Title: Evans v. Pioneer Bank of Evanston, Wyo.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Evans v. Pioneer Bank of Evanston, Wyo.1991 WY 47809 P.2d 251Case Number: 90-148Decided: 04/12/1991Supreme Court of Wyoming
Jim EVANS, Appellant 
(Defendant),

v.

PIONEER BANK OF 
EVANSTON, WYOMING, Appellee (Plaintiff).

Appeal from the District 
Court, UintaCounty, John Troughton, 
J.

Reversed. 

John A. Thomas of 
Phillips, Lancaster & Thomas, P.C., Evanston, for appellant.

William D. Bagley, 
Cheyenne, for 
appellee.

Before THOMAS, 
CARDINE, MACY and GOLDEN, JJ., and BROWN, Ret. J., (Retired).

BROWN, Justice, 
Retired.

[¶1.]     Appellant Jim Evans, a 
partner in Environmental Safeguards, a Wyoming 
partnership, appeals from the trial court's determination that the Environmental 
Safeguards' promissory note to appellee Pioneer Bank of Evanston was a partnership 
obligation and that, as a partner, appellant is individually liable for that 
partnership debt.

[¶2.]     On appeal, appellant 
raises two issues:

I

     Whether the judgment 
of the district court was clearly erroneous and based on insufficient evidence 
in that it found that the signature of only one managing partner bound the other 
partners even though the appellee had knowledge of the restriction in the 
partnership agreement requiring the consent of all managing partners in order to 
borrow money?

II

     Whether the trial 
court abused its discretion in awarding attorney's fees to appellee where no 
evidence was presented as to the method of calculation nor the reasonableness of 
such fees?

[¶3.]     We reverse.

[¶4.]     On May 31, 1984, Ronald 
Bolin executed a promissory note to Pioneer Bank of Evanston, Wyoming (Bank) in the amount of $35,000. Above 
Bolin's signature is the name "Environmental Safeguards."

[¶5.]     The Partnership 
Agreement stated that Ronald J. Bolin (Ronald) and Dee A. Bolin (Dee) were the managing partners. Additionally, appellant 
and three others were named as partners. Payments were made on the note and when 
default occurred on June 22, 1987, there was a balance due of $18,803.71 plus 
interest.

[¶6.]     The statute applicable 
to this case provides:

     a) Every partner is an 
agent of the partnership for the purpose of its business, and the act of every 
partner, including the execution in the partnership name of any instrument, for 
apparently carrying on in the usual way the business of the partnership of which 
he is a member binds the partnership, unless the partner so acting has in fact 
no authority to act for the partnership in the particular matter, and the person 
with whom he is dealing has knowledge of the fact that he has no such 
authority.

* * *

     (d) No act of a 
partner in contravention of a restriction on his authority shall bind the 
partnership to persons having knowledge of the restriction.

W.S. 17-13-301 (Dec. 1989 
Repl.)

[¶7.]     The court said in Stone 
v. First Wyoming Bank N.A. - Lusk, 625 F.2d 332, 343 (10th Cir. 
1980):

     We have already noted 
that a partner is an agent for the partnership and may bind the partnership when 
acting within the scope of the partnership business "unless the partner has in 
fact no authority to act for the partnership in the particular matter, and the 
person with whom he is dealing has knowledge of the fact that he has no 
authority." Wyo. Stat. § 17-13-301(a). Whenever a person 
deals with an agent knowing that the agent is authorized to act on behalf of the 
partnership by virtue of a power of attorney, then the person is bound to 
ascertain and know the character and extent of the power of attorney under which 
the agent assumes to act. See De-Boer Constr., Inc. v. Reliance Ins. Co., 540 F.2d 486, 490 (10th Cir. [1976]), cert. denied 429 U.S. 1041, 97 S. Ct. 741, 50 L. Ed. 2d 753 [(1977)]; Chicago Title Ins. Co. v. Progressive Housing, Inc., 453 F. Supp. 1103, 1107 (D.Colo. [1978]); see also Restatement (Second) of Agency § 
167 (1958). Moreover, if the person has knowledge that the agent has limited 
authority, then he may not rely on the theory of apparent authority to enforce 
liability against the partnership. See De-Boer Constr., Inc. v. Reliance Ins. 
Co., supra 540 F.2d  at 491; cf. Cross v. Amoretti, 44 Wyo. 175, 9 P.2d 147, 
148-149 [(1932)].

59A Am.Jur.2d Partnership 
§ 267 (1987) states:

     The Uniform 
Partnership Act states that no act of a partner in contravention of a 
restriction on authority will bind the partnership to persons having knowledge 
of the restriction. Agreements and restrictions affecting the agency of partners 
are binding not only as between the partners themselves but also as to those who 
have notice of private agreements between partners affecting their powers, where 
the other parties have such notice at the time of entering into dealings with 
the partnership. Thus, a creditor or obligee who chooses to accept express 
limitations on the liability of partners, contrary to the general nature of 
partnership obligations and liability, cannot thereafter deny his choice. The 
rule also applies to third parties who have knowledge of facts or circumstances 
sufficient to lead a man of common prudence to inquire as to whether 
restrictions exist.

[¶8.]     Appellant contends that 
the promissory note involved here was not a legal obligation of the partnership 
because only one of the managing partners signed it. In support of his 
contention, he brings to our attention Paragraph 7 of the Partnership 
Agreement.1 Appellee bank had in its possession 
a copy of the Partnership Agreement when the promissory note was executed. 
Appellant contends that the bank was charged with the limitation on authority 
set out in Paragraph 7 of that agreement. Appellee contended at trial and on 
appeal that the consent of all managing partners was not necessary to impose a 
legal obligation on the partnership. The trial judge rejected that theory and 
ruled that the consent of the other managing partner, Dee A. Bolin, was 
necessary.

[¶9.]     Appellee relies on a 
single sentence of the agreement to support its contention that only one 
managing partner's signature was necessary to bind the partnership on the 
promissory note. This sentence provides: "Any managing partner shall have the 
right to draw checks upon any bank account of the partnership, and to make, 
deliver, and accept commercial paper in connection with the business of the 
partnership." It appears that authority of a single managing partner with 
respect to routine business is set out in this sentence. With respect to 
borrowing money or extraordinary commercial paper, however, authority is limited 
by the next sentence in the agreement: 

Except with the consent 
of all the managing partners, no partner shall on behalf of the partnership 
borrow or lend money, or make deliver, or accept any extraordinary commercial 
paper, or execute any mortgage, security agreement, bond, or lease, or purchase 
or contract to purchase, or sell or contract to sell any property for or of the 
partnership, other than the type of property bought and sold in the regular 
course of its business.

[¶10.]  In construing Paragraph 7 of the 
Partnership Agreement, the trial court said:

I read the Partnership 
Agreement to have two references to commercial transactions, one being a general 
reference and the other one being a more specific reference.

* * *

     I read the Partnership 
Agreement as saying that with respect to commercial paper, any managing partner 
shall have the right to draw checks upon any bank account of the partnership and 
to make, deliver and accept commercial paper in connection with the business of 
the partnership. But then the next paragraph [sentence] becomes specific about 
borrowing and lending money.

We agree with the trial 
court's construction of Paragraph 7 of the Partnership Agreement.

[¶11.]  Appellee contended at trial and on appeal 
that nonconsent was an affirmative defense and that appellant had the burden to 
prove that the other managing partner, Dee, did not consent to the execution of 
the promissory note. The trial court disagreed and stated:

[I]t would seem to me 
that if the bank had no knowledge of a provision that except with the consent of 
all the managing partners who made this note, that then the avoidance does 
become an affirmative defense that must be proved by the Defendant - by the 
Defendants. But in a situation where the bank knows that there is some 
limitation on authority, then I think it - that it does not have to be raised by 
the Defense but, instead, it becomes a matter of proving - of the bank proving 
that having knowledge of the limitation, we can nevertheless bind nonsignatory 
partners because we obtained the consent in advance.

[¶12.]  The trial court's determination that 
appellee bank had the burden to prove that Dee 
consented to the execution of the promissory note is a correct allocation of the 
burden of proof. The burden of establishing requisite authority rests upon the 
one who asserts it. Schoonover v. Carpet World, Inc., 91 Wn.2d 173, 588 P.2d 729 
(1978). In the circumstances here the bank asserted that Dee consented to the execution of the note; the burden, 
therefore, was on the bank to prove the consent. See also Czapla v. Grieves, 549 P.2d 650, 653 (Wyo. 1976); Murphy v. Smith 
Trailer Sales, Inc., 544 P.2d 1006, 1009 (Wyo. 1976).

[¶13.]  In the judgment, the court determined 
that "[a]ll the managing partners consented to the loan." We do not agree and 
find the evidence insufficient with respect to consent by Dee. Paragraph 7 of the Partnership Agreement states that 
Dee was the office manager and, according to 
the testimony, she and Ronald were husband and wife, living under the same roof. 
Dee was in charge of the bookwork and paperwork 
and payments were made on the promissory note. The court did not explain for the 
record or in the decision letter how it determined that Dee consented to the promissory note. In order to find 
consent, the trial court apparently made an inference upon an inference. From 
the meager evidence, the court apparently inferred that Dee knew about the note because she was the office 
manager. Dee was sued by the bank on the same 
note as in this case and allowed a default judgment to be entered against her. 
The court apparently next inferred that knowledge of the note together with her 
failure to object to the note amounted to her consent to its execution. We do 
not think failure to object in these circumstances is tantamount to 
consent.

[¶14.]  In summary, we hold that the Partnership 
Agreement required that all managing partners consent to the promissory note and 
that appellee knew of this requirement. Because of appellee's knowledge of the 
limitation contained in the Partnership Agreement, it had the burden to prove 
consent by all managing partners. Appellee failed in its burden of 
proof.

[¶15.]  Because of our determination regarding 
the first issue, we need not consider the second issue.

[¶16.]  Reversed.

FOOTNOTES

1 Paragraph 7 of the 
Partnership Agreement (emphasis added) reads:

     The managing partners 
shall be Ronald J. and Dee A. Bolin. Dee shall 
be the office manager and shall attend to all details relating thereto, devoting 
so much time as is necessary to the conduct of this department. Ronald shall 
manage the field, have full control of production matters, and shall direct 
sales promotion activities and shall devote his entire time to this work. 
Non-managing partners shall have no voice in the management of the partnership 
business and need devote no time thereto. Any managing partner shall have the 
right to draw checks upon any bank account of the partnership, and to make, 
deliver, and accept commercial paper in connection with the business of the 
partnership. Except with the consent of all the managing partners, no partner 
shall on behalf of the partnership borrow or lend money, or make deliver, or 
accept an extraordinary commercial paper, or execute any mortgage, security 
agreement, bond, or lease, or purchase or contract to purchase, or sell or 
contract to sell any property for or of the partnership, other than the type of 
property bought and sold in the regular course of its business. No partner 
shall, except with the consent of the other partners, assign mortgage, grant a 
security interest in, or sell his share in the partnership or in its capital 
assets or property, or enter into any agreement as a result of which any person 
shall become interested with him in the partnership.