MR. JUSTICE McDONOUGH
delivered the Opinion of the Court.
Howard Lyman appeals the judgment of the District Court of the Eighth Judicial District dated April 7, 1987. We affirm.
The lower court’s judgment concerns a debt incurred by Lyman Ranch Corporation (Lyman Ranch). Howard Lyman owned the majority of stock in Lyman Ranch, and acted as Lyman Ranch’s representative. The suit, originally brought by Farmers Union Oil of Great Falls (Farmers Union), named Howard Lyman and Lyman Ranch Corporation as defendants.
The debt springs from a charge account. For several years Lyman Ranch had charged ranch operating expenses at Farmers Union. In the fall of each year Lyman Ranch utilized funds from a loan obtained from the Production Credit Association (PCA) to pay the Farmers Union debt. In 1981, however, the PCA denied Lyman Ranch’s loan application and reapplication, and the Farmers Union debt went unpaid.
In December of 1981 Howard Lyman met with Farmers Union representative John Boysun to discuss the debt. Lyman told Boysun that he would personally guarantee that everything that could be done would be done to pay off the account, and that there was a possibility that the ranch would have to be sold to satisfy its obligations to creditors. Lyman also assured Boysun that the value of the ranch exceeded its liabilities.
Boysun wanted to document Lyman’s acknowledgment of the debt and his guarantee for payment. To that end, Boysun’s associate, James McDonald, drafted the following document entitled “CHECK-NOTE”:
[[Image here]]
[[Image here]]
A week after the conversation which lead to the drafting of the “CHECK-NOTE”, Boysun presented it to Lyman, and both individuals signed the document. Their signatures appear together midway down the document following the recording of the amount owed on the open account and the terms for payment of the account. Lyman’s signature also appears at the end of the document following an unconditional promise to pay $121,077.49, on or before June 1, 1982.
Lyman’s first signature shows that he signed in his capacity as a corporate representative. The type written word “By” precedes the signature, the signature appears beneath the heading of “Lyman Ranch”, and following the signature Lyman penned the word “Sec.” to signify his office as secretary of the corporation. The second signature by Lyman, however, appears without any reference to Lyman Ranch or the signatory’s capacity.
On June 1, 1982, the debt went unpaid, and on April 12, 1984, Farmer’s Union brought suit to collect the debt. The defendants answered the complaint on June 11, 1984. Lyman Ranch admitted it owed the amount specified in the complaint, but Howard Lyman denied personal responsibility for the debt. The issue of Howard Lyman’s personal responsibility on the debt went to trial on September 25, 1986. Prior to trial Farmers Union assigned its rights against the defendants to Accounts Management.
The lower court entered the judgment at issue on April 7, 1987. The judgment was based on the court’s conclusion that Howard Lyman undertook a promise to pay the debt in an individual capacity rather than a corporate capacity. The lower court supported this conclusion by finding that the promise to pay in the bottom of the “CHECK-NOTE” constituted a promissory note which unambiguously showed that Lyman acted in a personal capacity. The lower court also found from trial testimony that Boysun and Lyman were sophisticated businessmen, and that in return for Farmers Union’s forbearance from collection efforts, Lyman agreed to assume personal liability for the debt. Lyman contended in the lower court that Farmers Union wanted the “CHECK-NOTE” as collateral to finance its own debt. At trial testimony showed that Farmers Union employed similar documents for debt security in its borrowing from the Bank of Cooperatives.
Lyman raises the following issues on appeal of the judgment: (1) Did the District Court err as a matter of law in its construction of the check-note? (2) Is the District Court’s construction of the check-
note supported by substantial evidence? (3) Is the District Court’s conclusion that the check-note was unambiguous supported by substantial evidence? (4) Should this Court reverse the judgment of the District Court and institute a proper judgment that Howard Lyman is not personally responsible for the debt of Lyman Ranch Corporation?
We will not consider the issues in order. First we will consider the law and evidence surrounding construction of the “CHECK-NOTE” as framed by Issues 1 and 3. The following and final section of this opinion considers Issue 2 and moots Issue 4.
Issues 1 and 3, Construction of the “CHECKNOTE”:
Lyman argues that the District Court’s characterization of his promise to pay as a promissory note violates rules of contract construction. According to Lyman, when viewed as an integrated part of the whole document, the promise to pay does not unambiguously show a personal undertaking to pay the debt. We agree with the District Court’s conclusion that the promise to pay constitutes a promissory note. The bottom half of the “CHECK-NOTE” containing Lyman’s unconditional promise to pay a sum certain at a definite time constitutes an instrument under Section 30-3-104, MCA, and the fact that the inventory of the debt is attached above the promise does not affect the nature of the promise.
However, by statute, as between the immediate parties, the document creates an ambiguity in regard to the second signature. See Section 30-3-403, MCA. In particular, Section 30-3-403(2), MCA, provides:
“An authorized representative who signs his own name to an instrument:
“(a) is personally obligated if the instrument neither names the person represented nor shows that the representative signed in representative capacity;
“(b) except as otherwise established between the
immediate parties,
is personally obligated if the instrument
names the person represented but does not show that the representative signed
in a
representative capacity,
or if the instrument does not name the person represented but does show that the representative signed in a representative capacity.” (Emphasis added.)
Subsection (b) of Section 30-3-403(2), MCA, applies to the signature at issue in this case. Accounts Management should be treated as an immediate party under Section 30-3-403(2), MCA. See
Moore v. White
(Okla. 1979), 603 P.2d 1119.
Moore
concerned the issue of
whether a guarantor to a note was an immediate party under Oklahoma’s adoption of Section 3-403, U.C.C. The Court in
Moore
held that the guarantor stepped into the shoes of the creditor, and thus in a suit between the guarantor and the maker of the note, the guarantor was an immediate party under the statute. Accounts Management stepped into the shoes of Farmers Union when the case was postured for trial, and its rights derived not from negotiation of the note at issue, but from a separate agreement with Farmers Union.
Free access — add to your briefcase to read the full text and ask questions with AI
MR. JUSTICE McDONOUGH
delivered the Opinion of the Court.
Howard Lyman appeals the judgment of the District Court of the Eighth Judicial District dated April 7, 1987. We affirm.
The lower court’s judgment concerns a debt incurred by Lyman Ranch Corporation (Lyman Ranch). Howard Lyman owned the majority of stock in Lyman Ranch, and acted as Lyman Ranch’s representative. The suit, originally brought by Farmers Union Oil of Great Falls (Farmers Union), named Howard Lyman and Lyman Ranch Corporation as defendants.
The debt springs from a charge account. For several years Lyman Ranch had charged ranch operating expenses at Farmers Union. In the fall of each year Lyman Ranch utilized funds from a loan obtained from the Production Credit Association (PCA) to pay the Farmers Union debt. In 1981, however, the PCA denied Lyman Ranch’s loan application and reapplication, and the Farmers Union debt went unpaid.
In December of 1981 Howard Lyman met with Farmers Union representative John Boysun to discuss the debt. Lyman told Boysun that he would personally guarantee that everything that could be done would be done to pay off the account, and that there was a possibility that the ranch would have to be sold to satisfy its obligations to creditors. Lyman also assured Boysun that the value of the ranch exceeded its liabilities.
Boysun wanted to document Lyman’s acknowledgment of the debt and his guarantee for payment. To that end, Boysun’s associate, James McDonald, drafted the following document entitled “CHECK-NOTE”:
[[Image here]]
[[Image here]]
A week after the conversation which lead to the drafting of the “CHECK-NOTE”, Boysun presented it to Lyman, and both individuals signed the document. Their signatures appear together midway down the document following the recording of the amount owed on the open account and the terms for payment of the account. Lyman’s signature also appears at the end of the document following an unconditional promise to pay $121,077.49, on or before June 1, 1982.
Lyman’s first signature shows that he signed in his capacity as a corporate representative. The type written word “By” precedes the signature, the signature appears beneath the heading of “Lyman Ranch”, and following the signature Lyman penned the word “Sec.” to signify his office as secretary of the corporation. The second signature by Lyman, however, appears without any reference to Lyman Ranch or the signatory’s capacity.
On June 1, 1982, the debt went unpaid, and on April 12, 1984, Farmer’s Union brought suit to collect the debt. The defendants answered the complaint on June 11, 1984. Lyman Ranch admitted it owed the amount specified in the complaint, but Howard Lyman denied personal responsibility for the debt. The issue of Howard Lyman’s personal responsibility on the debt went to trial on September 25, 1986. Prior to trial Farmers Union assigned its rights against the defendants to Accounts Management.
The lower court entered the judgment at issue on April 7, 1987. The judgment was based on the court’s conclusion that Howard Lyman undertook a promise to pay the debt in an individual capacity rather than a corporate capacity. The lower court supported this conclusion by finding that the promise to pay in the bottom of the “CHECK-NOTE” constituted a promissory note which unambiguously showed that Lyman acted in a personal capacity. The lower court also found from trial testimony that Boysun and Lyman were sophisticated businessmen, and that in return for Farmers Union’s forbearance from collection efforts, Lyman agreed to assume personal liability for the debt. Lyman contended in the lower court that Farmers Union wanted the “CHECK-NOTE” as collateral to finance its own debt. At trial testimony showed that Farmers Union employed similar documents for debt security in its borrowing from the Bank of Cooperatives.
Lyman raises the following issues on appeal of the judgment: (1) Did the District Court err as a matter of law in its construction of the check-note? (2) Is the District Court’s construction of the check-
note supported by substantial evidence? (3) Is the District Court’s conclusion that the check-note was unambiguous supported by substantial evidence? (4) Should this Court reverse the judgment of the District Court and institute a proper judgment that Howard Lyman is not personally responsible for the debt of Lyman Ranch Corporation?
We will not consider the issues in order. First we will consider the law and evidence surrounding construction of the “CHECK-NOTE” as framed by Issues 1 and 3. The following and final section of this opinion considers Issue 2 and moots Issue 4.
Issues 1 and 3, Construction of the “CHECKNOTE”:
Lyman argues that the District Court’s characterization of his promise to pay as a promissory note violates rules of contract construction. According to Lyman, when viewed as an integrated part of the whole document, the promise to pay does not unambiguously show a personal undertaking to pay the debt. We agree with the District Court’s conclusion that the promise to pay constitutes a promissory note. The bottom half of the “CHECK-NOTE” containing Lyman’s unconditional promise to pay a sum certain at a definite time constitutes an instrument under Section 30-3-104, MCA, and the fact that the inventory of the debt is attached above the promise does not affect the nature of the promise.
However, by statute, as between the immediate parties, the document creates an ambiguity in regard to the second signature. See Section 30-3-403, MCA. In particular, Section 30-3-403(2), MCA, provides:
“An authorized representative who signs his own name to an instrument:
“(a) is personally obligated if the instrument neither names the person represented nor shows that the representative signed in representative capacity;
“(b) except as otherwise established between the
immediate parties,
is personally obligated if the instrument
names the person represented but does not show that the representative signed
in a
representative capacity,
or if the instrument does not name the person represented but does show that the representative signed in a representative capacity.” (Emphasis added.)
Subsection (b) of Section 30-3-403(2), MCA, applies to the signature at issue in this case. Accounts Management should be treated as an immediate party under Section 30-3-403(2), MCA. See
Moore v. White
(Okla. 1979), 603 P.2d 1119.
Moore
concerned the issue of
whether a guarantor to a note was an immediate party under Oklahoma’s adoption of Section 3-403, U.C.C. The Court in
Moore
held that the guarantor stepped into the shoes of the creditor, and thus in a suit between the guarantor and the maker of the note, the guarantor was an immediate party under the statute. Accounts Management stepped into the shoes of Farmers Union when the case was postured for trial, and its rights derived not from negotiation of the note at issue, but from a separate agreement with Farmers Union. Under these circumstances, Accounts Management cannot claim greater rights than Farmers Union, and is subject to Lyman’s defenses against Farmers Union. See also
Guaranty National Bank v. Beaver
(Okla. 1987), 738 P.2d 1336.
Subsection (2)(b)’s additional prerequisites are also met in this case. The instrument’s upper portion names Lyman Ranch, but the signature on the lower portion does not show that Lyman signed in a representative capacity. In this situation, the issue of who is obligated by the note becomes a question of fact for the trial court. See
Clarks Fork National Bank v. Papp
(Mont. 1985), [215 Mont. 494,] 698 P.2d 851, 853, 42 St.Rep. 577, 580. And in resolving this issue, Subsection (2) (b) “admits parol evidence in litigation between the immediate parties to prove signature by the agent in his representative capacity”.
Uniform Commercial Code
(U.L.A.) Section 3-403 official comment (1977). Thus, the lower court incorrectly concluded that Lyman’s signature unambiguously imparted personal liability.
However, the lower court also heard evidence and made findings concerning the parties’ intentions. That is all that Section 30-3-403(2)(b), MCA, mandates under these circumstances, and we will affirm on the basis of these findings if they are supported by substantial evidence.
ISSUES 2 and 4:
Howard Lyman testified that when he personally guaranteed that everything that could be done would be done to satisfy the debt, his statements referred to efforts in a corporate capacity, not to a desire to become personally liable on the debt. Boysun testified that he relied on Lyman’s personal guarantee for ordering the preparation of the “CHECK-NOTE”, and according to Boysun and the “CHECK-NOTE” ’s drafter, McDonald, the parties intended to impart personal liability to Lyman.
The lower court’s finding that the parties intended to make Lyman personally liable must be supported by substantial evidence.
Miller v. Watkins
(1982), 200 Mont. 455, 461, 653 P.2d 126, 129.
Substantial evidence “ ‘is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.’ ”
Bushnell v. Cook
(Mont. 1986), [221 Mont. 296,] 718 P.2d 665, 668, 43 St.Rep. 825, 828 (quoting
State v. Plouffe
(1982), 198 Mont. 379, 389, 646 P.2d 533, 538). And this Court must give due regard “to the opportunity of the trial court to judge of the credibility of witnesses.” Rule 52(a), M.R.Civ.P. Boysun’s testimony, and the fact that Lyman added “Sec.” after his first signature, and omitted any reference to his capacity in the second signature, provide substantial evidence to support the lower court’s findings and conclusions on the intentions of the parties. Thus we affirm.
MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, WEBER, SHEEHY, HUNT and GULBRANDSON concur.