Mundaca Investment Corp. v. Febba
143 N.H. 499, 727 A.2d 990, 38 U.C.C. Rep. Serv. 2d (West) 464 (1999)
Rule of Law:
Under UCC Article 3, Section 402(b)(1), a representative is not personally liable on a negotiable instrument if their signature unambiguously shows representative capacity and the represented person is identified in the instrument. If the represented person is not identified in the instrument, under subsection (b)(2), extrinsic evidence of the original parties' intent is admissible to determine personal liability for parties other than a holder in due course without notice.
Facts:
- Doris M. Febba, Thomas G. Scurfield, and Linda L. Kendall served as trustees of the L.T.D. Realty Trust.
- On July 28, 1987, the defendants purchased two condominium units for the trust.
- To finance this transaction, the defendants executed two promissory notes, secured by two mortgages, payable to Dartmouth Savings Bank.
- Below the signature line on both notes, the name of each defendant was typewritten beside the preprinted term 'Borrower,' and following their signatures, each defendant handwrote the word 'Trustee'.
- While both promissory notes stated they were secured by a mortgage, the L.T.D. Realty Trust was not identified on the face of the notes.
- The L.T.D. Realty Trust was identified as the 'Borrower' in both mortgages.
- On August 19, 1993, Mundaca Investment Corporation acquired the two notes from the Federal Deposit Insurance Corporation (FDIC) as receiver for Dartmouth Savings Bank.
- By letters dated October 28, 1994, Mundaca notified defendants Scurfield and Febba that the two promissory notes were in default.
Procedural Posture:
- Mundaca Investment Corporation filed suit against Doris M. Febba, Thomas G. Scurfield, and Linda L. Kendall individually in the Superior Court for the remaining amount due on the notes.
- Both Mundaca and the defendants moved for summary judgment in the Superior Court.
- The Superior Court denied the defendants' motion for summary judgment.
- The Superior Court granted Mundaca's motion for summary judgment, ruling that the defendants' signatures did not unambiguously show representative capacity and that the defendants failed to prove the original parties did not intend personal liability.
- Doris M. Febba, Thomas G. Scurfield, and Linda L. Kendall appealed the Superior Court’s grant of summary judgment to the New Hampshire Supreme Court.
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Issue:
Does a representative signing a promissory note with 'Trustee' after their name, when the principal (a trust) is identified in a related mortgage but not on the note itself, unambiguously show representative capacity such that the representative is not personally liable under RSA 382-A:3-402(b)(1), or does such a signature create a genuine issue of material fact regarding the original parties' intent to hold the representative personally liable under RSA 382-A:3-402(b)(2)?
Opinions:
Majority - Brock, C.J.
No, the form of the defendants' signatures with 'Trustee' did not unambiguously show representative capacity under RSA 382-A:3-402(b)(1) because the represented person (the trust) was not identified in the instrument itself. However, yes, there is a genuine issue of material fact under RSA 382-A:3-402(b)(2) regarding the original parties' intent to hold the defendants personally liable, making summary judgment inappropriate. The court first clarified that general principles of contract law allowing notes and mortgages to be read together are displaced by the Uniform Commercial Code's specific requirement in RSA 382-A:3-402(b)(1) that the principal be identified in the instrument (the promissory note itself). Since the trust was not identified in the promissory notes, the case falls under RSA 382-A:3-402(b)(2). Under this subsection, for parties other than a holder in due course without notice, a representative is liable unless they prove the original parties did not intend for them to be personally liable. The court found conflicting evidence regarding the bank's intent, specifically affidavits from the defendants claiming representative intent versus an affidavit from the bank's loan officer stating the bank intended personal liability. This conflicting evidence created a genuine issue of material fact, thus precluding summary judgment. The court declined to rule on whether Mundaca was a holder in due course, leaving that issue for remand. The defendants' argument that the mortgages acted as a defense to personal liability by modifying the notes was rejected, as the mortgages served as collateral and the identity of the 'Borrower' remained a disputed material fact.
Analysis:
This decision provides a crucial interpretation of UCC Article 3 regarding representative signatures on negotiable instruments, clarifying the stringent requirement that the represented party be identified within the instrument itself to invoke the 'unambiguous' representation rule for avoiding personal liability. It reinforces that extrinsic evidence of original parties' intent becomes admissible and creates a material factual dispute when the instrument is ambiguous or fails to identify the principal, especially for non-holders in due course. The ruling underscores the importance of precision in drafting negotiable instruments and highlights the high bar for obtaining summary judgment when factual disputes about intent exist, even in commercial transactions governed by the UCC.
