Kegel v. McCormack

272 N.W. 650, 225 Wis. 19, 111 A.L.R. 643, 1937 Wisc. LEXIS 181

• Court: Wisconsin Supreme Court
• Decided: May 25, 1937
• Status: Published

Opinions

The following opinion was filed April 7, 1937:

RosenbeRRY, C. J.

It appears from- the findings of the trial court that the note in question was executed on May 18, 1928, as alleged in the complaint and was signed as therein alleged; that the note was secured by a mortgage of even date, executed by the Nor-Mac Realty Company; that in consideration of the execution of the note and mortgage, plaintiffs executed a warranty deed to the Nor-Mac Realty Company, of certain premises therein described; that at the time of the execution of the note James L. McCormack and N. J. Savignac were officers of the Nor-Mac Realty Company, and as such were authorized to execute the note on behalf of the company; that by mutual mistake of the plaintiffs and defendants the note was not corrected to conform with the other documents; that James L. McCormack signed in a representative capacity as president and N. J. Savignac signed in a representative capacity as secretary and treasurer of the Nor-Mac Realty Company; that—

“to make the said note conform to the actual intent and understanding of the parties said note should be amended and reformed and is hereby amended and reformed to add the name Nor-Mac Realty Co. to said note, immediately preceding the official signatures of the defendants James L McCormack and N. J. Savignac.”

The court further found that the transaction with respect to said action was a part of a definite understanding to dispose of a piece of real estate owned by the Kegel estate to the best advantage, which plan was understood by the parties and was known to be a transaction concerning the plaintiffs and the corporation; that no consideration of any kind moved to the defendants, James L. McCormack and N. J. Savignac, by virtue of the execution of the note in question.

While the note contains a clause to the effect that it “is secured by mortgage on real estate of even date herewith,” it does not appear how, if at all, the note was described in the mortgage, the mortgage not having been offered in evidence.

The question presented for decision has not heretofore been considered by this court. It is the contention of the plaintiff that under the provisions of sec. 116.24, Stats.-, which provides:

“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” (this is sec. 20, N. I. L.),—

the name of the Nor-Mac Realty Company not appearing upon the face of the instrument, the defendants may not show by parol evidence that it was the intent of the parties that the company was to be bound.

Sec. 116.22, Stats., provides: “No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided.” (Sec. 18, N. I. L.)

• The defendants contend, however, that sec. 116.21 (8), Stats., is applicable. Its material provisions are as follows:

“Where the language of the instrument is ambiguous, or there are omissions therein, the following rules of construction apply: . . .

“(8) Where several writings are executed at or about the same time, as parts of the same transaction, intended to accomplish the same object, they may be construed as one and the" same instrument as to all parties having notice thereof.”

Sub. (8) is not a part of the N. I. L. and apparently appears only in the Wisconsin statute. However, this section by its terms has no applicability until ambiguity or omission appears. If sec. 116.24, Stats., makes the instrument certain and fixes the liability of a person signing in a representative capacity without disclosing his principal, then there is no ambiguity or omission, and sub. (8) does not apply. This brings us back to a consideration of the principal question unaided by the provisions of sub. (8),

There is a considerable split of authority as to what sec. 116.24, Stats., was intended to do. Some courts have held that if after the signature of the maker there appears the abbreviation “Agt., Pres., Sec’y,” etc., the instrument is ambiguous and that parol evidence is admissible to clear up the ambiguity as between the original parties where the payee had knowledge of the fact of agency. Phelps v. Weber (1913), 84 N. J. Law, 630, 87 Atl. 469; Lummus Cotton Gin Co. v. Cave (1918), 109 S. C. 213, 96 S. E. 94; Crocker Nat. Bank v. Say (1930), 209 Cal. 436, 288 Pac. 69.

The question really turns upon the effect to be given to the words “but the mere addition of words describing him as an agent,” etc. It is argued in some cases where the statute has been considered that this opens the door to parol evidence for the purpose of showing who was intended to be bound. This seems a strained construction. Section 20, N. I. L., makes it clear that if a person signing an instrument adds to his signature words indicating that he signs for and on behalf of a principal, he is not liable on the instrument if he was duly authorized and discloses his principal. The last clause has been held to mean, by the great weight of authority, that if he adds after his name the descriptive words and does not disclose his principal, he does become liable. This construction is in accord with the great weight of authority as it stood prior to the enactment of N. I. L. and with the weight of authority in cases which have considered section 20, N. I. L. See cases cited 8 C. J. p. 157, note 75; Brannan’s N. I. L. (5th ed.) p. 257 et seq.; 5 U. L. A. p. 138 et seq.

Where the name of the principal is disclosed, the weight of authority appears to be that parol evidence may be received to show that the parties did not intend the person signing as agent or in a representative capacity to be bound. This seems to be in accord with the principle of the Wisconsin cases although the precise question has not been considered.

In Frailing v. Sieber (1918), 168 Wis. 259, 262, 169 N. W. 607, plaintiff sought recovery against Hannah Sieber. on the ground that the note given by her husband, John Sieber, was given as her agent and for an indebtedness for which she was liable. The court referred to sec. 1675 — 18, Stats, (now sec. 116.22, Stats., sec. 18, N. I. L.), speaking of the rule that no party can be charged as principal, quoted from Daniel, Neg. Inst. (5th ed.) § 303, as follows:

“The rule excluding parol evidence to charge an unnamed principal as a party to negotiable paper is derived from the nature of such paper, which being made for the purpose of being transferred from hand to hand, and of giving to every successive holder as strong a claim upon the original party as the payee himself has, must indicate on its face who is bound for its payment; for any additional liability not expressed in the paper would not be negotiable.”

In that case, however, the abbreviation “Agt.” or other abbreviation did not appear after the name of the maker.

In Lipman v. Manger (1924), 185 Wis. 63, 200 N. W. 663, there was an attempt made to show that the defendant, Clara Manger, was in fact the principal and that Arthur Manger, her deceased husband, signed as her agent. The court, however, adhered to the doctrine of Frailing v. Sieber, supra, and held that she was not liable because her name did not appear upon the instrument.

In Nunnemacher v. Poss (1903), 116 Wis. 444, 445, 92 N. W. 375, the defendant attempted to show that a note which read:

“Six years after date the Gymnastic Association of the North Side of Milwaukee (called in German ‘Der Turn Verein der Nord Seite von Milwaukee’) and we the undersigned promise to pay to Jacob Nunnemacher or order,” etc.,—

signed by “Der Turn Verein der Nord Seite von Milwaukee,” by Jacob Poss and four others, was the note of the association. It was held that there was no ambiguity and that parol evidence was not admissible; the note upon its face being certain.

In Palmersheim v. Hertel (1923), 179 Wis. 291, 191 N. W. 567, the defendant sought to show that a blank in-dorsement was understood and intended by the parties to be an indorsement without recourse. The court, in effect, overruled Johnson v. Williard (1892), 83 Wis. 420, 53 N. W. 776, and held that parol evidence was not admissible. This case is not in point, but indicates the attitude of the court with respect to implied agreements under N. I. L. 5 Wigmore, Evidence (2d ed.), § 2445.

The Agency Restatement states the law as follows :

Ҥ 324 (1) In the absence of reformation, an agent signing a negotiable instrument in his own name is a party to it although the fact of agency appears upon it, unless the name of the principal also appears.

“(2) If the name of the principal appears upon a negotiable instrument, the agent is not liable if the document is interpreted as being executed by the agent only on behalf of such principal provided that the agent has power to bind the principal.

“(3) If the name of the principal appears upon a negotiable instrument and the agent does not appear unambiguously as a party, extrinsic evidence of an understanding that the agent shall not be a party to it is admissible as against any holder of the instrument who has notice of the agreement or who is not a holder in due course.”

In this case the name of the principal nowhere appears upon the' instrument sued upon. The fact of agency is made to appear by the abbreviations following the ñames of the signers. This, as declared by sec. 116.24, Stats., does not relieve the person signing from liability as principal. The defendants may not escape liability upon the instrument except by way of reformation. There are cases to the contrary. An opposite result has been arrived at in a number of jurisdictions. For casesj see 3 R. C. L. p. 1095, note 13.

It appears to be illogical to hold, as it is held in some jurisdictions, that when the abbreviation “Agt.” or other like abbreviation appears after the signature of a person on an instrument where the principal is' not disclosed, it creates an ambiguity as between the original parties but does not charge a subsequent holder for value with notice of the ambiguity or put him up on inquiry in respect to it. That conclusion also seems to fly in the face of the provision that no person is liable upon a negotiable instrument whose signature does not appear thereon. It’may be true, as argued in some of the cases, that this interpretation'does not accord with ordiL nary business practice, but the law prior to the enactment of N. I. L. was just as much out of accord with business practice as it is now. It must have been the intention of the framers of the N. I. L. to do something to resolve the doubt. It is considered that what they did was to say that in the absence of reformation the mere addition of descriptive words to the signature of the person signing does not relieve him of liability under the section.

There seems to be no doubt that a negotiable instrument may be reformed as between the original parties as may any other simple contract and that reformation will be decreed upon the same grounds as reformation is decreed in other cases. It seems to be a well-established principle of law that reformation cannot be adjudged where the person or party upon whom liability is to be fastened is not a party to the action. First Nat. Bank of Union v. Fessler (1915), 84 N. J. Eq. 166, 92 Atl. 914; San Bernardino Nat. Bank v. Andreson (1893), 3 Cal. Unrep. 771, 32 Pac. 168.

It appears without dispute from the evidence that the defendants, who were the managing officers and controlling stockholders of the Nor-Mac Realty Company, permitted the corporate charter to be forfeited as of January 1, 1931, for failure to file reports as required by statute. While the declaration of forfeiture by the secretary of state under the provisions of sec. 180.08, Stats., does not ipso facto work a complete forfeiture of corporate rights (West Park Realty Co. v. Forth (1927), 192 Wis. 307, 212 N. W. 651), in this case it was followed by a surrender of its charter some time before the commencement of the action.

On March 28, 1930, McCormack and his wife conveyed the mortgaged lot back to the corporation along with other lands held by them for the benefit of the company, and on or about March 30, 1930, the defendants caused the corporation to convey all of its real estate to the Park Savings Bank, and thereafter a number of judgments were taken against the company. Shortly after the transfer, Kegel learned of it and demanded payment of the note. Under these circumstances it is clear that reformation of the instrument so as to make the company liable thereon and release the defendants would be highly inequitable and unjust. A remand of the record for the purpose of permitting the Nor-Mac Realty Company to.be made a party would be futile. Under the circumstances equity would deny such relief. Not only that, but after having caused the company to make payments or payments to be made by company check, the defendants now attempt to set up the statute of limitations as against their personal liability. Having caused these payments to be made for their benefit, the statute did not begin to run until the date of the last payment, March 29, 1930. This action was begun July 12, 1935, well within the six-year period.

By the Court. — Judgment appealed from is reversed, and cause remanded to the trial court with directions to' enter judgment in favor of the plaintiffs and against the defendants for the amount due upon the note.