Von Frank v. Hershey National Bank

Digges, J., delivered the opinion of the Court. The appellee, The Hershey National Bank, a Pennsylvania financial institution, as payee of two notes both dated in 1969 and under seal, each having a face value of $10,000, caused a judgment by confession to be entered in the Circuit Court for Montgomery County in October 1971 for the full amount of the notes, interest and attorneys’ fees, all as authorized by the terms of the notes. The appellants, James von Frank and Joseph Barrett, filed a timely motion under Maryland Rule 645 to vacate that judgment on the grounds that the notes were ambiguous on their faces and there had been unauthorized alteration. Following a hearing on the motion, the judgment was vacated, although any lien under it was retained, and the case was then set for a trial on the merits.

At that trial, Judge Joseph M. Mathias, sitting without a jury, found the appellants personally liable on the notes and entered judgment against them. This appeal followed. ¹⁴⁰ Settlement of the dispute here requires an examination of the understanding between the parties respecting the liability of the appellants and a determination of whether any subsequent action by the Bank impermissibly altered their arrangement. Appellants contend that they signed these notes in a representative capacity and no individual liability was intended. The Bank, of course, sees it otherwise and posits that appellants were personally responsible.

Judge Mathias agreed with the Bank and found that: “[There is] no evidence ■ offered to show that [appellee] altered the note. The evidence indicates as a matter of fact that all the bank did was to enter the dates on the notes and to put the check numbers in the lower left corner thereof. Both [appellants] are men experienced in the ways of banking and business. The notes which they signed show on their face thereof that [they] signed as co-makers.

When there is no designation on a note that a person signs in a representative capacity, this is prima facie indication that he signed in his own individual capacity, and it is up to him to show that he signed otherwise. This Court will not invalidate these written instruments on the uncorroborated testimony of these two [appellants] who obviously have a stake in this proceeding. We simply do not accept their testimony in view of what we regard as convincing testimony to the contrary, that the bank intended to rely for repayment of its .$20,000 loan on the security of these [appellants] and that [they] signed as co-makers and did so knowingly and that one of [them] even as late as' July 1970 admitted he and his co-[appellant] signed as co-makers.” 1 ¹⁴¹ Upon careful review of all the evidence in the record, we cannot say that the trial judge was clearly in error in reaching the conclusions he did. Therefore, we must affirm the judgment.

Rule 886. This litigation concerns the liability of the appellants on two notes, one dated May 1, 1969, the other, June 10 of that year. The note of May 1 reads: The June 10 note is identical except for the date and the fact that the signature of Stanley Stoller (S. S. Stoller) appears only once, as president of the corporation, and does not appear below the attestation line and to the left of the other signatures. The facts leading up to the execution of these notes can be narrated as follows: in November 1968 the appellants, together with Stanley S, Stoller, met in Hershey, Pennsylvania, with a representative of Hershey Estates Corporation to discuss the purchase by appellants and Stoller of two radio stations owned by a wholly owned subsidiary of that corporation.

These negotiations apparently proceeded so well that, at the conclusion of the meeting, arrangements were made for the prospective purchasers to meet with John Baum, vice president and cashier of the Hershey National Bank. The purpose of this meeting was to discuss the prospects of obtaining a bank loan of $20,000 for the East Penn Broadcasting Corporation, a company to be newly organized, owned, directed and ¹⁴² administered by appellants and Stoller. This money was necessary in order to fulfill a Federal Communications Commission requirement for a license transfer. At this initial bank meeting, Baum testified that he informed the purchasers that no funds could be loaned to their new corporation unless they were personally responsible for the indebtedness.

Additionally, he informed them that their personal financial statements would be required before the Bank would further consider the loan. This request for financial statements was complied with and Barrett, a Washington stockbroker, and von Frank, then president of a Maryland bank, supplied detailed statements showing their net worth. Stoller supplied a statement which in Baum’s words, “was such that the [Bank] couldn’t have relied on his personal net worth.” East Penn never filed a financial statement. Apparently satisfied that the appellants’ financial statements justified the loan, the Bank notified East Penn, through its president, Stoller, that it had an approved line of credit for $20,000.

At this point we should mention that Barrett and von Frank are both residents of Bethesda, Maryland, while Stoller was the man on the scene in Pennsylvania. It is probably because of the inconvenience to appellants of having to travel to Pennsylvania that appellee was made aware of a corporate resolution that authorized Stoller, as president of East Penn, to sign a valid corporate obligation on his signature alone. Finally, in April of 1969, East Penn was ready to draw on its line of credit. Stoller so informed the Bank and obtained the printed form that was to become the May 1, 1969 note in order to have it properly signed by the appellants.

Stoller met appellants one night at a restaurant in Bethesda where the signing ceremony took place. Barrett and von Frank both claim that the printed note form they signed that night did not have on it the words “president”, “seal”, or “sec’y”; but that they instructed Stoller to add their respective corporate titles after their names. The appellants make the same contention about the July 10 note which they say they signed in blank when they received it in the mail and then returned it to Stoller. No explanation is offered by these ¹⁴³ signators as to why they did not place so important a detail, as they understood the addition of the corporate office to be, on the notes themselves while they had pen in hand.

The trial judge found that each note, when presented to the Bank and as received in evidence, was complete and no additions were made except to date them and place the Bank number in the lower left hand corner. The East Penn investment did not prove successful and by January 1970 the interest due on the notes was in default. The Bank made demand on the appellants that they honor their obligation as co-makers and when they still did not pay, this suit was instituted. Appellants resist the Bank’s claim on the grounds that they are not personally liable on the notes, arguing that the provisions of the Uniform Commercial Code, Maryland Code (1957, 1964 Repl.

Vol.) Art. 95B, compel such a result. They rely on sections 3-115, 3-407, and 3-606 to support their contention. They argue that, under § 3-115, the instrument, when signed, was incomplete and therefore when it was completed in a manner not authorized, § 3-407 dealing with alteration then became applicable. They suggest that, since the “authority given” was to accept a note with three signatures, the Bank’s acceptance of only two is a material alteration which releases them from liability.

Appellants claim that the same result is required by § 3-606, since by discharging Stoller from liability the Bank has impaired appellants’ right of recourse against him. Under the view we take of this case, it is unnecessary to decide these issues; but, we hasten to add that if called upon to decide them we would not accept appellants’ positions. The parties have proceeded throughout this litigation on the assumption that these notes were negotiable and therefore governed by the provisions of the U.C.C. We find the notes to be non-negotiable and the U.C.C. to be inapplicable. Therefore, the liability of the parties is determined as a matter of simple contract law.

See Code (1957, 1964 Repl. Vol.), Art. 95B, §§ 1-103, 3-805 Official Comments, Cf. Vain v. Gordon, 249 Md. 134, 136 , 238 A. 2d 872 (1968); Roth v. Baltimore Trust Co., 161 Md. 340, 348 , 158 A. ¹⁴⁴ 32 (1931). We also note that, although the U.C.C. has been adopted in both Maryland and Pennsylvania, the parties here proceeded on the assumption that the law of Maryland and not that of Pennsylvania was applicable.

However, from the record, it would seem that the law of Pennsylvania would govern this transaction. But, as no notice was given of an intention to rely on Pennsylvania law, and there was no waiver of the requirement, pursuant to Code (1957, 1971 Repl. Vol.), Art. 35, § 50, we are not required to take judicial notice of the law of that state other than to presume it is like that of Maryland. Coppage v. Resolute Insur.

Co., 264 Md. 261, 269 , 285 A. 2d 626 (1972). Under the Maryland U.C.C., to be negotiable, an instrument must, among other requirements, “be payable to order or to bearer.” § 3-104 (1) (d). The absence of these magic words renders a note non-negotiable. Here, the notes in question contain just a “promise to pay to the Hershey National Bank” the amount due.

However, § 3-805 entitled “instruments not payable to order or to bearer”