Blood v. La Serena Land & Water Co.

Henshaw, J.

Appeals from the judgment and from the order denying a new trial.

The complaint is a pleading in the usual form to fore-' close a mortgage alleged to have been executed by defendant corporation to plaintiff. Defendant answered, denying the execution of the instruments, and likewise filed a cross-complaint, a general demurrer to which was sustained.

Upon the trial the following facts were disclosed: One James A. Blood was the owner of a ranch containing about three hundred and fifty acres. In the year 1887 he authorized his nephew, James A. Blood, Jr., a real estate broker, to make a sale of this ranch at the price of one hundred and five thousand dollars, agreeing to pay him a commission of five thousand dollars for effecting the sale. Blood, Jr., proceeded as a “promoter” to organize a corporation for the purpose of purchasing this land, platting, subdividing, and selling it. Under these circumstances the La Serena Land and Water Company was organized as a corporation. After it had filed its articles of incorporation, but before any meeting of its directors was held, the subscribers to the capital stock of the corporation, of whom Blood, Jr., was one, in meeting agreed upon the purchase of the Blood ranch, and to that end authorized the payment by Blood, Jr., to plaintiff of one-half of the purchase price of the ranch. Upon receipt of this sum plaintiff was to execute to the corporation his deed for the land, and in return the corporation was to make and deliver to him its note and mortgage for the remaining one-half of the purchase price.

Thereafter the directors met and organized. They made no formal adoption of a corporate seal, but seem to have instructed their president to procure such a seal. They passed no resolution looking to or touching upon the purchase of the Blood ranch, or the execution of the note and mortgage. Payment to plaintiff of the onéhalf of the purchase price was, however, made by Blood, Jr., pursuant to the instructions which he had received at the stockholder’s meeting, which payment consisted of about forty thousand dollars in gold coin, and stock of the corporation of the estimated value of twelve thousand five hundred dollars. Upon receipt of this plaintiff executed to the corporation his deed for the land, and in return received a note and mortgage for the sum of fifty-two thousand five hundred dollars. Both the note and the mortgage were executed in the name of the corporation by James L. Barker, its president, and James A. Blood, Jr., its secretary. Barker and Blood were in fact, respectively, president and secretary of the corporation. The note and mortgage also bore impress of what purported to be the common seal of the corporation. Blood, Jr., as one of the original subscribers, received some shares of the stock, and other shares were made over to him by Blood, Sr., representing the commission of five thousand dollars, which he was to receive for effecting the sale. It appears that the stockholders of the corporation knew that the purchase price of the land was to be one hundred and five thousand dollars, and were satisfied to make the purchase for that sum, and upon the indicated terms. It is not so clear that they knew that their associate, Blood, Jr., was to have received a commission from Blood, Sr., for effecting the sale. Blood, Jr., by his own testimony, acted for the incorporators in the matter of the purchase. How far he acted for them does not clearly appear. It also is uncontradicted that he acted for the vendor, Blood, Sr.

The corporation entered upon and took possession of the land, exercising general acts of dominion and ownership over it. It was surveyed and platted; orchards were cut down, springs developed, certain portions of it sold, and deeds for those portions executed by the corporation in its own name, Blood, Sr., joining therein-Interest was paid upon the mortgage for a time, and by a later convention between the corporation and the mortgagee, the produce of the ranch was afterward taken in lieu of interest.

• Finally, the coloration having failed to meet the terms of the contract, this action was instituted.

The court found that the note and mortgage were duly executed by the corporation. It also found that the contract of note and mortgage was duly ratified by the corporation, and decreed foreclosure accordingly. The finding that there was a due execution of the note and mortgage, if understood to mean that there was due authority for their execution at the time they were made, is not supported by the evidence. Plaintiff, by the introduction of the note and mortgage, proof of the corporate seal, and of the names of the officers executing the instruments on behalf of the corporation, established, it is true, a prima facie case of due execution. But it was only aprima facie showing, and one subject to be overthrown by proof of the fact that original "authority was lacking.

Appellant first contends that the evidence of plain-, tiff failed in showing that the seal employed upon the instruments was in fact the common seal of the corporation. It is true that one offering a paper purporting to be the instrument of a corporation under seal is called upon to make proof that the seal employed is the corporate seal, but the earlier strictness of proof in this regard has been much abated by later decisions, and it is sufficient if plaintiff can show, either that the seal is the regularly adopted common seal of the corporation, or that it is the seal which without such formal adoption is and has been habitually used as such. In the present case it appeared that the seal was not regularly adopted, and also that it was used upon the instruments in question for the first time in the history of the corporation. But it was further shown that it had been afterward employed as the seal of the corporation in all transactions requiring the impress of such a seal, and we are of opinion that there was a sufficient showing to warrant a finding that it had become the common seal of the corporation by use.

Plaintiff thus established his prima facie showing of regular and due authorization; but it was a showing which could be overcome, and in this case it was in fact overcome by proof that no resolution authorizing the making of this contract was ever adopted by the managing board of the corporation, its board of directors. The only authority upon which the president and secretary acted was the resolution passed at the preliminary meeting of stockholders, before organization of the board of directors, and that such authorization was insufficient to support a finding of due and regular execution is a proposition scarcely requiring authority in its support. (Gashwiler v. Willis, 33 Cal. 12; 91 Am. Dec. 607; Alta Silver Min. Co. v. Alta Placer Min. Co., 78 Cal. 629.)

The defect in this instance did not arise from a mere failure to record a resolution duly passed, which was the question considered in Schallard v. Eel River Nav. Co., 70 Cal. 144, but in a showing that such a resolution was ■never in fact adopted.

But was the contract, originally defective and voidable for lack of power and authorization, afterward ratified by the corporation? It is so found by the court. 'Can the finding be sustained? It is a general principle that a corporation, like an individual, may ratify and validate any unauthorized act, the doing of which it could, in the first instance, have authorized and empowered. ’VYhat conduct and proceedings will constitute and amount to a ratification is a question which the courts have been called upon to decide with great frequency. In the literature of the law which is thus full upon the subject there has often been little inclination displayed to distinguish between ratification and estoppel in pais. The facts are usually set forth at length, and the conclusion is reached and expressed that such conduct amounts to ratification; and indeed, where the .form which the ratification must take is not governed by statutory rules, It may and usually does matter little whether the acts of a principal are said to be such as to •constitute a ratification, or to be such as to constitute an estoppel. By either name he is held equally bound. But the distinction between the two is nevertheless well defined, and where, as in this state, the mode of ratificationis .governed by statute it becomes important and necessary to distinguish them. Acts and conduct amounting to an estoppel in pais may, in some instances, amount also to ratification, but, on the other hand, ratification may be complete without any of the elements of an estoppel. The elements of an estoppel in pais have for so long been settled in this state that it is superfluous even to refer to the leading cases of Boggs v. Merced Min. Co., 14 Cal. 279, and Martin v. Zellerbach, 38 Cal. 300; 99 Am. Dec. 365.

The requisites and forms of ratification, however, are entirely within the provisions of the code.

“An oral authorization is sufficient for any purpose, except that any authority to enter into a contract required by law to be in writing can only be given by an instrument in writing.” (Civ. Code, sec. 2309.)

“A ratification can be made only in the manner that would have been necessary to confer original authority for the act ratified, or, where an oral authorization would suffice, by accepting or retaining the benefit of the act, with notice thereof.” (Civ. Code, sec. 2310.)

Ratification is thus a question of legal cognizance, while estoppel in pais addresses itself to equity. Ratification under our code is a legal term with a well defined and specific meaning, and to use it interchangeably with estoppel, or with the verbs “to adopt” or “to confirm,” must result and has resulted in unfortunate confusion.

One instance out of many may be cited to point what has been said. In the syllabus to Borel v. Rollins, 30 Cal. 408, is the following: “Ratification by acts constituting estoppel in pais.—The principle that an unauthorized act of an attorney in fact, acting under a power required to be under seal, must be confirmed by an instrument under seal, does not prevent the principal from ratifying by an act which operates as an estoppel in pais.”

Had the words “confirmed” and “ratifying” been transposed in the foregoing, the language would have been accurate and unobjectionable. But, if the act in fact has been ratified, the ratification is sufficient, and there is no need of invoking the doctrine of estoppel. It is only where the acts fall short of legal ratification that the necessity of calling upon the doctrine of estoppel exists. A reference to the text of the opinion in that case at once discloses this, for it is there found that there was no ratification, but that there was an estoppel, the court saying: “It may be said .... that, as the authority to execute deeds upon partition must be under seal, there can be no parol ratification without authority under seal. This is certainly the doctrine of the law, but it is also a doctrine that an act which operates as an estoppel in pais, such as accepting the benefit of the partition attempted to be made, and dealing with the property allotted to the principal by the partition as his own, by disposing of it by deeds, confirms the partition made by the attorney without legal authority.” J .

Now, while ratification may be proved under a plea of due execution (Goetz v. Goldbaum, 37 Pac. Rep. 646), yet the evidence in this case falls short of proving it, and more strongly tends to establish an estoppel.

As in the case of Borel v. Rollins, supra, it showed a certain confirmation by the corporation of the unauthorized acts of its president and secretary. The land was taken, control exercised over it, portions of it were sold. There was even some recognition of the corporation’s indebtedness by a payment of moneys for interest upon the mortgage debt, though it is claimed that this payment was made, not by the corporation, but by certain individual shareholders therein. Many acts of knowledge and adoption might be instanced, but they singly and collectively fall short of the code requirements for ratification. The corporation in the first instance could have authorized the execution of this particular note and mortgage only by a resolution of its board of directors (the equivalent of a writing) duly assembled in meeting, which resolution, either by itself or taken with its by-laws, would have authorized the president and secretary not only to make a mortgage, but would have set forth the rate of interest and the agreement to pay-in gold coin. The authority of the agent to make any mortgage must be in writing. (Civ. Code, sec. 2309.) The agreement to pay the ten per cent must be in writing (Civ. Code, secs. 1917, 1918), and the requirement to pay in gold coin as well. (Civ. Code, sec. 1913.) The contract of mortgage with these terms and conditions could only be ratified in the manner that would have sufficed to confer original authority. Such a ratification plaintiff failed to show (Salfield v. Sutter County etc. Co., 94 Cal. 546), and this, aside from the consideration of the knowledge or lack of knowledge of the corporation of the interest and dual relationship of Blood, Jr., from the inception to the consummation of the transaction; for the acts did not constitute a ratification, whether the corporation possessed this knowledge or did not.

As has been intimated, they more strongly tend to establish against the corporation an estoppel in pais. Such an estoppel was, however, neither pleaded nor found. We do not mean to be understood to say that under the peculiar facts of this case it was necessary for plaintiff so to have pleaded. Plaintiff went into court in the belief that he held a note and mortgage duly executed to him. He established a prima facie case to that effect. In turn he was met by a counter-showing of lack of due authorization, and undertook to meet this by evidence of subsequent ratification. The same evidence, however, treated as evidence by way of estoppel, was admissible, without pleading estoppel, to raise an equitable barrier against defendant’s proof of want of authority. Had plaintiff, in the first instance, been called upon to rely upon an estoppel in pais in order to maintain his action against defendant at all, it would have been necessary, of course, for him so to have pleaded. But such was not his cause of action. He successfully makes out a prima facie case, and may, without pleading it, use the evidence in estoppel to prevent the corporation from maintaining what, as against its acts, would be an unjust and unwarranted defense.

Whether or not the acts of the corporation are sufficient to raise such an estoppel is not now a question for determination. It would involve, not the review of findings made by the trial court upon the question, for the trial court made none, but would necessitate the making in this court, in the first instance, of such findings. This we have neither the right nor the disposition to do.

But as, under the facts here disclosed, such findings are necessary to the proper determination of the rights of the litigants, a new trial must be ordered. Upon such trial it may be determined what position Blood, Jr., occupied in relation to the corporation, whether he was merely a mouthpiece to deliver messages, or • whether he was chargeable with the high good faith exacted of all who stand in a relation of trust. It may also be determined whether or not the corporation knew, or was chargeable with knowledge of, the interest of Blood, Jr., and of the fact that he was to receive a commission from the vendor. In short, there may be explicitly set forth the acts and conduct of the corporation which may be claimed to estop it from contesting the validity of the note and mortgage. Thereafter, should an appeal be taken to this court, the question will be properly under review.

So far as this decision goes, it is but a determination that the findings of due execution of the note and mortgage, and of ratification thereof, are not supported by the evidence, and cannot stand.

The judgment and order are reversed and the cause remanded for a new trial. ■

Temple, J., Harrison, J., Garoutte, J., and Van Fleet, J., concurred.