Rotuba Extruders, Inc. v. Ceppos, 46 N.Y.2d 223 (1978)
Under UCC § 3-403(2)(b), a representative signing a negotiable instrument is personally obligated if the instrument names the represented person but does not show that the representative signed in a representative capacity, unless otherwise established between the immediate parties.
Summary
Rotuba Extruders sued Kenneth Ceppos on promissory notes signed by him, seeking to hold him personally liable. The notes named Kenbert Lighting Industries, Inc., the company Ceppos represented, but did not indicate he signed in a representative capacity. The court held that Ceppos was personally liable because he failed to demonstrate an agreement or understanding with Rotuba that he was signing only on behalf of the corporation. The court emphasized that the UCC requires more than a mere assertion of subjective intent to overcome the presumption of individual liability when the instrument itself is ambiguous.
Facts
Rotuba Extruders, Inc. sold goods to Kenbert Lighting Industries, Inc., where Kenneth Ceppos was the chief executive officer. Rotuba required a personal guarantee due to Kenbert’s precarious financial situation. Ceppos signed seven promissory notes to Rotuba. The notes named “Kenbert Lighting Ind. Inc.” above Ceppos’s signature but did not indicate Ceppos’s representative capacity (e.g., no “by” or title). When the notes went unpaid, Rotuba sued Ceppos personally.
Procedural History
Rotuba moved for summary judgment based on the notes. The Supreme Court granted the motion, holding Ceppos personally liable. The Appellate Division reversed, finding a question of fact as to who was liable. Rotuba appealed to the New York Court of Appeals.
Issue(s)
Whether Kenneth Ceppos, as an authorized representative, is personally obligated on promissory notes that name the represented corporation but do not indicate he signed in a representative capacity, given the absence of an explicit agreement with the other party.
Holding
No, because to escape personal liability under UCC § 3-403(2)(b), the signer must establish an agreement, understanding, or course of dealing demonstrating that the taker of the note knew or understood the signer intended to execute the instrument in a representative status only.
Court’s Reasoning
The court relied on UCC § 3-403, which aims to create certainty in commercial paper law. The court stated that unless “otherwise established between the immediate parties,” a signer is personally liable if the instrument names the represented person but does not show the representative capacity of the signer. The court emphasized that a signer’s subjective intent is insufficient to overcome the presumption of personal liability. The signer bears the burden of proving an agreement or understanding with the other party that he was signing in a representative capacity only. The court found that Ceppos failed to provide sufficient evidence of such an agreement or understanding. Ceppos’s affidavit lacked factual allegations demonstrating that Rotuba knew or should have known that he intended to sign only as a representative. The court distinguished the facts from situations where a course of dealing or other evidence establishes a mutual understanding of representative liability. The court noted Ceppos’s reliance on a prior transaction where he guaranteed a note, but deemed this insufficient to establish a course of dealing. The court emphasized that summary judgment is appropriate when the opposing party fails to present evidentiary facts establishing a triable issue. The court observed, “the showing Ceppos essayed was lacking in substance. His submissions simply lacked the evidentiary facts on which a meritorious defense could be made out.”