Court Opinion

ID: 9635706
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:01:07.844448+00
Date Added: 2024-06-11T11:20:02.240917
License: Public Domain

The opinion of the court was delivered by
CoiSTFOBD, P. J. A. D.,
Temporarily Assigned. This appeal turns on the question whether plaintiff (“Thermo”) ratified unauthorized indorsements by a subcontractor of checks payable to Thermo for contracting work it did so as to preclude actions by it against the collecting and drawee banks and against the drawer of the checks. The Law Division decided the issue against plaintiff and granted summary judgment against it based on that determination, at the same time dismissing various counterclaims and crossclaims by or between Thermo, the two banks involved, the drawer of the checks and the subcontractor. The Appellate Division affirmed on the trial court’s opinion. We granted certification. 68 N. J. 142 (1975).
The record discloses the following essentially undisputed facts on the motions for summary judgment.
*356Thermo, whose president and principal stockholder was Alexander Kueller, was a general contractor doing mainly federal government work. Peter T. Kashulines was a subcontractor who had jobs under Thermo more or less continuously from about January 1970 to May 30, 1972. Most of the work was procured by Thermo. The work for Seabrook Farms Co., Inc. (“Seabrook”), the drawer of the checks here involved, was procured by Kashulines, who had done other work for Seabrook before.
The general pattern of the relationship between Kueller and Kashulines was that Kashulines would estimate his price for the total job including labor and material, then send his plans and specifications with the prices noted to Kueller. Kueller would then submit a bid reflecting Kashulines’ expenses and profit and his own expenses for office work, obtaining the performance and payment bond and the bid bond, and his own profit. Thereafter the responsibility for furnishing labor, purchasing materials on the job site and supervising the work was delegated in its entirety to Kashulines. The materials purchased at the job site were normally ordered by Kashulines and charged to Thermo through charge accounts opened in the corporate name by Kashulines. There appears to be no dispute as to the scope of Kashulines’ authority to purchase, to open charge accounts and to charge in the corporate name.
Although Kashulines’ authority to bill and receive payment in the name of the corporation is in dispute, Kueller acknowledges that on at least one job, in Bermuda for the Navy, Kashulines was specifically authorized to do so and in fact picked up a check payable to Thermo and hand-delivered it to Kueller. Kashulines’ testimony is that there were other instances where he billed and picked up money but that the normal procedure was to deliver the checks to Kueller and that he was not authorized to indorse and deposit checks on behalf of the corporation.
*357In the case of the Seabrook jobs it is undisputed, as noted above, that Kashulines individually negotiated the contract with Seabrook. The Seabrook contract apparently involved two separate jobs; The first was the demolition of greenhouses, and the second, the replacement of some boiler tubes. According to Kueller his first knowledge of that job was when the job order dated March 31, 1971 from Seabrook for the boiler tubes was sent to Thermo. Thermo’s association with the Seabrook job was limited to ordering the boiler tubes and furnishing the insurance. Kueller testified that he had nothing to do with setting the price, either for labor or materials, and did not know when the job was begun or completed. Kueller testified that the Seabrook job was Kashulines’ work “[b]ut run through my books for his convenience.” He also indicated, however, that in return for this service he expected to be paid a commission of approximately 25%.
When Kueller was pressed for payment on the boiler tubes, he called Seabrook in Fovember 1971 to find out when Thermo would be paid and was told that the job was finished and that Thermo had already been paid.
Pive checks were drawn by Seabrook to the payee, Thermo Contracting Co. The first of these was mailed to Thermo and deposited by Thermo to its own account, and the entire proceeds were paid to Kashulines in a separate check from Thermo to Kashulines. There is no controversy as to this check. The other four checks, dated between March 25, 1971 and June 22, 1971, and aggregating about $13,300, were picked up personally or by employees of Kashulines from the Seabrook office and deposited either by Kashulines himself or by his wife in a checking account at the defendant The Bank of Few Jersey in the name of American Boiler Co., a Kashulines firm.
All the check indorsements bore the name Thermo Contracting Corp. or the equivalent, with Kashulines signing either as a purported officer or without designation. There is no question but that Kashulines had no authority from *358Thermo to indorse the checks or collect the proceeds thereof, although Kueller testified on depositions that about 75% of the amount of these checks would have been owing to Kashulines under a “pooling” arrangement with Thermo. The checks cleared the depository, defendant The Bank of New Jersey, and the drawee bank, defendant First National State Bank of New Jersey.
Kueller’s testimony as to his actions upon learning of the issuance and negotiation of the four checks is as follows:
Q. So that in November 1971 you learned, presumably for the first time, that * * * the four checks which are the subject matter of our presence here today, payable to Thermo, drawn by Seabrook, were paid or issued?
A. Yes, were issued.
Q. I see. You learned that for the first time in November 1971?
A. TJh huh.
Q. I see. What did you do?
A. I immediately took it up with Kashulines.
Q. And.
A. And we talked.
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Q. And what was the extent of your discussion with Kashulines concerning the matter?
A. He told me that he was pressed for cash, he had to use the money. He apologized and told me he would make it up to me as soon as he possibly could.
Q. Was that acceptable to you?
A. At the time it was.
* -r *
Q. * * * you accepted his explanation as to his being sorry and he’ll make it up to you.
A. Yes, X did. * * *. I had faith in the man.
Some time after May 1973 Thermo made claims against the various defendants herein and instituted this action September 13, 1972.
Although, as noted, Thermo knew by November 1971 that Kashulines had misappropriated the checks, it made no demand against either of the banks or against Seabrook for payment on them, but continued to do business with Kashulines as usual through May 1972 when Kashulines stopped *359working on a Thermo job with the federal government. In that period Thermo not only paid Kashulines from $60,000 to $70,000 for subcontracting work but did not “backcharge” Kashulines for the Seabrook checks because, as Kueller testified, Kashulines “would stop working and then the jobs go into default * * *.” In other words, the continuing business relationship with Kashulines was of sufficient value and importance to Thermo to cause it to forego the claim against him on the Seabrook account while that satisfactory relationship continued.
For purposes of this opinion it may be assumed that the collecting and paying banks were prima, facie liable to Thermo because they paid on the unauthorized indorsements. Salsman v. National Community Bank of Rutherford, 102 N. J. Super. 482, 489 (Law Div. 1968), aff’d o. b. 105 N. J. Super. 164 (App. Div. 1969). Were it not for the effect of our determination as to ratification of the indorsements and actions of Kashulines, the question of defendant Seabrook Farms’ liability to Thermo might remain a viable issue on disputed facts in relation to legal issues we need not discuss. We summarily dismiss as meritless Thermo’s contention that even on the assumption of ratification Seabrook would remain liable to it for negligence in turning the checks over to Kashulines. Ratification would render the question of negligence academic. Nor is there any substance in Thermo’s claim that Seabrook took an improper discount on its obligation in making payment. No effort to sustain this contention by reference to the record is set forth in Thermo’s briefs. We conclude that an affirmative resolution of the issue of ratification would be dispositive of the entire case.
 The controlling statute on this appeal is Section N. J. S. A. 12A:3-404 of the Uniform Commercial Code which reads:
(1) Any unauthorized signature is wholly inoperative as that of the person whose name is signed unless he ratifies it or is preeluded from denying it; but it operates as the signature of the *360unauthorized signer in favor of any person who in good faith pays the instrument or takes it for value.
(2) Any unauthorized signature may be ratified for all purposes of this Chapter. Such ratification does not of itself affect any rights of the person ratifying against the actual signer.1
The quoted section, which became law in this State pursuant to L. 1961, c. 120, § 3-404, superseded B. 8!. 7:2-23,2 a part of the former Uniform Negotiable Instruments Law. While the former statute spoke in terms of preclusion only, not mentioning ratification, the concept of .preclusion was conceived as comprehending ratification. See Brannan, Negotiable Instruments Law 18 (6th ed. 1938); Russell v. Second National Bank of Paterson, 136 N. J. L. 270, 277-278 (E. & A. 1947); New Jersey Study Comment to N. J. S. A. 12A :3-404, at 210. The case before us does not require exploration of the implications of preclusion3 aside from the reach of the concept of ratification, but it may be noted that the distinctions between ratification and preclusion in the sense of estoppel have at times been blurred. See Hart & Willier, Commercial Paper, 2 Z7. C. C. Rep. Serv. (1972), § 12.13[3], p. 12-52.
The meaning of ratification for purposes of negotiable instruments law is not dissimilar from its general *361meaning in the law of agency. Ratification is defined in Section 82 of Restatement of Agency 2d (1957) :
Ratification is the affirmance by a person of a prior act which did not bind him but which was done, or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.
Approval of these principles is found in Goldfarb v. Reicher, 112 N. J. L. 413 (Sup. Ct. 1934), aff’d o.b. 113 N. J. L. 399 (E. & A. 1934). Ratification requires intent to ratify plus full knowledge of all the material facts. Passaic-Bergen Lumber Co. v. United States Trust Co., 110 N. J. L. 315 (E. & A. 1933); 2 Anderson, U. C. C. § 3-404:7, p. 924 (2d Ed. 1971). Ratification may be express or implied, and intent may be inferred from the failure to repudiate an unauthorized act, East Orange v. Bd. of Water Comm’rs. of East Orange, 73 N. J. Super. 440 (Law Div. 1962), aff'd 40 N. J. 334 (1963); Johnson v. Hospital Service Plan of N. J., 25 N. J. 134 (1957); from inaction, Vogt v. Borough of Belmar, 14 N. J. 195 (1954); or from conduct on the part of the principal which is inconsistent with any other position than intent to adopt the act. Common Wealth Ins. System, Inc. v. Kersten, 40 Cal. App. 3d 1014, 115 Cal. Rptr. 653 (Ct. of App. 1974).
A ratification, once effected, cannot later be revoked, Restatement of Agency 2d, op. cit. supra, § 102, even where the ratification may have been induced by the anticipation of benefits which fail to accrue. American Cast Iron Pipe Co. v. American R. Co., 87 F. 2d 250 (1st Cir. 1936). Distinguish the case of the payee of a check who was fraudulently induced to indorse it, the fraud-doer himself thereafter improperly indorsing it for collection. Such payee was held nevertheless entitled to recover against the collecting bank and not to have ratified the unlawful indorsement where she promptly repudiated the transaction upon learning of the fraud and made demand upon the collecting *362bank. Salsman v. National Community Bank of Rutherford, supra (102 N. J. Super. 482).
 Application of the principles of law outlined herein to the facts before us makes it clear that the Law Division and Appellate Division soundly ruled that a case of ratification was made out as a matter of law. Thermo, through Kueller, was confronted with Kashulines’ unauthorized appropriation of these checks in November 1971. It is to be kept in mind that the latter had a 75% beneficial interest in those funds and that Thermo had a significant economic stake in continuing its business relationship with Kashulines as a subcontractor on Thermo’s ongoing government work. Thermo was thus willing to forego collecting its relatively small interest in the Seabrook checks to obtain an assurance that Kashulines would continue to work for it as a subcontractor. Not until six months later, when Kashulines, apparently financially strapped, stopped working on a Thermo job, did Thermo change its position of acquiescence in and affirmance of Kashulines’ acts and attempt to hold the various defendants herein on the basis of Kashulines’ lack of authority to negotiate the checks.
Persuasive authority militates against Thermo’s contention that it did not ratify the indorsements. A principal must either ratify the entire transaction or repudiate it entirely, and cannot pick and choose only what is advantageous to him. Canadian Improvement Co. v. Lea, 74 N. J. Eq. 234 (Ch. 1908); Restatement of Agency 2d, op. cit. supra, § 96. The principle as stated in 2A C. J. S. Agency § 77, p. 672-3 is as follows:
* * * the principal cannot ratify that part of the transaction which is advantageous to himself while repudiating the burdensome part, and the principal may not make ratification conditional upon his suffering no loss. [Emphasis added].
See also Cram v. Tippery, 175 Or. 575, 155 P. 2d 558 (Sup. Ct. 1945); Southern Bell Telephone & Telegraph Co. v. *363WRNO, 216 S. C. 533, 59 S. E. 2d 146, 147 (Sup. Ct. 1950) (dictum).
In American Cast Iron Pipe Co. v. American R. Co., supra, an agent received from defendant checks for sums due the plaintiff-principal, indorsed them without authority and diverted the funds. When the plaintiff learned the facts the agent promised to make reimbursement, remitting a cheek which was protected for lack of funds. Although the principal had notified the defendant of the diversion and of its intent to hold it accountable for failure to make payment directly to the principal, the latter nonetheless continued to press its claim against the agent until the financial condition of the latter became so impaired that recovery was impossible. When the principal then tried to pursue the defendant, recovery was barred. “A principal cannot accept its agent’s acts, and, after it finds it cannot realize from the agent, then have recourse to a third party, who was its original debtor.” 87 F. 3d at 353. The promise of restitution by the agent, like Kashulines’ promise to make good, was acceptable to the principal until recovery seemed impossible. Then and only then was a claim based on the forgery of the indorsement pursued.
A comparable situation arose in Rakestraw v. Rodrigues, 8 Cal. 3d 67, 104 Cal. Rptr. 57, 500 P. 3d 1401 (Sup. Ct. 1973). A wife learned that her husband had forged her name to a note and deed of trust of property owned by her to obtain a loan for his supermarket enterprise. She did nothing to repudiate the forgeries until both her marriage and the business failed, and her attempt then to do so was barred. “It thus appears as a matter of law that Joyce affirmatively endorsed the fraudulent acts * * * in anticipation of benefits to be gained and sought to negate her endorsement thereof only when benefits failed to materialize as anticipated.” 500 P. 3d at 1406. The appellate court held there was ratification as a matter of law and reversed a judgment based on a jury verdict to the contrary.
*364Thermo strenuously argues that the issue of ratification here was one of fact, triable by a jury, and not so clearly beyond reasonable dispute as to warrant entry of summary judgment. We do not agree. There was no germine issue of underlying fact here, even recognizing, as we do, that ordinarily conclusory facts, as well as underlying operative facts, if reasonably disputable, should be tried rather than determined 'by summary judgment or by judgment as a matter of law. Cf. Bonnet et al. v. Stewart, 68 N. J. 287, 296, 297 (1975). Here we find no genuine issue of material fact relevant to the issue of ratification which could warrant withholding summary judgment. B. 4:46-2.
There are undisputed facts in this record which would compel a reasonable fact-finder to conclude that Thermo ratified the actions of Kashulines with respect to the checks in question. Thermo has not suggested any possible evidence it might expect to be adduced at a trial which could affect the conclusive legal significance we have determined attaches to the proofs of record. Summary judgment was therefore properly entered against Thermo.
Judgment affirmed.

For purposes-of the Code, even a forgery may be ratified. N. J. 8. A. 12A:3-404(1) ; N. J. 8. A. 12A:1-201(43).

That section read:
Where a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party, against whom it is sought to enforce such right, is precluded from setting up the forgery or want of authority.

As to pre-Code treatment of the implications of preclusion as such, particularly its identification with estoppel and negligence, see Annots. 39 A. L. R. 2d 641 (1955) ; 87 A. L. R. 2d 638 (1963) ; 67 A. L. R. 3d 144 (1975) ; Bd. of Ed., Twp. of Jefferson v. National, etc., Bank, 121 N. J. L. 177 (E. & A. 1938) ; but cf. Strader v. Haley, 216 Minn. 315, 12 N. W. 2d 608 (Sup. Ct. 1943).