Decided: June 28, 1960.
GEORGE C. NORMAN, PLAINTIFF-RESPONDENT,
CHRISTOPHER A. BELING, DEFENDANT-APPELLANT
On appeal from Superior Court, Appellate Division, whose opinion is reported in 58 N.J. Super. 575.
For reversal -- Chief Justice Weintraub, and Justices Burling, Jacobs, Francis, Proctor, Hall and Schettino. For affirmance -- None. The opinion of the court was delivered by Burling, J.
[33 NJ Page 239]
Plaintiff, an endorsee of a series of promissory notes, brought suit in the Essex County District Court against the defendant alleging that the defendant was liable on the notes as a co-maker. After a trial without a jury, the trial court entered judgment in favor of defendant. Plaintiff appealed and the Superior Court, Appellate Division, reversed the trial court and remanded the cause for entry of judgment in favor of plaintiff. 58 N.J. Super. 575. We granted certification. 31 N.J. 556.
The following is a sample of the notes being sued upon in the instant case:
April 8, 1957
Three Hundred sixty-six days AFTER DATE We PROMISE TO PAY TO THE ORDER OF J. H. Laporte and Company Fifty and 00/100 DOLLARS PAYABLE AT National State Bank of Newark VALUE RECEIVED TEAL CORPORATION
J. Harold Semar
Christopher A. Beling
DUE April 1, 1958
Except for dates of maturity, the notes involved were identical to the above. In all of the notes, "Teal Corporation" was typewritten on the notes and the individuals' signatures were in handwriting.
It appears that the Teal Corporation, of which the defendant in this suit, Christopher A. Beling, was treasurer, owed a debt to J. H. Laporte & Company for services performed for the corporation. Laporte met with Beling and J. Harold Semar, president of Teal, to discuss a manner of payment of the debt. Apparently no agreement was reached but subsequently Laporte received 36 notes in the mail similar in form to the note reproduced above and having staggered maturity dates. The notes were thereafter negotiated to plaintiff. It appears to be conceded that plaintiff had no knowledge of the basis of the transaction between Teal and
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Laporte or the relationship of Beling and Semar to the corporation.
The first twenty-one of the notes to become due were presented as directed in the notes and were honored by the Teal Corporation. None of the subsequently due notes were honored. Plaintiff thereupon resorted to Beling for satisfaction, and the present suit was instituted. The original complaint alleged that three of the outstanding notes had become due and were dishonored; but at the time of the hearing in the trial court a supplemental complaint was filed alleging that the remaining twelve notes had since become due and had been dishonored.
At the trial, plaintiff introduced the notes into evidence, then rested his case. Defendant thereupon sought to introduce evidence tending to show that defendant intended to sign the notes in his capacity as an officer of the corporation and not as a maker. The basis of this offering was that the notes were ambiguous on their face as to defendant's status with relation to the notes. The trial court allowed the evidence over plaintiff's objection. The effect of this evidence tended to show that Semar was president and Beling treasurer of the Teal Corporation, that they had signed the notes in those capacities in accordance with the corporation's by-laws, and that they never intended to bind themselves individually.
On this record, the trial court entered judgment for defendant, having found that defendant's status on the notes was not clear from a reading of the notes and that defendant intended to sign the notes in a representative capacity rather than in a manner which would bind him personally. On appeal, the Superior Court, Appellate Division, held that the instruments revealed unambiguously that defendant bound himself individually on the instruments because the form of the signature would lead a reasonably prudent man to believe that such an effect was intended. On this basis the Superior Court, Appellate Division, reversed the trial court and ordered judgment entered
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in plaintiff's behalf. We must decide, therefore, whether the defendant, because of the form of his signature, was liable on the instruments without resort to extrinsic evidence, or whether the instruments were so ambiguous on this point as to require parol evidence to explain the subscriber's intent. If the latter course is selected, we must then decide whether the parol evidence supports a conclusion that defendant is not individually liable on the notes.
First, we should note that the negotiable instruments statute does not provide a solution to the problem. The section of that statute relevant to the problem at hand states:
"Where the instrument contains or a person adds to his signature words indicating that he 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; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability." R.S. 7:2-20.
Thus, phrased in terms of the negotiable instruments statute, the question to be decided is whether a negotiable instrument signed in the manner of those presently being sued upon contains anywhere on its face words indicating that the individual has signed for or on behalf of a principal.
Counsel have not cited, nor has our own research disclosed any case involving notes of precisely the same form as those in question here. There are, however, many cases involving notes containing language to the effect that "we promise to pay * * *," etc., signed with a corporate name, immediately followed by the name of an individual without express indication that the individual intended to sign in a representative capacity. For example, in Belmont Dairy Co. v. Thrasher, 124 Md. 320, 92 A. 766 (Ct. App. 1914) the note stated
"We promise to pay * * *" and was signed simply:
Belmont Dairy Co.
E. C. Thomas.
[33 NJ Page 242]
In an action by the payee against Thomas on the note, the court held that the note itself did not reveal unambiguously whether Thomas signed as a co-maker or merely on behalf of the Dairy Company. To clarify this ambiguity, extrinsic evidence was held admissible to demonstrate that Thomas signed the note as a representative of the Dairy Company and did not intend to bind himself personally on it. In Austin, Nichols & Co., Inc. v. Gross, 98 Conn. 782, 120 A. 596 (Sup. Ct. Err. 1923), a draft was signed "M. Gross." In the left hand corner of the instrument appears: "State Street Grocery Co., Inc., 161 State St., Hartford, Conn." In an action by the payee against Gross, it was held that the face of the instrument was ambiguous as to defendant's capacity as a co-maker or agent, and hence extrinsic evidence would be allowed to reveal the intent of the defendant with respect to his status on the instrument. In Canton Provision Co. v. Chaney, 70 N.E. 2 d 687 (Ohio Ct. App. 1945) a check was signed:
In an action by the payee against Chaney, it was held that because the check did not reveal unambiguously whether defendant was a co-maker or a mere agent acting in behalf of his principal, extrinsic evidence was admissible to explain the intent with which the signature was made. Other cases reaching this result in similar situations are: First State Bank of Denton v. Smoot-Curtis Co., 121 S.W. 2 d 667 (Tex. Civ. App. 1938); Fricke v. Belz, 237 Mo. App. 861, 177 S.W. 2 d 702 (Ct. App. 1944); Dunbar Box & Lumber Co. v. Martin, 53 Misc. 312, 103 N.Y.S. 91 (App. T. 1907). Cf. Rood v. McCann, 103 Ohio App. 55, 144 N.E. 2 d 263 (Ct. App. 1957); Hoffstaedter v. Lichtenstein, 203 App. Div. 494, 196 N.Y.S. 577 (App. Div. 1922). It would appear, therefore, that there is ample authority to hold that a negotiable instrument signed in the following form:
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is prima facie the note of the corporation but that the status of the individual as a co-maker or agent acting for a principal cannot definitely be ascertained from the signature alone and therefore, unless some other portion of the note clears the confusion, extrinsic evidence is admissible to clarify the ambiguity. There are cases apparently to the contrary, i.e., which would deny the use of extrinsic evidence and also hold the individual liable as a matter of law. See, e.g., Murphy v. Reimann Furniture Mfg. Co., 183 Or. 474, 193 P. 2 d 1000 (Sup. Ct. 1948); Toon v. McCaw, 74 Wash. 335, 133 P. 469, L.R.A. 1915 A, 590 (Sup. Ct. 1913); Way v. Lyric Theater Co., 79 Wash. 275, 140 P. 320 (Sup. Ct. 1914).
We agree, however, with the holding of the cases first discussed, i.e., those holding the form of signature being discussed as ambiguous, permitting extrinsic evidence to be admitted to explain it. Corporations must act by means of agents, Bankers' Trust Co. v. International Ry. Co., 207 App. Div. 579, 202 N.Y.S. 561, 567-568 (App. Div. 1924), affirmed 239 N.Y. 619, 147 N.E. 220 (Ct. App. 1925), and it is common to expect that a corporate name placed upon a negotiable instrument in order to bind the corporation as a maker, especially when typewritten on the instrument, will be accompanied on the instrument by the signature of the person or persons authorized by the by-laws to sign such instrument. First State Bank of Denton v. Smoot-Curlis Co., supra. See L. W. Cox & Co., Inc. v. Chemical Bank & Trust Co., 175 Misc. 1063, 26 N.Y.S. 2 d 38, 42 (City Ct. 1941). In light of this, we are led to the conclusion that a reasonably prudent man would be unable to determine with any degree of certainty from the signatures on a note in the following form:
whether John Doe was a co-maker of the instrument or whether he placed his name on the instrument as an agent
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of the corporation acting only on its behalf. Certainly a reasonably prudent man, in light of the decisions discussed above, would not accept the instrument, despite the factual uncertainty, relying on the individual's liability's being raised as a matter of judicial construction. For the above reasons, and since the ambiguity exists on the face of the instrument, parol evidence is admissible to determine the status on the instrument of the individual whose signature presents the ambiguity.
Thus far we have been discussing the situation of a negotiable instrument signed in the following form:
when the action was by the payee against Doe. Does the same principle apply when the signature is in the following form:
and the action is by an endorsee to whom the instrument has been negotiated by the payee and against Roe, i.e., the situation in the instant case? We hold that the same principle applies and that the second situation should produce the same result as the first.
It is true that here, unlike in the cases discussed above where a single individual signature was involved, there are two signatures following the corporate name, and that the person sought to be held is he who placed the second signature on the instrument. We do not consider this factor decisive, however, because it is a frequent occurrence for corporate by-laws to require the signatures of two officers on instruments binding the corporation. Good accounting practice recommends this procedure. Finney, Principles of Accounting, Introductory 342 (3 d ed. 1948); Brink, Cashin, Internal Auditing 113 (2 d ed. 1958). The
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instant case is not, we should note, like those cases where the instrument was signed
by John Doe
John Doe, President
See Lazarov v. Klyce, 195 Tenn. 27, 255 S.W. 2 d 11 (Sup. Ct. 1953); Farmers' State Bank of Newport v. Lamon, 132 Wash. 369, 231 P. 952, 42 A.L.R. 1072 (Sup. Ct. 1925). On the contrary, in the instant case the second signature is identical in form to the first. If there is in this case a reasonable uncertainty as to whether the first signature was placed on the instrument in a representative capacity, then the same uncertainty exists as to the second signature under the facts of this case.
Nor is any different result indicated because the body of the instrument contains the phrase "We promise to pay * * *." As was stated in Reeve v. First National Bank, 54 N.J.L. 208, 211 (E. & A. 1891):
"I do not perceive any significance in the use of the words 'we promise to pay' instead of 'the company promises to pay.' The contention was that the use of these words raised an implication that it was the joint note of the corporation and of Warrick. But * * * the word 'we' is often used by a corporation aggregate."
Finally, we do not believe that the use of extrinsic evidence to clarify an ambiguity present on the face of the note should be forbidden because the person suing on the notes is an endorsee of the payee and was not a party to and is without knowledge of the circumstances under which the notes were delivered, in short, a holder in due course for all purposes except that the face of the note contains
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an ambiguity. When a defect by way of ambiguity is suggested by the face of the instrument the purchaser is put on inquiry because to permit the purchaser to ignore such a warning with impunity has no sound basis. Brannan, Negotiable Instruments Law, 708 (Beutel, 7 th ed. 1948). Such appears to be the settled rule in this State. Phelps v. Weber, 84 N.J.L. 630 (E. & A. 1913). As was said in Germania National Bank of Milwaukee v. Mariner, 129 Wis. 544, 109 N.W. 574 (Sup. Ct. 1906):
"It is elementary that, in case a written contract is ambiguous in its terms, parol proof of the facts and circumstances under which it was executed may be introduced to aid in its construction. This rule applies to commercial paper, even in the hands of third persons, because, where the ambiguity is apparent to a reasonably prudent man on the face of the paper, he is necessarily put on inquiry." 109 N.W., at p. 576.
It has been held, however, in a situation similar to the instant case that parol evidence, although admissible against a payee, would not be allowed to defeat the rights of an endorsee without actual knowledge of the individual's status on the instrument. Kraushaar v. Lloyd, 152 Misc. 269, 273 N.Y.S. 231 (App. T. 1934). We choose to follow, however, the rule stated in the Phelps and Germania National Bank cases.
We conclude, therefore, that the instruments in question contained an ambiguity on their face as to whether the defendant was a co-maker of the notes or signed merely in a representative capacity, and that parol evidence was admissible to clarify the ambiguity in the action by the plaintiff. Concerning the effect of the extrinsic evidence, suffice it to say that we join in the conclusion of the trial court that the defendant signed in a representative capacity. Thus we hold that the defendant should prevail. Accordingly, the judgment of the Superior Court, Appellate Division, is reversed, and the judgment of the Essex County District Court is reinstated.