Court Opinion

ID: 3303212
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:18:54.94573+00
Date Added: 2024-06-11T14:58:07.030084
License: Public Domain

From the decision of this court in Bank, rendered in the above-entitled cause February 11, 1904, and hereafter set forth, a rehearing was granted, to the end that a finding made by the trial court, to the effect that the Pacific Vinegar and Pickle Works ratified and approved each and every indorsement placed upon the notes of the California Packing Company by Smith as president and King as secretary, should receive further consideration. It was urged in *Page 355 
the petition for rehearing that although the principle of ratification was fully recognized in the opinion, through some oversight the finding declaring a ratification, which finding fully supported the judgment of the trial court, had been overlooked.
Our attention, therefore, upon this hearing is limited to the single question whether or not the finding of ratification is supported by the evidence. Respondent contends that the finding is supported, first, under evidence showing express ratification, and, second, under evidence showing implied ratification.
1. The express ratification, it is contended, finds support in the evidence of Mr. Koster, the vice-president of the Pickle Works, who, during a three months' absence of the president, Mr. Smith, performed the latter's duties. During Koster's incumbency as president he indorsed three of the California Packing Company's notes. Respondent in his brief asserts that "Mr. Koster himself testifies that at the time he made this indorsement he knew that at least one of those notes belonged to Mr. Smith, although he denies any personal knowledge of the fact that he was effecting a renewal." The evidence of Mr. Koster, with the inferences and deductions which may legitimately be drawn from it, is the only evidence touching express ratification. Mr. Koster's testimony, however, is at variance with respondent's statement of it. It is brief, and may be set forth in full: "I never knew until March, 1900, that Mr. Smith had assigned or indorsed any of those notes to himself. I never knew that there was any notes of the California Packing Company in existence outside of those which we held in the safe amounting to $12,000 or $15,000. By reason of what had been told me at the directors' meetings I believed it was all paid up. I acted as vice-president of the company during Mr. Smith's absence. During that time I indorsed three notes, one of which may have belonged to Mr. Smith, but I did not know that any of them were renewal notes. I never knew anything about renewals. I was told that some money was needed from the bank and I indorsed some California Packing Company paper which the Pacific Vinegar and Pickle Works had, for the purpose of getting money to run the business. I knew that the company had paper of the California Packing Company, but did not know *Page 356 
any of it was renewed until after Mr. King's defalcation. I did not see any renewal notes brought to me. If there had been any renewal notes brought to me that would have stopped right there. No notes were brought to me which had already been renewed by the Pacific Vinegar and Pickle Works. In every instance I asked Mr. King if the notes of the California Packing Company were being paid and he told me `Yes.'" It is to be remembered that the directors, one and all, testified that they had no knowledge of any of these transactions; they knew nothing of the existence of the California Packing Company notes held by Smith upon which their company (the Pickle Works) was liable as indorser, and that at every directors' meeting, in the presence and hearing of Mr. Smith, the president, they asked if the California Packing Company's notes were being paid at maturity, and always received an affirmative answer from the secretary. Bearing in mind that an express ratification can only be found against a party when it is shown that he is in possession of all the facts, and has acted after such knowledge, it is at once apparent without further discussion that the testimony of Mr. Koster falls far short of establishing such a ratification.
2. The doctrine of implied ratification is invoked to support the finding. The doctrine of implied ratification is thus expressed: "An implied ratification may also arise if the corporation accepts the benefit of the unauthorized act, but a corporation will not be held to have ratified an act impliedly by accepting the benefit of it unless knowledge of the act was actually possessed by some corporate agent who had authority to act for the corporation in the matter, or whose function it was to report it to the proper authorities, or unless knowledge of the act would have been possessed by some such agent had there not been neglect of duty on his part, the consequences of which are to be borne by the corporation rather than by the party from whose performance it has been benefited. Consequently, in order to constitute an implied ratification on the part of the corporation, arising from acquiescence, or from accepting the benefit of an act, it may not be necessary that the circumstances should be such as to warrant a jury in finding actual knowledge on the part of the corporation, or corporate agents competent to ratify, for the knowledge of one agent may, at least in the absence of proof to the contrary, *Page 357 
be imputed to other agents who have authority to do the acts in question, or even to the corporation." (Taylor on Private Corporations, 2d ed., secs. 214, 215.)
It is urged that the facts in this case show that the corporation received the benefit of the money paid by its president, Smith, in discounting the notes of the Packing Company, and that as the secretary King joined with Smith in indorsing the name of the Pickle Works upon the notes, and as it was King's duty to inform the corporation of these facts, the negligence upon his part in not doing so is not negligence of which the corporation can avail itself while retaining the proceeds of the notes; and that, therefore, by conclusive implication the corporation had knowledge of the transaction and thus ratified it. The whole structure, it is to be observed, is built upon the somewhat flimsy foundation of a mere disputable presumption — a presumption which, while in strictness evidence, has been characterized as evidence "the weakest and least satisfactory." The case here presented is not at all parallel with those where the directors themselves are in fault for not knowing the things with knowledge of which they are sought to be charged. Here it affirmatively appears that knowledge of these transactions was concealed from the board of directors not by the secretary, King, alone, but by the president of the company, who was drawing a salary for his services, who attended the directors' meetings, and who never, such is the record, informed his board as to any of these matters, but sat silent when his directors asked as to the payment of the notes of the California Packing Company, and when the secretary answered with the false statement that they were being promptly met. It appears, therefore, that the directors did what in reason they might have been expected to do, — made inquiries in open board, — and were deceived, not alone by the answers of the secretary, but by the silence of their president, whose duty, equally with the secretary, it was to tell them the truth. So telling them, the directors would have known that their corporation stood liable upon the paper of the California Packing Company as indorser for thousands of dollars which they knew not of, that their liabilities were to this extent increased, and they would have been in a position to take steps to reduce that liability and enforce the obligations of the California Packing Company. By the method *Page 358 
which Smith adopted, however, they were kept in ignorance of these things, their corporate name was affixed to renewal notes, thus continuing their liability, and not that alone, but continuing a corporate liability which they did not know existed. Under these circumstances it cannot be successfully argued that the president of the corporation is entitled to invoke the doctrine of implied ratification, and thus reap the fruits of his own concealment.
For the foregoing reasons, in addition to those given in the opinion above referred to, which opinion is hereby adopted and affirmed, the judgment appealed from is reversed and the cause remanded.
McFarland, J., Lorigan, J., Van Dyke, J., and Beatty, C.J., concurred.
The following is the opinion above referred to and approved, which was rendered in Bank February 11, 1904: —