Opinion
Decided September 6, 1938.
A contract purporting to be a purchase of property by a corporation is not binding upon it where the directors, being misinformed by one of their number, who was without any general power to make purchases that the contract was merely an option to purchase, voted "to uphold" it subject to the approval of the stockholders. In such case a vote of the stockholders to ratify the action of the directors is not an adoption of the instrument as a contract of purchase by the corporation but only a ratification of what the board of directors had done. In such case there was no evidence to justify a finding that the directors were guilty of laches in relying upon the misrepresentation of the director without further investigation; or that their inaction amounted to an estoppel against a party who made improvements in reliance on the contract. The silence of stockholders does not estop them from repudiating an unauthorized contract where they have no knowledge of its terms or that action was being taken thereunder. On the question whether a principal has ratified the action of an alleged agent in making a contract to purchase, evidence was properly received to show that the alleged principal never saw the instrument and did not understand its true nature but was misled by the alleged agent's misrepresentation as to its purport. Where in such case the principal has on no other occasion acquiesced in unauthorized acts of the alleged agent no duty is upon the principal to speak concerning a matter of which he is justifiably ignorant and where there was nothing to warn a reasonable man that the statement on which he relied was untrue. Upon a motion for a rehearing on the ground of mistake, counsel fees commensurate with the additional services required by the rehearing may be awarded to the opposite party as terms of granting the motion. Evidence that certain property had not been enhanced in value by improvements was properly admitted on the issue whether justice required a decree should be re-opened whereby the defendant was ordered to pay for improvements in addition to the purchase price.
BILL IN EQUITY, for specific performance of the instrument which was held upon a prior transfer (ante, 87) to be a contract of purchase and sale, and not an option to purchase. After the former opinion, upon which judgment was ordered for the plaintiff, the plaintiff took out an execution. The defendant thereupon moved to vacate judgment, stay execution, also for leave to file a supplemental answer setting up additional defences and that the case be reopened for further hearing as to such defences.
The ground assigned for a new trial was mistake arising from the understanding that the instrument was a mere option, in consequence of which the defendant did not at the trial interpose the defence of lack of authority of the officer of the defendant who executed the instrument, he having authority to execute an option (or at least such execution having been ratified), but having no authority to execute a contract of purchase and sale, and no such contract having been ratified.
The judgment was vacated provisionally and execution recalled pending action on the motion. A hearing was held for the purpose of receiving evidence relative to the new defences of lack of authority and mistake and of later determining what disposition of the motion justice required.
The court found that in 1923 the board of directors created the office of chairman of the board and chose John Lawrence Mauran to fill it. It was voted that he should preside at all meetings of the board and exercise such other functions as might be decided by the president and chairman. Mr. Mauran continued as chairman until his death in 1933. The contract in question, dated May 25, 1926, was executed by Mr. Mauran in behalf of the defendant and was recorded in the Cheshire County registry of deeds.
At a meeting of the board of directors held on July 3, 1926, Mr. Mauran reported that title had been taken in the defendant's name of a piece of property purchased of a Mrs. Mason and a Mrs. Allison; that on another piece owned by a Mr. Mason he had secured an option; and that he had also obtained an option to purchase another piece of Mrs. Barclay for $2500. The directors voted to approve Mr. Mauran's action, subject to approval by the stockholders. The stockholders met on September 4, 1926, and voted to approve all the interim acts of the board of directors, without any report or investigation as to what those acts were and without reference to an option on the Barclay property. The "so called option" was not exhibited either to the directors or to the stockholders, and none of them (except Mr. Mauran) ever saw it until the fall of 1935 after the plaintiff had employed Mr. Cain to write to the club. Then Mr. Catlin, chairman of the board, saw a copy in Mr. Cain's office.
Mr. Mauran never told any director or stockholder that the instrument contained any reference to improvements or additions or any provision for paying for them. The directors and such of the stockholders as were directors understood that they were voting to approve an option and did not understand that they were approving a contract of purchase. Under the by-laws, neither the chairman nor the board had any express authority to purchase real estate for the club or to pledge its credit to pay for it, and no express authority was ever conferred generally upon either by the stockholders. In all other cases where the club has acquired real estate, except in one case of gift, express authority was given by the stockholders. Neither the chairman nor the board had any authority to bind the defendant to purchase real estate unless such authority can be inferred as a matter of law because of their official positions.
The court ruled that neither the chairman nor the board had authority to bind the defendant by such a contract, and that the stockholders did not approve a contract to purchase and were not negligent in failing to examine the document.
The court further found that counsel for the defendant were not negligent in not presenting the defence of lack of authority at the first trial; that the case should be reopened; that it was reasonable that the defendant pay the plaintiff $150 towards the extra expense caused by the reopening and tax no costs to the end of the September term, 1937; that upon such payment there should be a decree for the defendant and the plaintiff's bill should be dismissed.
Certain additional findings were made at the defendant's request, as follows: (1) Since the contract was unauthorized the court made no finding on the question of mistake. (2) As bearing on the question whether justice required a reopening of the case if the contract was unauthorized or vitiated by mistake, the court permitted the defendant, subject to the plaintiff's exception, to introduce evidence as to the actual value of the Barclay property. From this evidence and from a view, the court found that the value of the property as enhanced by the improvements is less than one-half the contract price. (3) Even if the board of directors as a body had authority to purchase real estate for the club, the board never knowingly approved a contract to purchase the Barclay property, and was not negligent in relying on Mr. Mauran's report that he had taken a mere option and in failing to require production and examination of the instrument. (4) The plaintiff did not elect to testify at the further hearing. There is no evidence that either she or her husband made any inquiry as to Mr. Mauran's authority or had any information as to whether he was or was not authorized to make a binding contract of purchase, other than what might be inferred from his official connection with the defendant.
The plaintiff filed a bill of exceptions alleging in substance (1) that a new trial should not have been granted; (2) that as a matter of law and of fact Mr. Mauran had authority to purchase real estate on behalf of the defendant, or the defendant is estopped to deny any lack of authority; (3) that as a matter of law and of fact the board of directors of the defendant ratified Mr. Mauran's action, or they are estopped to deny such ratification; (4) that as a matter of law and of fact the stockholders ratified the action of Mr. Mauran or are estopped to deny it; (5) that the actions of the stockholders and the board of directors estop the defendant from setting up the defence of lack of authority on the part of Mr. Mauran; (6) that the stockholders and the board are estopped to deny the authority of Mr. Mauran to sign the instrument held by us to be a contract of purchase and sale; (7) the allegedly erroneous admission of evidence tending to modify the agreed value of the plaintiff's property; (8) the finding that the value of the property differs from the agreed value; (9) the admission of evidence objected and excepted to in the course of the hearing; (10) the inadequacy of the allowance of $150 as costs on the granting of the petition for a new trial, plaintiff's counsel having informed the Presiding Justice that his expenditures for entry and sheriff fees and for printing the former reserved case and plaintiff's brief amounted to $125.
Young, J., transferred all of the exceptions claimed in this bill, as well as those mentioned in the new findings and in the transcript of evidence.
Howard B. Lane and Roy M. Pickard (Mr. Lane orally), for the plaintiff.
Faulkner Bell and Demond, Woodworth, Sulloway, Piper Jones (Mr. Demond orally), for the defendant.
The question of Mr. Mauran's authority to make a contract of purchase binding upon the defendant is easily answered. It is not to be presumed. Hilliard v. Railroad, 77 N.H. 129. He had not such authority by virtue of the defendant's by-laws. There is no evidence whatever that he was given express authority in this or any prior instance. The corporate records show that when purchases or other acquisitions were made it was the custom for the directors or the stockholders to give express authority in advance to some official. The same held true of sales or leases of land owned by the club, except in one instance where apparently unauthorized action was ratified by the board.
This was the situation up to July 3, 1926, when Mr. Mauran reported to the board that he had purchased the Mason property, and the board "upheld" his action. At the same time Mr. Mauran reported that he had "secured a legal option on the other Mason house for $3,000 and on the Barclay property for $2,500," and upon motion "that action was also upheld subject to the approval of the stockholders." It is significant that the Mason purchase appears to have been made by a group of Dublin people and that the club got title without expense to itself. That acquisition was unconditionally "upheld." The "legal options," however, were "upheld" subject to approval by the stockholders. There is no suggestion from these transactions that any officer lacking special authorization had any power to bind the club to a contract of purchase. The subsequent transactions were not such as to indicate any wider authority in Mr. Mauran or any other officer.
The plaintiff's theory that the stockholders ratified the contract with Mr. Mauran is untenable. They ratified what the board of directors had done. The board ratified a "legal option," according to the record. On the issue of ratification, the court permitted the directors to testify, subject to exception, that they knew the difference between an option and a contract of purchase, that they never saw the contract in question, that they believed and relied upon Mr. Mauran's statement that the contract was an option, and other circumstances tending to show what they intended to do when they voted to ratify. The evidence was not received as an interpretation of the contract or as a modification of the record. There was no error in admitting it. It bore upon the knowledge which is essential, if a principal is to ratify an unauthorized act. Bohanan v. Railroad, 70 N.H. 526. This is not a case where the defendant had ever before acquiesced in unauthorized acts of the agent so that he had apparent authority.
The contention that the defendant, its stockholders and directors, are estopped by silence to deny Mr. Mauran's authority or their ratification is not well grounded. They had no duty to speak concerning a matter of which, as far as appears, they were justifiably ignorant. They knew neither the text nor the legal interpretation of the contract. They were therefore not called upon to say, "Stop making improvements," of which they had no knowledge, "because we are under obligation to pay for them," when they supposed they had no such obligation. Or, "Don't rely upon Mr. Mauran's authority to obligate us," when they did not suspect that he had assumed to obligate them. Even if they had had knowledge that the plaintiff was making improvements, it does not follow that they knew that she was making them in reliance upon a supposed obligation upon their part to pay for them upon her demand. Phelps v. Gilchrist, 28 N.H. 266, 278; Allen v. Shaw, 61 N.H. 95.
The argument that the directors ratified the contract without knowledge of the material facts and without desire to know all the facts and are therefore bound by what they did, is not a valid one. There was nothing, as far as appears, to warn them that Mr. Mauran was not correct in his description of the contract as one of option for $2,500. The directors were not called upon to search for "further facts" (Williston, Contracts, Rev. ed., s. 278), nor did they "assume the risk" unless reasonable men would be put upon inquiry (Hutchinson Co. v. Gould, 180 Cal. 356). A finding that reasonable men would have inquired further was not compelled, nor, under the circumstances must the directors be said to owe any duty of inquiry to the plaintiff. Nor was it a compelled finding that the directors reasonably ought to have known that their failure to inquire would mislead the plaintiff and induce her to act to her damage. Conway c. Bank v. Pease, 76 N.H. 319, 326, 328. It is not to be presumed that the directors were negligent in not knowing the precise meaning of the contract, so that their inaction would be equivalent to their doing something opposed to their expressed intention. Smith v. Bank, 72 N.H. 4, 9.
The admission of evidence that the property has not been enhanced in value by more than a quarter of the cost of improvements made since the contract was signed would have been error upon the construction heretofore given to the contract. But the evidence was not received for the purpose of modifying the contract sum. Its sole purpose was to aid the court in determining whether justice required that the case be reopened. It was properly admitted for that purpose, for the defendant would be entitled to no relief if the property were worth the amount of the judgment formerly ordered.
All of the other exceptions involve merely questions of the exercise of judicial discretion. Watkins v. Railroad, 80 N.H. 468. No occasion is seen for questioning the exercise of discretion except in the allowance of costs to the plaintiff as terms for the granting of a rehearing. The occasion for the rehearing was the mistake of the defendant in not advancing at the first hearing a defence which now appears to be a perfect one. The plaintiff has conceded that the defendant was not culpable in this respect. While the two hearings in the Superior Court may not, as the defendant argues, have occupied more time than a single hearing at which all defences were raised, the mistake of the defendant has caused the plaintiff to come before us twice instead of once. The plaintiff claims for cash expenditures only the $125 paid prior to the former decision here. She was allowed $25 in addition, apparently for a counsel fee. Assuming that counsel fees in the Superior Court were not increased because of the defendant's mistake, they were increased in this court by the fact that the plaintiff had to come here twice instead of but once. We think there was error in not allowing a counsel fee fairly commensurate with one appearance in this court of counsel from Cheshire County. Upon modification of the order in this respect by the allowance of a reasonable further sum as costs to the plaintiff, the order will be
Decree affirmed.
All concurred.