serv. 1029

Leo WOMACK, Administrator of the Estate of H. Lane McClanahan, Deceased, Appellant, v. FIRST NATIONAL BANK OF SAN AUGUSTINE, Texas, Appellee.

No. 1287.

Court of Civil Appeals of Texas, Tyler.

March 12, 1981.

Rehearing Denied April 9, 1981.

Benton Musslewhite, Houston, for appellant.

J. L. Smith, Ramsey, Smith & Mitchell, San Augustine, for appellee.

SUMMERS, Chief Justice.

The First National Bank of San Augustine, Texas, appellee, sued Charles C. McClanahan and his brother, Dr. H. Lane McClanahan to recover upon five promissory notes. The bank alleged that the notes represented individual obligations of each of the brothers or, alternatively, were partnership obligations executed by Charles C. McClanahan on behalf of a partnership composed of the two brothers named "McClanahan Brothers." Charles C. McClanahan answered, admitting liability and claiming that the notes were partnership notes. H. Lane McClanahan filed a general denial and by verified plea alleged non est factum. Prior to trial, Dr. McClanahan died, and upon suggestion of death, his estate, by and through its Temporary Administrator, was substituted as a party defendant. The case was tried before a jury which, in response to special issues submitted, found that the notes were partnership obligations; judgment was rendered for appellee from which Dr. McClanahan's estate appeals.

We affirm.

It appears from the record in this case that for a number of years the McClanahan brothers had a continuing banking relationship with appellee bank. The inception of this relationship appears to have been in April 1971 when Dr. Lane McClanahan wrote an officer of the bank a letter which stated:

Dear Mr. Howard,

I am sending you a financial statement. My brother, Charles McClanahan wants to do business with you for some of the farming operations.

Sincerely yours,

/s/ H. Lane McClanahan, M.D.

Enclosed with this letter was Dr. McClanahan's personal financial statement.

Thereafter, on August 4, 1972, the McClanahan brothers executed a partnership agreement for the express purpose of engaging in the operation of a hog farm. By this agreement, which consisted of only four provisions and covered only a half page, the brothers agreed that Charles was to devote his time to the business and in return, receive 75% of the profits and share 50% of the losses while Lane would receive 25% of the profits and share 50% of the losses. Additionally, the agreement provided that the partnership funds would be kept in a joint account and Charles agreed "... to keep a complete record of the business, and shall be subject to inspection by Lane at any time." The agreement does not contain any provision relative to the partners' authority, nothing limiting their authority nor defining it. No partnership name is indicated in the agreement and there is testimony that the partnership operated under the names "McClanahan Farms," "C. C. McClanahan Farms," "McClanahan Brothers" and "Sugar Bush Farms" interchangeably. There is also testimony in the record that this agreement, as well as Dr. McClanahan's letter and accompanying financial statement were contained in the bank's files for the entire period that the bank dealt with the partnership.

Following formation of the partnership, Lane and Charles McClanahan began executing a series of notes with appellee bank as payee. The first of these, for the sum of $10,000, was executed on September 15, 1972. Over an eight-month period the brothers signed four notes with appellee bank for a total of $30,000. In a deposition taken before his death, which was admitted into evidence at trial, Dr. McClanahan admitted executing these four notes. Both he and his brother testified that the money which was loaned under these notes was used to finance the hog farm and to carry on its business. All four original notes reflect on their face that they were executed in contemplation of investment in the partnership business, each containing notations that they are secured by either livestock, feeding equipment or hogs. These four notes are signed "Charles McClanahan" or "C. C. McClanahan" and "H. Lane McClanahan, M.D." At the top of the notes is printed the word "NAME" followed by a blank on which is typed-in the name "McClanahan Brothers" on two of the notes and "Charles McClanahan and H. Lane McClanahan" on the other two. All but one of these notes was paid and the remaining note (No. 4088) was renewed by note number 7554 on October 18, 1974. Note number 4088 has the name "McClanahan Brothers" typed at the top. The renewal note, which both brothers admitted executing, is signed "McClanahan Farms By: C. C. McClanahan By: H. Lane McClanahan, M. D." and the name "McClanahan Brothers" is typed at the top. When this note matured, it too was renewed by note number 10828 which has the name "McClanahan Farms" typed at the top and is signed "C. C. McClanahan" underneath which appears the signature "H. Lane McClanahan." Charles McClanahan admitted signing his brother's name to this as well as the four other notes (described hereinafter) which form the basis of the bank's suit (notes numbers 11,364; 11,365; 11,551; 11,550).

The notes upon which the bank sued are all renewal notes. These notes as well as their predecessors reflect a continuing lending relationship between the bank and the partnership over a period from April 28, 1973, to May 1, 1975. They, as well as their precursors were executed by Charles McClanahan who also signed his brother's name to the notes. The earlier notes all have one of the names under which the partnership operated noted in the top margin. Additionally, each of the predecessor notes contains language on its face indicating that the notes were executed for the purpose of carrying on the partnership business; notations such as "339 Feeder Pigs," "breeding sows and boars," "feeding equipment," etc., were made on each of these notes in the lower left-hand corner. Some of the predecessor notes were executed as follows:

McClanahan Farms (typewritten)

By: C. C. McClanahan

or

McClanahan Farms (typewritten)

C. C. McClanahan

or

McClanahan Bros. (handwritten)

C. C. McClanahan

Likewise, each of the notes upon which the bank sued reflect on their face similar notations. ¹

Charles McClanahan testified that he considered himself in charge of the farm pursuant to the partnership agreement. In his deposition, Dr. McClanahan testified as follows:

Q: What was Charles supposed to do in the business venture?

A: It was more or less his operation that he was going to build the hog farm and raise the hogs and do all the raising of the hogs.

Charles McClanahan testified that he devoted his time to the operation of the farm, buying and raising hogs, feeding them, selling them, using the money of appellee bank in the operation of the business. As he would sell hogs, he would make payments to the bank and to his brother and borrow additional funds executing notes therefor, thus maintaining a running account with the bank for the benefit of the partnership. Ray Neal McEachern, one of appellee bank's officers, testified:

Q: How did Charles make payments on those notes?

A: As he would sell his pigs.

Q: Would he borrow money to buy the pigs

A: Yes, sir.

Q: And then when he would sell some, he'd come in and pay?

A: That's right. It was a revolving type credit.

Appellant predicates his appeal on twenty-eight rather involved points of error, several of which we have grouped for the ease of discussion. Points of error 1-4 and 14-16, all of which are no evidence or insufficient evidence points and points 13 and 17-19 all involve partnership law as it relates to negotiable instruments. Basically, these points of error, taken together, contend that in executing the subject notes, Charles McClanahan was not acting in his character as agent of the partnership; furthermore, appellant contends that since Dr. McClanahan admittedly did not sign the notes, which were not executed in the partnership name or executed with Dr. McClanahan's express authority, neither he nor his estate can be bound thereby, parol evidence being inadmissible to show that the notes were partnership rather than individual obligations.

In support of his contention that Dr. McClanahan's estate cannot be held liable on the subject notes since he did not sign the notes himself or authorize his signature thereon, appellant refers to Tex.Bus. & Com.Code Ann. § 3.404(a) (Vernon 1967). ² That provision provides:

Any unauthorized signature is wholly inoperative as that of the person whose name is signed unless he ratifies it or is precluded from denying it; but it operates as the signature of the unauthorized signer in favor of any person who in good faith pays the instrument or takes it for value.

Since it is undisputed that Dr. McClanahan did not sign the notes which are the basis of this suit and since no issue was submitted to the jury concerning ratification or estoppel, we agree with appellant that Dr. McClanahan's alleged signature on the note is wholly inoperative as his own. We have examined the record and have found no evidence that Dr. McClanahan authorized his brother to sign his name to the notes. In this connection, we note that § 3.401(a) T.B. & C.C. provides that "No person is liable on an instrument unless his signature appears thereon." However, as we view this case and the evidence before us, it is immaterial that Dr. McClanahan did not personally sign the notes. In full recognition of that rule (that one is not liable on an instrument unless he signs it), our supreme court has stated that there are several instances in which a non-signing partner may be liable upon a note signed by another partner. See. e. g., Edwards Feed Mill v. Johnson, 302 S.W.2d 151, 160 (Tex.Civ.App. San Antonio) (Pope, J., dissenting) rev'd 158 Tex. 313, 311 S.W.2d 232 (1958) and cases cited therein.

A partner's authority to bind the partnership and...