Shafer Bros. v. Kite

MacDaniel, J., delivered the opinion of the Court. We have consolidated these cases in a single opinion because they involve the same parties as appellants and similar facts determine the outcome. On July 21, 1978, John V. Kite and Louise Shafer, the appellees, separately filed suit against the appellants, Shafer Brothers, a partnership, based on the respective confessed judgment notes held by the appellees. The two notes were both dated July 20, 1978, and they were each signed by Lindsay B. Shafer, with “Shafer Brothers” indicated on the notes.

Kite’s note was for $22,766.86, and Louise Shafer’s note was for $105,825.00. Judgments by confession were entered on July 21, 1978, for Kite and Louise Shafer, respectively. On August 9,1978, the appellants filed a Motion to Vacate Judgment in each case, arguing that, pursuant to their August 2, 1977, Bill of Complaint to terminate the partnership and liquidate the assets, no partnership existed when the confessed judgment notes were signed and that, in addition, Lindsay B. Shafer did not have authority to act for the partnership with respect to the confessed judgment notes. On August 16 and 17 the appellants filed Motions for Summary Judgment in their favor in the two cases.

Answers to the Motions for Summary Judgment were filed by the ⁶⁰³ respective appellees, and depositions were taken. Louise Shafer also filed a Motion Ne Recipiatur to the Motion to Vacate Judgment in her case. On November 6,1978, a hearing on all of the motions in the two cases was held in the Circuit Court for Carroll County. On December 11, 1978, by Memorandum Orders, the trial judge denied the appellants’ Motions to Vacate Judgment and Motions for Summary Judgment.

In the two Memorandum Orders, the trial judge stated: “... nor was the partnership dissolved as alleged in the Motion to Vacate Judgment. There was no order of dissolution as contemplated by § 9-603 of the Corporations and Associations Article. We note that § 9-601 of the Corporations and Associations Article of the Annotated Code of Maryland states: ‘§ 9-601. Partnership not terminated by dissolution.

On dissolution, the partnership is not terminated but continues until the winding up of partnership affairs is completed.’ ” The trial judge then cited Bradford v. Harford Bank, 148 Md. 1, 23 (1925), for the following legal principle: “ ‘... It has been repeatedly decided by our predecessors that a firm is bound by notes executed by one partner, without showing that he had express authority from his co-partner, when such authority would be implied from the nature of the business. Porter v. White, 39 Md. 613 ; Hopkins v. Boyd, 11 Md. 109 ; Coursey v. Baker, [ 7 H. & J. 28 ].’ ” In the Kite case, the judge concluded his denial of the appellants’ motions with the following explanation: “The exhibits of the depositions of Lewis W. Shafer, Jr. and Joseph Shafer filed in this case clearly show that it was a normal business practice of the partnership for Lindsay Shafer to execute notes for the partnership. ⁶⁰⁴ We observe that the note executed by Lindsay Shafer in favor of John V. Kite, Jr. on July 20,1978, was to cover some 13 checks payable to John V. Kite issued by Lindsay Shafer during the period February 14, 1975 — August 12, 1976, that were returned for insufficient funds or were not presented for payment at the request of Lindsay Shafer. In our opinion, these checks, having been issued as part of the partnership business, would become a liability of the partnership.” In the second case, involving Louise Shafer, the trial judge explained his denial of the appellants’ motions as follows: “Testimony at the hearing on November 6, 1978, clearly indicated that it had been the practice in the past for Lindsay B. Shafer to execute notes binding the partnership.

Finally, we consider the allegations contained in paragraphs 4 and 5 of the Defendants’ Motion to Vacate Judgments. Louise Shafer testified that the note in dispute represents money that she inherited and loaned to Lindsay B. Shafer for use in the partnership. Lindsay B. Shafer’s testimony corroborated that of Louise Shafer. Joseph Shafer in his testimony stated that he did not know that the partnership borrowed money from Louise Shafer.

There was no denial of same by anyone.” The judge held that Louise Shafer’s Motion Ne Recipiatur was moot in light of his denial of the appellants’ motions. The appellants now contest the trial judge’s rulings on their motions. We will first address the Motions to Vacate Judgment. I Maryland Rule 645, Judgment by Confession ...

Law, provides in part: “c. Application by Defendant. Application to vacate, open or modify the ⁶⁰⁵ judgment must be made by motion within 30 days after service of the summons. The motion shall be made on the ground that the defendant has a meritorious defense to the cause of action.

It shall set forth fully the facts relied on for such defense.... d. Disposition of Application. The motion shall be heard promptly by the court. If the evidence presented at the hearing establishes that there are substantial and sufficient grounds for an actual controversy as to the merits of the case, the court shall order the judgment by confession vacated, opened or modified with leave to the defendant to file a pleading and the case shall stand for trial____” In Billingsley v. Lincoln National Bank, 271 Md. 683, 689 (1974), the Court of Appeals addressed the issue of the finality of confessed judgments when there has been a timely appeal, as in the present case.

The Court said: “1 “To be successful in moving to strike a judgment by confession, one must adduce evidence in support of his motion sufficient to persuade the fair and reasoned judgment of an ordinary man that there are substantial and sufficient grounds for an actual controversy as to the merits of the case. If he does so, he is deemed to have met the burden of showing he has a meritorious defense, without the necessity of showing he will eventually prevail. This is to say that if the evidence is such that persons of ordinary judgment and prudence could fairly draw different inferences from it, the controversy should not be decided as a matter of law but instead should be submitted to a trier of fact. If a meritorious defense is made out (by affidavits or testimony, Johnson v. Phillips, supra, 143 Md. 16 , 122 A. 7 ) the Court should liberally exercise its equitable jurisdiction over judgments entered by confession and, on application of a defendant who prima facie ⁶⁰⁶ shows such defense, vacate the judgment to permit a trial on the merits.

Cropper v. Graves, 216 Md. 229 , 139 A. 2d 721 ; Remsburg v. Baker, 212 Md. 465, 470 , 129 A. 2d 687 ; Keiner v. Commerce Trust Co., 154 Md. 366, 370-371 , 141 A. 121 .” ’ 264 Md. at 444 (emphasis added).” Maryland debtors, to open a confessed judgment, “... are merely required to meet a standard that ‘is a minimal obstacle.’ ” Id. at 690. In the present cases, the trial judge erred, first, in making final factual determinations and decisions on the merits. Under the above standards, in ruling on Motions to Vacate Judgments, a judge is not the “trier of facts” as in proceedings on the substantive merits. Rather, he must decide merely whether the facts presented by the movants, if believed, would constitute a meritorious defense.

The issue of what can constitute a meritorious defense, assuming that the supporting facts are believed, is a question of law. We hold that in the present cases the trial judge also misapplied the law. For the reasons indicated below, he should have granted the appellants’ Motions to Vacate the Judgments. We note, initially, that for the reasons indicated in his Memorandum Orders, the trial judge correctly found that the Shafer Brothers partnership had not been terminated as of the date of the confessed judgment notes.

The appellants argue, in support of their Motions to Vacate Judgment, that the consent of less than all of the partners to a confessed judgment note against a partnership does not operate to bind the other partners to the confessed judgment portion of the instrument, as well as any partners actually signing such an instrument, unless the other partners “actually authorized” the signing. We agree. 1 ⁶⁰⁷ The Uniform Partnership Act was enacted in Maryland by Chapter 175 of the Acts of 1916. Its provisions are now set forth in the Corporations and Associations Article of the Annotated Code of Maryland. Section 9-301 provides in part: “§ 9-301.

Partner agent of partnership. (c) Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to: (4) Confess a judgment.” (Emphasis added.) No cases have arisen in Maryland under the above statutory provision of its predecessors. 2 However, in Rhodes v. Amsinck, 38 Md. 345, 353-43 (1873), the common law was stated as follows: “Now, even during the existence of the partnership, there is no implied authority in one partner to voluntarily appear and confess judgment to bind his copartners; and where one partner does voluntarily appear to an action and confess judgment as against all the partners, without the consent of his copartners, the judgment thus confessed binds only the partner confessing! and, under an execution on such judgment, the confessing or acting partner’s separate interest alone in the partnership property can be seized and sold. Green v. Beals, 2 Caines, 254; Crane v. French, 1 Wend. 311 ; McBride v. Hagan, Ib. 335;