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| Ingersoll-Rand Financial Corp. v. Etals
Ingersoll-Rand Financial Corp. v. Etals
argued: October 10, 1990.
INGERSOLL-RAND FINANCIAL CORPORATION, A DELAWARE CORPORATIONv.LARRY R. ANDERSON ETALS; DEBORAH S. ANDERSON; BEACON MANAGEMENT, INC.; DONALD L. BROWN, M.D.; NIKOLAS M. BRUSH; LEROY BURCH; CARL R. BURGREEN; TIMOTHY J. FALLON; INVESCO; JOHN C. LUDE; OTIS R. MANN, JR.; EUGENE L. MATAN; PATRICK J. MCGRATH; GERALD M. PENN, M.D.; RAAB & REGER ASSOC.; JOHN B. RUHLIN; PEGGY M. RUHLIN, AND R. DALE SMITH; GEORGE MATHESON; ELROD & THOMPSON, P.C., THIRD PARTY PLAINTIFF V. RICHARD J. WHALEY, THIRD PARTY DEFENDANT. LEROY BURCH, APPELLANT
Appeal from the United States District Court for the District of New Jersey; D.C. Civil No. 87-00519.
This appeal arises from the grant of summary judgment in favor of plaintiff-appellee Ingersoll-Rand Financial Corporation ("IRFC"), which sought payment on a promissory note allegedly signed by defendant-appellant Leroy Burch in connection with an investment in a limited partnership known as Beacon Properties Ltd. IV-85 ("Beacon IV").*fn1 IRFC claims it is a holder in due course of the note and is therefore entitled to payment from Burch.
The district court's subject matter jurisdiction was based on diversity of citizenship, pursuant to 28 U.S.C. § 1332. Under 28 U.S.C. § 1291, we have appellate jurisdiction to review the district court's final order.
Our review of the district court's grant of summary judgment for IRFC is plenary. Pennsylvania Power Co. v. Local Union No. 272, 886 F.2d 46 (3rd Cir. 1989). "On review, the appellate court is required to apply the same test the district court should have utilized initially." Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3rd Cir. 1976), cert. denied, 429 U.S. 1038, 50 L. Ed. 2d 748, 97 S. Ct. 732 (1977).
This diversity action was brought in the U.S. District Court for the District of New Jersey, and the parties do not dispute that New Jersey law applies. Uniform Commercial Code § 3-307, as enacted in New Jersey at N.J. Stat. Ann. § 12A:3-307, provides: "Unless specifically denied in the pleadings each signature on an instrument is admitted." U.C.C. Comment 1 adds: "In the absence of such specific denial the signature stands admitted, and is not in issue." Relying on this statute, the district court held that Burch could not challenge the authenticity of his signature because he had not put his signature in issue at the time he filed his answer. The district court granted IRFC's motion for summary judgment and awarded IRFC $81,003.42 plus interest and costs. Burch's cross-motion for summary judgment was denied.
The district court's determination that Burch did not put his signature in issue in his pleadings involved an interpretation or application of the legal precept embodied in N.J. Stat. Ann. § 12A:3-307. It is not an evidentiary, or "basic," fact, see Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3rd Cir. 1981), since it does not involve an issue such as historical fact or credibility of witnesses on which we defer, absent clear error, to the findings of the district court. Rather, the issue is what legal significance derives from the wording of the pleadings. We have held that "interpretation of a writing is generally a question of law for the court." Barco Urban Renewal Corp. v. Housing Authority, 674 F.2d 1001, 1008 (3rd Cir. 1982).*fn2 Hence, we must review de novo the question as to whether Burch put his signature in issue.
Burch draws our attention to the apparent differences in appearance between the signatures on the documents presented by IRFC and Burch's signature on his own two sworn affidavits. IRFC has not commented on this apparent difference, except to suggest in its brief that the documents may have been executed by another acting on Burch's behalf and with Burch's consent. Yet IRFC offers no sworn testimony or affidavit sufficient to support such a suggestion -- a suggestion which Burch in his affidavits flatly denies. IRFC never asked Burch to authenticate any documents or to admit to his signature. Nor did IRFC ever depose McGrath.*fn3 Burch also points out that none of his purported signatures subject to dispute bears any notation or qualification that the signing was done by another on Burch's behalf. He emphasizes that IRFC has never produced any sworn evidence, by affidavit or otherwise, controverting his claim of forgery.
As noted, the parties do not dispute that New Jersey law applies to this case. Under N.J. Stat. Ann. § 12A:3-307, the burden of establishing signatures has been allocated as follows:
(b) the signature is presumed to be genuine or authorized. . . .
IRFC's Complaint, at P. 5, alleges that:
Burch's Answer, at P. 5, states:
The second sentence of Burch's answer to IRFC's allegations in P. 5 is in the form of a denial of sufficient knowledge or information, rather than a flat statement denying the allegations. Since IRFC's action was brought in federal court, the Federal Rules of Civil Procedure govern the sufficiency of pleadings. See Hanna v. Plumer, 380 U.S. 460, 14 L. Ed. 2d 8, 85 S. Ct. 1136 (1965). Fed. R. Civ. P. 8(b) states:
Thus, Burch has effectively denied all the allegations in P. 5 of the complaint except the one he admitted -- that he signed some promissory note payable to Beacon IV.*fn4 In particular, as we have noted, Burch's pleadings deny that the promissory note he signed is in the form claimed by IRFC in its Exhibit B. Since the content of the note is crucial to IRFC's claim under it, Burch's denial shifts the burden onto IRFC to establish his signature on the document produced. Although IRFC now has the benefit of the presumption in N.J. Stat. Ann. § 12A:3-307(1)(b)*fn5 that the signature is genuine, this presumption cannot, on a summary judgment motion, overcome Burch's affidavits that deny his signature.
(A) If defendant denies any fact set forth in Paragraph 8 of the Complaint [claiming that IRFC is a holder in due course of each investor-defendant's note], set forth in detail each and every fact known to defendant upon which the denial is based. . . .
A party opposing a summary judgment motion need only "make a showing sufficient to establish the existence of an element essential to that party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1985). Burch has met this burden through his affidavits. His sworn and uncontroverted affidavits create a genuine issue of material fact that has yet to be resolved. Establishing the fact of Burch's genuine signature is essential to IRFC's claimed status as a holder in due course of a valid note. "Any 'unexplained gaps' in materials submitted by the moving party [here, the absence of Burch's clearly valid signature], if pertinent to material issues of fact, justify denial of a motion for summary judgment." O'Donnell v. United States, 891 F.2d 1079, 1082 (3rd Cir. 1989).
IRFC has alternatively argued that it should prevail under the doctrine of ratification in the Uniform Commercial Code. Unauthorized signatures may subsequently be ratified, and thereby made operative and effective, by the person whose name was signed. See N.J. Stat. Ann. § 12A:3-404.*fn6 This doctrine, however, cannot provide relief to IRFC in the instant case.
Burch's answer finds support in the holding of the New Jersey Supreme Court in Thermo Contracting Corp. v. Bank of New Jersey, 69 N.J. 352, 354 A.2d 291, 296 (1976) ("Ratification requires intent to ratify plus full knowledge of all the material facts.") Although Thermo also holds that ratification may be implied rather than express, and that "intent may be inferred from the failure to repudiate an unauthorized act," id.,*fn7 Burch states that he repudiated the alleged forgery as soon as he learned of it. Burch's denial creates a genuine issue of material fact as to whether his intent to ratify should be inferred from his conduct (making payments in the precise amounts and precisely in accordance with the payment schedule set out in the note that he now claims contains a forged and unauthorized signature*fn8 and taking tax deductions based on the note) or whether his denial should be believed. Burch's denial, even if "factually suspect," as the district court stated, precluded summary judgment.
IRFC further argues that Burch substantially contributed to the making of the allegedly unauthorized signature on Burch's note, within the meaning of N.J. Stat. Ann. § 12A:3-406. Under § 12A:3-406, one who negligently contributes to the making of an unauthorized signature is precluded from asserting the lack of authority against a holder in due course. IRFC claims that by authorizing the general partners of Beacon IV to perform various acts on Burch's behalf, and by authorizing them to enter into the loan transaction with IRFC, Burch contributed to the making of the allegedly unauthorized signature on his note.
Once again, IRFC's argument fails, because the alleged authorization is evidenced only by the documents appended to IRFC's motion for summary judgment,*fn9 and these documents themselves are challenged as forgeries by Burch. Thus, whether or not Burch's signature on the promissory note (or other documents) was authorized or ratified remains a disputed question of material fact for resolution by the district court.
Indeed, under New Jersey law, when a negotiable instrument is claimed to be a forgery, until such time as its status as a genuine instrument is established, even a holder in due course takes subject to the forgery defense. See New Jersey Study Comment 1 on N.J. Stat. Ann. § 12A:3-305 ("Forgery is a real defense. This means that if the maker's name is forged to an instrument he cannot be held liable on it, in the absence of estoppel, even though the instrument is transferred to a bona fide purchaser for value.")
IRFC argues that even if it does not in fact presently hold the documents, including Burch's note, which reflect Burch's investment obligation, it is nevertheless the true owner of those documents. IRFC therefore argues that those documents should be treated as lost instruments under N.J. Stat. Ann. § 12A:3-804, and accordingly that IRFC should be treated as their true owner.
N.J. Stat. Ann. § 12A:3-804 provides:
Whether, on remand, IRFC can prove Burch's signature on the documents which it possesses, or whether IRFC can carry its burden of demonstrating those facts which it must establish for a judgment in its favor based on the lost, destroyed or stolen instruments provision of N.J. Stat. Ann. § 12A:3-804, or whether IRFC can prove ratification, or whether IRFC can prove a right to recover against Burch under a classic contract theory,*fn10 are matters which we cannot and do not predict.
IRFC will have the opportunity, if it desires, to raise before the district court any of the theories under which it claims and which it advanced before us, or which it may still advance, and which may afford it relief. Nothing we have said herein will preclude IRFC from again seeking a summary disposition if it is appropriate and warranted after remand. We are unable, however, to sustain a summary judgment in IRFC's favor when a material dispute has developed as to the one document -- Burch's note -- on which IRFC's claim here is predicated.
We will therefore reverse the district court's order granting IRFC's motion for summary judgment,*fn11 and remand to the district court for further proceedings consistent with this opinion.