Opinion ID: 1442574
Heading Depth: 1
Heading Rank: 5

Heading: Sea Lion is liable as a direct signatory to the 1985 FSA upon a theory of ratification by silence.

Text: Air Log contends in its brief that Sea Lion by its silence ratified Naneng's signature on the 1985 FSA. Sea Lion responds, in essence, that there are material questions of fact for the jury on the issue of ratification. Even though this was not a theory expressly relied upon by the trial court, both parties have briefed the issue. An appellee may defend a judgment on any basis established by the record, whether or not it was relied on by the trial court or even raised before the trial court so long as no new factual determinations are required. Demoski v. New, 737 P.2d 780, 786 (Alaska 1987); Ransom v. Haner, 362 P.2d 282, 285 (Alaska 1961). When reviewing a grant of summary judgment, this court must determine whether there is a genuine issue of material fact and whether the moving party is entitled to judgment on the law applicable to the established facts. Zeman v. Lufthansa German Airlines, 699 P.2d at 1281. All reasonable inferences of fact from proffered materials must be drawn against the moving party (Air Log) and in favor of the non-moving party (Sea Lion). Id. [I]f the movant establishes prima facie that it is entitled to judgment as a matter of law, the party opposing summary judgment must demonstrate that there exists a genuine issue of material fact to be litigated. Wassink v. Hawkins, 763 P.2d 971, 973 (Alaska 1988). To grant summary judgment on a direct signatory theory, the superior court must have found 1) either actual or apparent authority as a matter of law, or 2) that despite no actual or apparent authority, Sea Lion should nonetheless be bound as a matter of law. Alaska has in three cases recognized the doctrine of ratification by silence. Alaska Continental Bank v. Anchorage Commercial Land Associates, 781 P.2d 562, 565 (Alaska 1989); Bruton v. Automatic Welding & Supply Corp., 513 P.2d 1122, 1126-28 (Alaska 1973); Gaikema v. Bank of Alaska, 8 Alaska 495, 507 (1934). Ratification is an agency doctrine, created by common law courts to deal with a situation where, after a transaction is entered into by a second party purporting to act for a principal, the principal manifests an intent to be bound by the acts of the second party. Bruton, 513 P.2d at 1127. The focus is on what occurred subsequent to the agent's act; the scope of the agent's authority becomes irrelevant. Id. Thus, evidence going to Naneng's authority or lack thereof creates no issue of material fact as to ratification; we assume he lacked authority. [3] In Bruton, this court outlined two requirements for an otherwise unauthorized act to be ratified by the principal's silence. The first is that the act sought to be ratified, as with any theory of ratification, must be done by someone who held himself out to the third party as an agent for the principal. Id.; see also Pullen v. Dale, 109 F.2d 538, 539 (9th Cir.1940) (applying Alaska law). Naneng's execution of the 1985 FSA clearly satisfies this first requirement. Second, the principal must then have failed to act in response under circumstances which according to the ordinary experience and habits of men, one would naturally be expected to speak if he did not consent... . Bruton, 513 P.2d at 1127, quoting Restatement (Second) of Agency § 94, comment a (1957). The prior knowledge, or lack thereof, of the principal regarding the likelihood of reliance by the third party on the agent's authority is irrelevant. See Restatement (Second) of Agency § 94, comment a (1957). Although ordinarily ratification is a question of fact, silence of the principal effects ratification as a matter of law if the case is so clear that reasonable men could come to but one conclusion. Id.; Guaschino v. Eucalyptus, Inc., 3 Haw. App. 632, 658 P.2d 888, 894 (1983). In essence, this standard is the same as the one used for reviewing summary judgments. Moreover, the Restatement notes: A principal's silence is usually more significant if an agent has exceeded his powers in the particular transaction, especially if the agent acted from an excess of zeal. If such an agent reports the matter to the principal at a time or in a manner calculated to call for dissent if the principal were unwilling to affirm, the latter's failure to dissent, if unexplained, furnishes sufficient evidence of affirmance. Restatement (Second) of Agency § 94, comment b (1957). Cases adopting and interpreting this section of the Restatement have often held that this second requirement is met as to a third party where the principal has actual knowledge of the material facts surrounding a transaction entered into by an agent with some authority to act for the principal and takes no action to repudiate it. Rouse Woodstock, Inc. v. Surety Fed. Sav. & Loan Ass'n, 630 F. Supp. 1004, 1011 (N.D.Ill. 1986); Evanston Bank v. Conti-Commodity Services, Inc., 623 F. Supp. 1014, 1034 (N.D.Ill. 1985); University Mktg. & Consulting v. Hartford Life & Accident Ins. Co., 413 F. Supp. 1250, 1260 (E.D.Pa. 1976). See also Seavey, Ratification by Silence, 103 U.Pa.L.Rev. 30, 33 (1954); Story, Agency 300 (9th ed. 1882). Thus it appears that the Sea Lion board would have to have known of Naneng's execution of the 1985 FSA, and therefore done nothing to repudiate that act, in order for Naneng to have bound the corporation. The knowledge necessary to ratify an unauthorized act must be that of an entity with power to authorize it in the first instance. E.g., Ulloa v. Guam Economic Dev. Auth., 580 F.2d 952, 956 (9th Cir.1978); See- Tee Mining Corp. v. National Sales, Inc., 76 N.M. 677, 417 P.2d 810, 811 (1966); 2 Fletcher Cyc. Corp. ¶ 762 (1982). However, when it is the board of directors which must authorize the transaction, the board may ratify by acquiescence and without any formal action. It need not act at a meeting regularly called. Ulloa, 580 F.2d at 956 ( quoting Fletcher at ¶ 762). See also Bank of Santa Fe v. Honey Boy Haven, Inc., 106 N.M. 584, 746 P.2d 1116, 1119 (1987). The rationale is plain: liability is not predicated upon some act of the board, but upon its failure to act. The lack of evidence that Sea Lion's board did not hear of or discuss Naneng's signature at a formal board meeting is thus not fatal. The relevant facts, taken in the light most favorable to Sea Lion, show that Naneng was its president and chairman of its Board, with some authority to act on its behalf. Naneng admits that he signed the 1985 FSA on behalf of Sea Lion. Naneng and Joseph, another board member, were both aware that the reason Air Log insisted that Naneng sign the 1985 FSA was to make Sea Lion liable on it, and that Air Log would not have entered the 1985 FSA if he did not. Naneng admits that he signed the contract so that Air Log would not withdraw from negotiations. When confronted with the fact that Naneng signed the 1985 FSA, Joseph read the document and exclaimed, Myron, come on, you shouldn't have signed this. Joseph knew that the document exposed Sea Lion to a risk of liability, having earlier testified that Sea Lion knew in connection with the analogous 1984 FSA that we had to get out of this contract because we're [Sea Lion] not supposed to be in this kind of contract at all. More importantly, Joseph, testifying as Sea Lion's designated representative, admitted that Sea Lion knew it. This admission was repeated at oral argument. Joseph also testified that he had told Myron not to sign, but apparently Gillespie needed the aircraft, so it was and that we were forced into this. We obviously refers to Sea Lion. Joseph characterized Air Log's insistence that Naneng sign in his corporate capacity as blackmail. Despite being blackmailed, and despite its assertion that it was at that time still negotiating with Gillespie for limited liability, Sea Lion said nothing tending to disavow the effect of Naneng's signature to Air Log. The Memorandum of Understanding between Sea Lion and Naneng prepared following execution of the 1984 FSA, was not shown or made known to Air Log, at this time despite Sea Lion having been advised by counsel as to the effect of Naneng's signature on the analogous 1984 FSA. This fact pattern is indistinguishable from the Restatement (Second) of Agency § 94, comment b, quoted supra. An admitted agent exceeded his authority in a moment of zeal to avoid the loss of an investment opportunity for his principal. He reported the matter to his principal, who on a previous analogous occasion drafted a secret memo qualifying the effect of his signature. On both occasions the secretary/treasurer of the principal chastised the agent, realizing the risk created. The principal then said nothing to the third party (Air Log) to disavow the agent's signature until it was sued about a year later. This is sufficient evidence of affirmance absent an adequate explanation. Restatement (Second) of Agency § 94, comment b (1957). There is no adequate explanation on the record. In fact, the obvious explanation for Sea Lion's conduct was concern that disavowal would both jeopardize the deal with Air Log as well as subject its president to individual liability on a large contract. [4] To summarize: Air Log has shown (1) an agency relationship, (2) actual knowledge of the purportedly unauthorized act by the principal, and (3) no act of subsequent disavowal by Sea Lion communicated to Air Log until litigation arose over a year later. Sea Lion presents no material evidence to the contrary. [5]