Southern Supply Co. v. Mathias

Offutt, J., delivered the opinion of the Court. On October 2nd, 1920, Charles MeC. Mathias was, by an order of Circuit Court No>. 2 of Baltimore City, appointed receiver for the Columbian Construction Company, and on October 4th, 1920, he qualified as such receiver by filing in’ that court his approved bond. The Columbian Construction Company was at that time engaged in the construction of sixteen houses on land owned by it on the Reisterstown Road and Oakm'ont Avenue, in B.altimore City.

It had been contemplated that lie cost of constructing the houses would be paid from the proceeds of certain mortgages on the property, but prior to the receivership, when the houses were about half completed, its funds failed and it was unable to go on with the construction. ²⁵⁸ In that extremity Messrs. Emory L. Goblen'tz and. Charles MdO. Mathias, -who were stockholders of 'the company, came to its aid, and by personally endorsing certain of its obligations, made it possible for tbe receiver 'to complete the bouses. ■When Mathias was appointed receiver’ the company was indebted to Frock Brothers, who had contracted to install the plumbing and heating in the houses for $13,000.

Their contract had not then been completed, but they were unwilling to proceed unless they received some assurance that they would be paid for 'their work. The receiver then, according to the testimony of George W. Frock, one of the brothers, said to them: “We 'all wtould be sure to get our money; at that time they owed us in the neighborhood1 of $3,000 on an unpaid note, and 'the balance of the work to be done was about $7,600. Mr. Miatbias said at (the meeting that we would get our money; what we did, was under the jurisdiction of the court, and we thought we' would only have a chance of losing between five and six hundred dollars.” After that they went ahead and satisfactorily completed the installation of the plumbing 'and heating systems in the houses. Some time after the completion of these houses Frock Brothers demanded .the payment of the balance due them under their contract, and informed the receiver that they needed money and were being pressed by the Southern Supply 'Company for payment for materials furnished them by it.

It was suggested that the receiver give a note for the balance due them, which could he endorsed to the Southern Supply Company on account of their indebtedness to- it. Mathias went to the Southern Supply 'Company, explained the situation to it and it agreed to' accept a “receivership note,” and Mathias as receiver thereupon executed a promissory note to Frock Brothers for $3,426, dated Janu'ary I7.th, 1921, payable in sixty days, which was signed in the following manner, “The Columbian 'Construction 'Company, by Charles McO. Mathias, Receiver,” which note the payees indorsed to the appellant in this dase, and were credited on its hooks with ²⁵⁹ the proceeds thereof. The note was not-paid at maturity, and it then appeared that the- authority of Mathias to execute the note as receiver was disputed.

Thereupon the holder asserted that Mathias was personally liable on the note, on the theory that he had signed it as “receiver” of the Columbian Construction Company without authority, and that, therefore, he was individually bound, and upon his refusal to pay it the appellant brought this suit on it against him in his personal and individual capacity. The action was tried in the Circuit -Court for Montgomery County, and at the conclusion of-the testimony -the court directed a verdict for the defendant,- and from the judgment on that verdict this appeal was taken. The principal question which we are called upon to consider, therefore, is whether the evidence in the case was-legally sufficient to establish a cause of action against Mathias personally on the note sued -on. The appellant’s contention involves these propositions: (1) That the- appellee had no authority to execute the note in question as a receiver, -and that therefore (2) -he is personally liable thereon under section 39 of 'article 13, O. P.' G. L. In our view of the case it is unnecessary to pass upon the first proposition, and we will for the purposes of the opinion assume th'at Mathias was not authorized to execute the noite in his capacity as receiver, and will pass, there? fore, to the second and controlling question in the case, which is whether he incurred -a personal liability on the note when without authority he signed it as receiver for the Columbian Construction Company. .Section 39, which reads as follow's: ‘■Where the instrument contains, or -a person adds toi his signature, word's indicating- that he signs for or on behalf of a principal, or in a representative capacity, he i-s n-o-t liable on the instrument if he w'as 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,” is identical with section twenty -of the Uniform Negotiable Instruments Act, proposed by the National Conference of Commissioners on ²⁶⁰ Uniform State Laws, and has been the subject of judicial consideration in a number of oases which .are collected in Uniform State Laws, Annotated, and the supplement thereto, annotated by Charles Tbaddeus Terry.

We have examined these cases, and in our opinion neither the statute itself nor the oases construing it go- as far as 'the appellant’s contention in this case, which is that “it is an unesieapable alternative of the above quoted section that a. person signing a negotiable instrument in a representative capacity is personally liable, if he had no authority so to do.” The statute does not under all circumstances impose affirmatively a liability upon one who, without authority, signs a promissory note in a representative capacity, fault it exempts from responsibility one who so signs if duly authorized. It therefore leaves the situation in respect to a person signing a promissory note in a representative capacity without authority under the circumstances of this case exactly as it was before the act was adopted. This conclusión seems- inevitable from the language of the statute itself. The question before us, considered irrespective of tbe statute, may be thus- stated: Did Mathias incur a personal responsibility when be signed the note as a receiver without 'authority, if 'the payee and the holder both knew and intended that he should incur no personal responsibility thereby ?

In Boyle v. Rider, 136 Md. 286 ; Gill v. Carmine, 55 Md, 339, and Knipp v. Bagby, 126 Md. 461 , this Oourt recognized and adopted the- principle that, although a trustee even with general powers of management i-s bound personally by the contracts he “may make- .-as trustee, though he designates bimself as such,” nevertheless where the parties to the transaction intended that the trustee should not be personally liable, that the general rule would not -apply. It seems clear that the statute was intended to reach and correct hardships resulting from the application of the general rule stated iu these oases, -and that it was not intended to prevent persons with full knowledge of all material facts, dealing with one acting in a representative capacity, from ²⁶¹ agreeing with, him th'at he should not be personally bound' by contracts executed by him in that capacity. American Trust Company v. Canevin, 184 Fed. 657 ; Gill v. Carmine, 55 Md. 641 ; Crawford Neg. Inst. 54.

There is no- doubt hut that under such circumstances a representative executing -a promissory note would not he personalty bound if he was duty authorized to execute it, and there seems to be no- apparent-reason why the same rule should not apply where he was noit authorized, if the parties so agree with knowledge of that fact, in cases where the rights of a holder in dtte course are not involved. If in such a case -as this the creditor knew that the receiver in executing the promissory note in. question did so only as receiver and had no intention of binding himself personally and accepted the note with that knowledge and that understanding, certainly he ought not to he permitted, when it appears that both he and the receiver were mistaken as to the receiver’s authority to execute it, to hold the receiver liable, on a eontta-ct which he knew the receiver never intended to make, -and which in fact he did not make. Kansas National Bank v. Bay, 62 Kan. 692 , 54 L. R. A. 408. We will now turn to the evidence bearing upon the question of whether the note Was executed by Mathias as receiver.

George L. Henck, -treasurer of the Southern Supply Company, when asked about the note, after referring to the fact that Frock Brothers were indebted to them for materials, said: “Subsequently they brought Mr. -Mialthias in our office and Mr. Mathias -agreed finally to give us a receivership note; we asked for cash ian-d he went away promising to- give us a receivership note for this amount of money, (and a few days afterwards Mr. Frock brought in this note. Q. What, if anything, was said by Mr. Mathias as to him having any authority to sign the note? A. I don’t recall anything he said about the note. My impression was th'at it was a receivership note.

I felt that they could not go ahead without ²⁶² due-course, and we were perfectly willing to receive a receivership note.” George W. Frock, one of the firm of Frock Brothers, testifying* to the same matter, said: “I saw Mr. Mathias in Mr. Hudgins’ office, and Mr. Mathias s'aid- the money gotten ont of the houses had been used for other purposes, and the only source of payment was to take a note; .and when I seen Mr. Mathias he said he would go down to the Southern Supply Company and fix it up; and Mr. Mathias said he was going to give us his note as receiver. I believe Mr. Mathias had to get hack to Frederick that afternoon, .and I think he took the note hack with him to Frederick, from Mr. lugs’s, and after-wards mailed it to m'e, and I took it down to the Southern Supply Company and' indorsed it over to them. * * * That he asked Mr. Mathias to indorse it, .and he said he would;