JAMES E. WISSEL v. GERALD H. DEATHERAGEAnnotate this Case
AUGUST 25, 2000; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
JAMES E. WISSEL
APPEAL FROM GALLATIN CIRCUIT COURT
HONORABLE JOSEPH F. BAMBERGER, JUDGE
ACTION NO. 97-CI-00011
GERALD H. DEATHERAGE
REVERSING AND REMANDING
** ** ** ** **
DYCHE, JOHNSON AND TACKETT, JUDGES.
JOHNSON, JUDGE: James E. Wissel has appealed from the summary
judgment entered by the Gallatin Circuit Court on July 14, 1998,
that dismissed his complaint.
He argues that the trial court
erred in its determination that the appellee, Gerald H.
Deatherage, signed a note as a representative of a corporation
and was not individually obligated to repay the debt evidenced by
After reviewing the record and employing the standard
of review for summary judgments set forth in Scifres v. Kraft,1
Ky.App., 916 S.W.2d 779, 781 (1996) (standard of review on
appeal of a summary judgment is “whether the trial court
we agree with Wissel that the trial court erred as a matter of
law and that the judgment was improvidently granted.
Wissel commenced this lawsuit in January 1997, naming
as defendants the appellee, Deatherage, Bill Myers, and the
United Development Corporation.
He alleged that on February 22,
1995, Deatherage and Myers executed a promissory note in the
principal amount of $50,000; that the payments, including
interest, called for by the note had not been made; and that the
obligation due thereunder was delinquent.
He sought a judgment
for $50,000, plus $5,000 interest, and $500 in attorney’s fees as
provided by the note.
Wissel attached a copy of the note to the
complaint which provides in pertinent part:
OBLIGATIONS OF PERSONS UNDER THIS NOTE
If more than one person signs this Note,
each person is fully and personally obligated
to keep all of the promises made in this
Note, including the promise to pay the full
amount owed. Any person who is a guarantor,
surety or endorser of this Note is also
obligated to do these things. Any person who
takes over these obligations, including the
obligations of a guarantor, surety or
endorser of this Note, is also obligated to
keep all of the promises made in this Note.
The Note Holder may enforce its right under
this Note against each person individually or
against all of us together. This means that
any one of us may be required to pay all
amounts owed under this Note.
The note was signed by both Deatherage and Myers, neither of whom
indicated that he was signing in a representative capacity.
correctly found that there were no genuine issues as to any
material fact and that the moving party was entitled to judgment
as a matter of law”). See also Kentucky Rules of Civil Procedure
name, “United Development Corp.,” appears immediately below the
names of the two individuals.
On August 12, 1997, Deatherage answered the complaint
by admitting that he had executed the note dated February 22,
1995, but he alleged that he had done so “as an officer of the
corporation, United Development Corp.”
experienced real estate agent and broker, set forth the
affirmative defenses of lack of consideration, the statute of
limitations and estoppel.
He also filed a cross-claim against
Myers and United Development and alleged that either Myers or the
corporation “received and retained the funds evidenced by the
note, and that therefore, he should be fully indemnified by them
for any liability that he may have to [Wissel] resulting from
On September 25, 1997, the trial court entered an order
sustaining Wissel’s motion for a default judgment against Myers
and United Development.
Prior to the bench trial which was
scheduled to commence on July 27, 1998, Deatherage moved for
summary judgment and made the following argument:
As grounds for this Motion, [Deatherage]
would submit that there are no genuine issues
of material fact, and that he is entitled to
judgment as a matter of law. More
specifically, [Wissel] did not receive from
[Deatherage], individually, any contractual
covenants, [Deatherage] having signed the
note as an officer or agent of a corporation.
Further, that he had no individual interest
in the transaction whatsoever, directly or
indirectly. [sic] [Deatherage] did not
receive any of the funds transferred pursuant
to the note made the subject matter hereof,
at any time, and did not receive any of the
proceeds of those funds in any form. Those
funds were transferred into an account
controlled by Bill Myer[s], with whom this
Defendant disassociated himself relatively
Deatherage’s motion did not cite any legal authority
whatsoever in support of his contention that these facts, even if
uncontradicted, entitled him to a judgment as a matter of law.
Nevertheless, on July 14, 1998, the trial court granted the
In an order less than two pages long, which, like the
motion it granted, contains no legal authority, the trial court
found and concluded as follows:
The Defendant, Gerald H. Deatherage,
signed the note dated February 22, 1995, only
one time, which signature was in close
proximity to the name United Development
Corporation. The signature was made by the
Defendant as an officer or agent of that
corporation, and was not made by the
Defendant in an individual capacity. There
being no individual signature, there can be
no individual liability.
In this appeal, Wissel argues that the trial court
erred as a matter of law in concluding that Deatherage is not
personally liable on the note and in granting his motion for
Although neither the motion for
summary judgment nor the judgment itself reference any legal
authority for the dismissal of Wissel’s complaint against
Deatherage, there is both statutory law and case law applicable
to the issue of the legal effect of Deatherage’s signature on the
At the outset, we observe that the record reveals the
existence of a significant and genuine issue of material fact
concerning Deatherage’s claim that he was acting in an agency
Before one can act in the capacity as an agent, it is
axiomatic that he be in an agency relationship, which necessarily
requires the existence of a principal.
argued in his motion for summary judgment that he was acting as
the agent of United Development, the record, specifically
Deatherage’s deposition testimony, reveals a question as to the
very existence of the corporation, and Deatherage’s purported
position as an officer in that corporation:
Q. And your signature on that second page is
Gerald Deatherage. It doesn’t say that
you’re acting in any capacity on behalf of
United Development or anyone else.
A. Well, at that time Bill [Myers] was
setting up--he was supposed to be forming the
corporation of United Development
Corporation. That was the assumption I was
But he didn’t?
I don’t know.
Q. What happened to the proceeds of the
Bill got it.
Q. Do you have any financial records of
United Development Corporation?
No, sir, I don’t.
Were you an officer of the corporation?
I was supposed to have been secretary.
Later, Deatherage testified:
Q. Well, . . . you know that the note is
A. Do I know this note - - I signed this as
an officer or a potential officer of United
Where does it say that, sir?
It says United Development Corporation.
And it also has Gerald --
And the corporation being set up--and I’m
to believe--Bill Myers said he’s setting
corporation up and that’s--that’s what it
But it says Gerald--
I didn’t get any of the money.
Q. Gerald Deatherage. It doesn’t say Gerald
Deatherage, secretary/treasurer, correct?
It doesn’t say that on here.
This testimony reveals a genuine issue of material fact essential
to the threshold question of Deatherage’s ability to even act in
a representative capacity.
Thus, the trial court erred in
resolving that issue in Deatherage’s favor and in granting his
motion for summary judgment.
Furthermore, if on remand it is
established that the corporation was not in existence at the time
Deatherage signed the note, Deatherage, as a promoter would be
personally liable on the note as a matter of law.2
Additionally, the issue presented falls within the
purview of Article Three of the Uniform Commercial Code,
specifically, KRS3 355.3-402 and 355.3-403 (2) and (3).
355.3-402 reads: “Unless the instrument clearly indicates that a
See Pierson v. Coffey, Ky.App., 706 S.W.2d 409, 413 (1985)
(“one who enters into a contract, for the benefit of a
corporation which has yet to be incorporated, remains personally
liable on the contract subsequent to incorporation, absent an
Kentucky Revised Statutes.
signature is made in some other capacity it is an indorsement.”4
KRS 355.3-403(2) and (3) provide:
(2) An authorized representative who signs
his own name to an instrument
(a) is personally obligated if the
instrument neither names the person
represented nor shows that the representative
signed in a representative capacity;
(b) except as otherwise established
between the immediate parties, is personally
obligated if the instrument names the person
represented but does not show that the
representative signed in a representative
capacity, or if the instrument does not name
the person represented but does show that the
representative signed in a representative
(3) Except as otherwise established the name
of an organization preceded or followed by
the name and office of an authorized
individual is a signature made in a
These portions of the Uniform Commercial Code were
designed to “establish[ ] rules to enable subsequent holders to
determine, by reference solely to the instrument itself, which
party is liable on the instrument.”6
As stated earlier, the note
did not reveal Deatherage’s relationship to United Development
Certainly his name was not, as required by KRS
355.403(3), followed by any words indicating that he was signing
This statute was repealed effective January 1, 1997, after
the signing of the note at issue.
This statute was revised and renumbered effective January
1, 1997, by the enactment of KRS 355.3-402. Since the note at
issue in the case sub judice was executed in 1995, the former
First National Bank in Marlinton v. Blackhurst, 176 W.Va.
472, 345 S.E.2d 567, 1 UCC 2d 820, 823 (1986).
as an officer or agent of the corporation.
Thus, the trial
court’s determination (from the fact that Deatherage’s signature
preceded and was in close proximity to the name of the
corporation) that Deatherage signed in a representative capacity
is erroneous as a matter of law.7
In order to avoid personal
liability and to be entitled to judgment as a matter of law, an
individual who signs a negotiable instrument must both reveal his
principal and indicate that he is signing in a representative
Deatherage’s mere “assumption” that he was not
individually liable “is insufficient to overcome a statutory
presumption” that he was signing in his individual capacity.8
Because the immediate parties to the note are involved
in this litigation, Deatherage may on remand present parole
evidence to establish that there was an understanding between
himself and Wissel that Wissel would not look to him personally
to repay the note.9
Even if we accept as fact Deatherage’s
subjective understanding that he was signing for the corporation,
he has yet to offer any evidence that such was Wissel’s
In any event, that issue involves questions of
See Richardson v. First National Bank of Louisville,
Ky.App., 660 S.W.2d 678, 680 (1983) (individuals who signed
corporate note “without stating that such signing was as
representatives” and who offered no proof that there was an
“understanding” between the parties that only the corporation
would be liable held to be personally liable on the note); See
also Burrus v. Farmers Bank of Nicholasville, Ky.App., 938 S.W.2d
889 (1997) and White v. Winchester Land Development Corp.,
Ky.App., 584 S.W.2d 56, 59-60 (1979).
KRS 355.3-403 (2)(b); Burrus, supra.
fact to be resolved by a jury and is not susceptible to summary
Although it is abundantly clear that the summary
judgment was improper, we will discuss the arguments made by
Deatherage in his brief in support of the judgment.
Deatherage states that “[g]iven the status of the record at the
time of the hearing, it was impossible for the trial [c]ourt to
conclude that [Wissel] could produce evidence at trial supporting
his contention that [Deatherage’s] signature was made in an
Of course, it was not Wissel who moved for
summary judgment, but Deatherage.
Thus, it was Deatherage, not
Wissel, who had the burden to establish the non-existence of a
genuine issue of material fact.10
At the time the motion was
made, the record contained the note, Deatherage’s admissions that
he had signed the note and that the note had not been repaid.
Deatherage’s argument that Wissel was required to produce more
evidence to overcome his motion is specious, particularly given
the fact that his bare signature created a presumption that he
was individually obligated.
Next, Deatherage argues that it was impossible for
Deatherage’s single signature to obligate both himself and the
Relying on an annotation from American
Jurisprudence 2nd,11 Deatherage states that his designation
lacked only the word “‘for’” after his name and preceding that of
Steelvest, Inc. v. Scansteel Service Center, Inc., Ky.,
807 S.W.2d 476 (1991).
18B Am Jur 2d Corporations §1838.
the corporation’s name to “comply with the proper form importing
no personal liability.”
This argument overlooks KRS 355.403(3),
which was in effect at the time the note was executed, and which,
as discussed earlier herein, requires that to avoid personal
liability a signer of a negotiable instrument must indicate the
office he holds in the corporation he represents in addition to
disclosing the identity of his principal.
Deatherage also cites the case of Morgan v. O’Neil12,
for the principle that “a shareholder is not liable for a debt of
the corporation unless extraordinary circumstances exist to
In Morgan v. O’Neil, the only basis for
liability asserted against the individual defendant for a
corporate debt was the defendant’s status as a shareholder.
Morgan case is factually inapposite to the case sub judice.
Wissel is not attempting to establish Deatherage’s liability
based on his status as a shareholder, or even as an officer or
Rather, the complaint alleges that Deatherage executed
a note without indicating that he was signing in a representative
capacity which, by its explicit terms, obligated Deatherage
Thus, the holding of Morgan and the principles
established therein are not applicable to the circumstances in
the instant case where a “viable” theory of liability was stated
in the complaint.14
Ky., 652 S.W.2d 83 (1983).
Id. at 85.
See Smith v. Isaacs, Ky., 777 S.W.2d 912, 914 (1989).
Finally, Deatherage argues that “[i]t does not make
sense for a person to promise to repay individually if he is not
receiving any funds individually.”
Deatherage’s point is well-
However, that Deatherage may have been duped by Myers
does not, as a matter of law, entitle him to a summary judgment
on Wissel’s complaint.
Accordingly, the judgment of the Gallatin Circuit Court
is reversed and this matter is remanded for further proceedings.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Kathie E. Grisham
Frederick V. Short