Alves v. Baldaia

Citations: 470 N.E.2d 459; 14 Ohio App. 3d 187; 14 Ohio B. 205; 39 U.C.C. Rep. Serv. (West) 1362; 1984 Ohio App. LEXIS 11551Docket: No. L-83-302

Court: Ohio Court of Appeals; January 26, 1984; Ohio; State Appellate Court

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The court is reviewing an appeal from the Lucas County Court of Common Pleas concerning a complaint filed by Keith Alves to collect $15,000 from defendants Beatrice and William Baldaia on a promissory note. Alves had previously loaned the amount to the Baldaia couple, who executed the note payable to Alves' wife, Joyce Ann Alves (now Joyce Schaller). Following Alves and Schaller’s divorce in February 1978, a separation agreement required Schaller to assign her rights in the note to Alves, but she later argued that this was merely an assignment and not a negotiation of the note. 

Alves sought payment from the Baldaia couple after they dishonored the note, and when they refused to pay, he pursued Schaller as a secondary endorser. The trial court granted Alves’ motion for summary judgment, interpreting Schaller’s signature on the note as an endorsement, and denied Schaller’s cross-motion. Schaller contends that the trial court erred in this decision, asserting that the separation agreement intended only an assignment of rights. 

The court found that while the separation agreement was executed at the same time as the transfer of the note, the note itself did not reference the agreement. Under R.C. 1303.18(A), the terms of a written instrument can be modified by a separate agreement if they are part of the same transaction, but the official commentary emphasizes that the instrument’s terms govern over any collateral agreements. In this case, the promissory note did not mention the separation agreement, leading to the conclusion that the note's terms remained intact and Schaller’s signature constituted an endorsement.

The determination of whether the promissory note was formally negotiated or merely assigned relies on the analysis of the instrument's face. The collateral separation agreement is deemed inadmissible as evidence to suggest that Schaller signed the note in any capacity other than as an endorser. Parol evidence cannot alter the legal effect of an endorsement, which, as stated by the trial court, is determined by the signature on the instrument. Schaller's liability as an endorser remains intact despite her execution of the collateral separation agreement intending to 'assign' rights to Alves. To effectuate an assignment without negotiation, Schaller should have delivered the instrument to Alves without signing it, thus preventing him from acquiring holder rights.

The note explicitly stated "Pay to the order of Keith R. Alves," followed by Schaller's signature, constituting a special endorsement and formal negotiation upon delivery to Alves. Schaller's signature is presumed to be an endorsement unless otherwise indicated. Consequently, her endorsement leads to liability under R.C. 1303.50(A) (UCC 3-414[1]), which stipulates that unless specified otherwise, endorsers are liable upon dishonor, with the liability disclaimable only if the endorsement distinctly states such a disclaimer. The typical disclaimer format is "without recourse," and any disclaimer must be written on the instrument itself, not established through parol evidence. All endorsers incur liability regardless of the value received for the transfer of the instrument.

Schaller, by signing the promissory note, agreed to pay the holder if the note was dishonored at maturity, as stipulated by R.C. 1303.50(A). She could have limited her liability by endorsing the note with "without recourse," but failing to do so meant she accepted full liability as an endorser. The trial court's decision to grant Alves' motion for summary judgment was upheld, affirming that the appellants' assignment of error was unsubstantiated. The case is remanded to the Lucas County Court of Common Pleas for judgment execution and cost assessment, with costs awarded against the appellants. Additionally, R.C. 1303.23(D) clarifies that terms accompanying an endorsement, such as "assignment," do not change its nature as an endorsement. Even if Schaller had included such language, it would not have affected her liability. It is assumed that proper notice of dishonor was given to Schaller, as both parties agreed that the necessary presentment and notice conditions were met.