Court Opinion

ID: 9704942
Source: CourtListenerOpinion
Date Created: 2023-08-26 00:52:49.598845+00
Date Added: 2024-06-11T18:22:06.832972
License: Public Domain

Gehl, J.
(dissenting). The majority concede that we must accept as facts that the president of the bank, the managing head and principal active officer thereof, agreed to release Gertenbach from the obligation of his guaranty, that there was adequate consideration for the promise, and that Gerten-bach sold his stock in reliance upon the promise and thereby surrendered his right to participate in the management of the business which was intended to supply the funds required to pay the loan. They concede that Gertenbach’s obligation might have been terminated as he claims it was, that the fact that the bank may not have received any actual benefit from Gertenbach’s sale of his stock is immaterial, that if the board later ratified the president’s act the agreement of release is binding upon the bank, and, apparently, that under some circumstances, at least, ratification may be inferred from silence. They do not dispute that whether ratification has been accomplished is a question of fact, 2 Fletcher, Cyc. Corp. (perm, ed.), p. 1183, sec. 781, that the credibility of the witnesses, Kant and Meinecke, was for the jury, and that ratification need not be shown by the bank’s records. 9 C. J. S., Banks and Banking, p. 425, sec. 201. They ground their ultimate conclusion solely upon the fact that the members of the board *406of directors were not acquainted with knowledge of the circumstances. They quote the testimony of Director Kant to the effect that at the meeting of the loan committee the president reported that Gertenbach had been released upon his guaranty and that the same report was made by him to a subsequent meeting of the board of directors; also, that the president “justified his loan to the Schwartzes upon his investigation of their financial condition” and that he knew Schwartz to be a good restaurant man. They also refer to the testimony of Director Meinecke who said that at the directors’ meeting the president reported that Gertenbach had been released from the guaranty, and that the directors offered no objection to the act of the president.
The testimony of these two witnesses must be accepted as a verity. Manifestly the jury believed it, for it is the only evidence in the record which supports the finding that the act of the president had been ratified by the board of directors. And yet the majority say that the board did not have knowledge of the material circumstances. They did have knowledge that the president had released Gertenbach without their authority. That information was sufficient to put them upon inquiry, inquiry which they should have made if they were not satisfied to trust the judgment of the president as to the advisability of releasing Gertenbach. Their silence calls for application of the following rule:
“If, at the time of affirmance, the purported principal is ignorant of material facts involved in the original transaction, he may elect to avoid the effect of the affirmance, unless he then manifests a willingness to affirm regardless of the incompleteness of his knowledge.” (Emphasis supplied.) Restatement, 1 Agency, p. 219, sec. 91.
In comment e, p. 224, under the same section it is said:
“Where the purported principal is shown to have knowledge of facts which would lead a person of ordinary prudence to investigate further, and he fails to make such investigation, *407his .affirmance without qualification is evidence that he is willing to ratify upon the knowledge which he has. Likewise, if, learning that one who had no authority acted for him, he affirms without' qualification and without investigation, when he has reason to believe that he does not know all the facts, it may be inferred that he is willing to assume the risks of facts of which he has no knowledge.”
It is undisputed that the president of the bank was given very broad authority. He testified that his authority in making loans was unlimited except by banking law; that he could make any loan he wanted to so long as it complied with the requirements of state law, and that he made the $26,600 loan to the Gates and the Schwartzes on his own authority. That is indeed evidence that the bank’s directors held their president out as having unusual authority, demonstrates their confidence in him, and undoubtedly explains why they were content to rely upon his judgment when he told them that he had released Gertenbach.
“Directors [of a bank] cannot, in justice to those who deal with the bank, shut their eyes to what is going on around them. It is their duty to use ordinary diligence in ascertaining the condition of its business, and to exercise reasonable control and supervision of its officers. They have something more to do than, from time to time, to elect the officers of the bank, and to make declarations of dividends. That which they ought, by proper diligence, to have known as to the general course of business in the bank, they may be presumed to have known in any contest between the corporation and those who are justified by the circumstances in dealing with its officers upon the basis of that course of business.” Martin v. Webb, 110 U. S. 7, 15, 3 Sup. Ct. 428, 28 L. Ed. 49.
I do not believe that the members of the board should he permitted to say in effect, as the majority obviously would have them say, that they knew that the president had released Gertenbach, that they ratified his act but did not know why they were doing it, and that therefore their ratification is ineffective.
*407aFor the appellant there was a brief and oral argument by Ray T. McCann of Milwaukee.
For the respondent there was a brief by Stern & Stern of Milwaukee, and oral argument by James F. Stern.
Because it is clear to me that there is credible evidence to support all of the jury’s findings I would reverse and order judgment on the verdict for defendant Gertenbach.
A motion for rehearing was granted September 16, 1955, and oral argument was heard October 12, 1955.
The following opinion was filed November 8, 1955 :
Per Curiam
{on reargument). Counsel for the defendant Gertenbach in the brief filed in support of the motion for rehearing urged that the provisions of sec. 221.08 (9), Stats., had a material bearing on the issue of ratification by the plaintiff bank’s board of directors of the unauthorized release of Gertenbach from the guaranty by Kruyne, president of the bank. We granted a rehearing on the narrow question of the application of such statute.
In the instant case the burden of proof was upon Gerten-bach to establish ratification. In our original opinion we, in effect, held that he had failed to meet such burden because of the absence of any evidence showing knowledge by the bank directors of any facts which would indicate to them that Kruyne’s release of Gertenbach was irregular or unauthorized. In the absence of such a showing, unless such lack is supplied as a matter of law by sec. 221.08(9), Stats., there was no duty on the part of the directors to express any dissent, and no intention to affirm could be inferred from mere silence. On this latter point see comments a and b, Restatement, 1 Agency, pp. 234, 235, sec. 94.
Sec. 221.08 (9), Stats., provides:
“The board of directors shall meet at the bank at least once each month. At such monthly meeting they shall gen*407berally investigate the affairs of such bank and determine whether the assets are of the value at which they are carried on the books of the bank. Such directors shall name a loan committee of three or more of its members, a majority of whom shall be other than active executives, except in cities of the first or second class, or except when a majority of the directors are actively engaged in the bank’s management. The committee shall meet at least once each month and shall determine policies as to renewals and applications for new loans. Any director who shall be found to be lax in attendance may be removed by the commissioner and such vacancy shall be filled within a reasonable time as the commissioner may direct.” (Italics supplied.)
It is urged by counsel for Gertenbach that this statute made it the duty of the directors to interrogate Kruyne, when he made the alleged statement that Gertenbach had been released from the guaranty, to ascertain the surrounding circumstances which would have disclosed the irregular nature of such release. Proceeding from this premise, it is then contended that the directors, by such failure to interrogate, must be deemed to have had constructive knowledge of the material surrounding circumstances so that their silence constituted a ratification of Kruyne’s act in releasing Gertenbach.
We do not construe the statutory words “generally investigate the affairs of such bank” as placing the affirmative duty upon the directors to interrogate Kruyne with respect to his statement that Gertenbach had been released from the guaranty. It would be imposing an extremely onerous burden upon bank directors if they were required to investigate every oral statement of a bank officer or employee made in their presence under circumstances where affirmative action was not required to be taken by the directors thereon, and there was no intimation that assets of the bank had been improperly dealt with. The statute was enacted for the protection of depositors and stockholders and must be reasonably interpreted with that objective in view.
*408We, therefore, conclude that no constructive knowledge existed on the part of the directors of the circumstances surrounding the release of Gertenbach on the guaranty. Whether constructive knowledge is the equivalent of actual knowledge, in spelling out ratification by silence, we find it unnecessary to determine here.
The prior mandate is adhered to.
Steinle, J., took no part.