JEPPI v. BROCKMAN HOLDING CO (1948)

Plaintiffs and appellants Frank Jeppi and W. B. Camp, Sr., have perfected this appeal from a ruling of the trial court granting a nonsuit in favor of defendants and respondents Brockman Holding Company, Inc. (hereinafter referred to as the Holding Company) and Mary C. Spaulding, in an action for damages resulting from the alleged wrongful refusal of defendants, as vendors, to complete an agreement to sell real property consisting of a one-half interest in a half section of land in Kern County and a half interest in a lot in Los Angeles County.

The complaint alleges the corporate entity of defendant company; that on May 29, 1945, it agreed to sell to plaintiffs the property indicated for $27,500; that the agreement allowed 60 days for the parties to consummate it; that on June 7, 1945, plaintiffs deposited the purchase price with the escrow company; that the Holding Company, in bad faith, wilfully refused to consummate the transaction and repudiated it for the reason that it had secured a higher offer for the land; that the value of the estate at the time of the repudiation of the contract was $147,500; and that defendant Mary C. Spaulding represented to plaintiffs that she was authorized by defendant Holding Company to execute the contract.

The answer of the defendant Holding Company denies the execution of the contract; admits the sale of the land to a third person for $32,025; denies that the value of the land at the time of the sale or at any other time was in excess of that amount; and as a separate defense alleges that the contract was a sale of all of the assets of the defendant corporation and that that fact was known to plaintiffs; and alleges that there was no authorization by the corporation or its stockholders, by resolution or otherwise for such sale.

The answer of Mary C. Spaulding, in addition to the denials in the answer of the other defendant, denies that she represented to plaintiffs that she had authority to complete the transaction. She also alleges that her signature to the escrow did not purport to bind the corporation, but the escrow was subject to the approval of the board of directors of the Holding Company.

The evidence produced by plaintiffs shows that the Holding Company was organized on April 14, 1930, for the purpose of taking title to and handling real estate in the estate of I. W. Brockman, deceased. Its principal place of business was in Pomona, where the directors lived. Defendant Mary C. Spaulding, president of the corporation, lived in San Francisco. The by-laws of the corporation empowered the president to preside at stockholders' and directors' meetings and perform all the duties specially required of the president by the laws of the State and the by-laws of the Holding Company. They also provided that the board of directors may create an executive committee of such number as may be determined by it and from time to time entrust to it such powers as are exercisable by the board. At a formal meeting of the board of directors held on May 1st, 1944, the following resolution was adopted: ‘Motion was made by Bert Harvey, seconded by Spaulding, that the property of Brockman Holding Company be sold in order to close up the company as soon as possible. Motion carried.’ The corporation, by custom, held but one directors' meeting a year, and during the interim matters were handled informally by the directors. On May 7, 1945, there was a meeting of the directors held, following the meeting of the stockholders which elected directors for the year 1945. Mary C. Spaulding was elected president, Bert Harvey vice president, Ralph Harvey Secretary, J. Alonzo Brockman, Ralph Goodale and Bert T. Harvey directors. The record shows that the board of directors at all times in question, in addition to the individual stock they owned, had proxies representing 23,390 shares of stock. Altogether they controlled 29,000 shares of the 42,000 shares outstanding. There is evidence that on May 7, 1945, after the annual meeting of the stockholders and, apparently, after a meeting of the directors, a majority of the directors, informally, specifically discussed the sale of the property involved in this transaction, and apparently they again decided to sell the Kern County property. The minutes of the board of directors on that date reflect no entry in reference to this discussion or decision. At any rate, it appears from the testimony that as a result of this so-called informal discussion Mrs. Spaulding came to Kern County to endeavor to negotiate a sale of the property. She contacted a Mr. Tupman, her friend and adviser, in reference to securing a purchaser for the property. It appears that Mr. Tupman had communicated to the board of directors a previous offer for the property. There is a letter in evidence from a Mr. Young, dated 12/18/44, offering the corporation $25,000 for the property. Tupman, Mrs. Spaulding and plaintiff Jeppi viewed the Kern County property on May 28, 1945. Jeppi offered her $27,500 for the two parcels. Tupman recommended it as the best offer that he had received.

Jeppi testified that Mrs. Spaulding then said as to the offer: ‘It suits me all right, and I will get in touch with my people in Pomona by phone, and let you know’; that he said: ‘All right, if your directors decide to sell you call me up at my office and if I am not there you can tell my secretary. If it is a deal I will meet you at the abstract office at 9 o'clock the next morning before the crowd gets in there’; that she called the secretary and told Jeppi to meet her at the title company the following morning which he did do; that preliminary instructions were then taken according to the instructions of the parties; that a regular escrow agreement was signed by him and Mrs. Spaulding as president of the Brockman Holding Company; that he left his check for $27,500 in escrow; that at the time the escrow instructions were signed Tupman made most of the conversation and Mrs. Spaulding did very little talking; that she said nothing about there being no deal unless the directors passed a resolution; that he could not say whether she said anything about this being all of the property the company owned because that didn't mean anything to him; that he believed all the time that proof of the fact that she had the consent of the board of directors to sell for $27.500 was the fact that Mrs. Spaulding met him at the title company the next morning after telling him that all that was necessary to effect the sale was to get the consent of her ‘group’.

The sellers' instructions provided: ‘I will hand you the deed called for with proper resolution attached, * * * and hold for account of the seller $27,500’. In the buyers' instructions it was agreed between the parties that a royalty check under a certain oil and gas lease for the month of May, payable in June, should be paid to the buyers and be retained by them whether or not the transaction was consummated, and any additional payments for royalty during the pendency of the escrow should likewise be paid to the buyers. This was solely an agreement between the buyers and seller and was not a condition of the escrow.

The general provisions of the escrow provide that time is the essence of the instructions; that if the escrow is not in condition to be closed ‘by July 28, 1945, any party who then shall have fully complied with his instructions may, in writing, demand the return of his money and/or property; but if none have complied, no demand for return thereof shall be recognized until five days after the escrow holder shall have mailed copies of such demand to all other parties at their respective addresses shown in the escrow instructions. If no such demand is made, close this escrow as soon as possible.’ On that same day, May 29, 1945, the title company wrote to Mr. Harvey, secretary of the Holding Company, requesting deeds and a formal corporate resolution, as follows: ‘We are advised that the properties being sold under this escrow comprise all of the remaining property owned by the corporation, and it will, therefore, require an appropriate resolution of the corporation to be attached to the deeds. The deeds are drawn and will not be dated or executed until the resolution has been procured.’ No reply to this communication was received until June 7, 1945, which came in the form of a telegram, to wit: ‘Brockman Holding Company sale not approved by directors and better offer has been received. Directors meeting to consider all proposals will be held June 14th. Brockman Holding Company, By Ralph S. Harvey, Secretary.’

Jeppi was then notified of the receipt of this telegram by the title company. Between the date when the escrow instructions were signed and the date of the telegram Mr. Harvey, the secretary of the Holding Company, received a letter from Mr. Young, containing an offer of $30,000 for the property. Mr. Jeppi, upon being advised by the title company of the telegram, retained counsel and notified Mr. Harvey that although Jeppi intended to stand upon his transaction, he offered him $30,100 for the property, and ‘that was as far as we were going to go.’ On June 14, plaintiffs' attorney received a telegram advising plaintiff Jeppi and his attorney that the transaction had been closed and the property sold to Mr. Young for $32,025. On June 15, Mr. Jeppi went to the title company, withdrew his deposit, and the word ‘cancelled’ was noted on the instructions signed ‘Frank Jeppi’. No deed was ever tendered to plaintiffs prior to July 29, 1945, or at all, in respect to the property.

Mrs. Spaulding, called under section 2055 of the Code of Civil Procedure, testified that the directors did discuss the sale of this property after the meeting held on May 27, 1945. However, in her deposition taken in connection with the matter, she testified: ‘Well, we discussed it but I couldn't tell you whether it was in a directors' meeting or not, now. We discussed it in May, 1945, but I don't know whether it was in a meeting or not. I don't think we were in session. It had been discussed informally among ourselves, yes'; that they had been offered $25,000 and refused it; that she was instructed at that informal meeting to come to Kern County and negotiate a sale of the property; that no formal directors' meeting or resolution was drawn up in that regard but the discussion of the matter was with the board as a group; that she was not authorized to sell for any certain amount; that they had theretofore had an offer of $32,000 and that would be satisfactory. As to the sale to Mr. Jeppi she testified that she told him that she was satisfied with his offer of $27,500; that she ‘would have to call the boys in Pomona and see what they said about it and if they answered favorably I would call him and let him know’; that ‘I was not authorized to make a trade myself, but I would have to see what they said about it’; that she called the secretary of the company but could not get him; that she then called Bert Harvey and then called Jeppi's office and told his secretary to tell him she would meet him the following morning at the title company office; that they met and she told him she could not get Mr. Harvey on the phone; that she particularly told him the company wanted to sell all of its holdings because it wanted to close out all of the property and that if he bought he would have to take it all; that these two parcels were all the real property the company had left. She then stated that she did not authorize the sending of the telegram to the title company disapproving the sale.

The secretary, Ralph Harvey, called under section 2055 of the Code of Civil Procedure, testified that ever since May 1, 1944, members of the board of directors made informal efforts to sell the properties of the company because they wanted to close it up; that it was the custom to have only one directors' meeting a year, and during the interval the affairs of the company were handled informally by the group of directors; that the company was getting monthly royalties from the property and it had four shares of valueless Edison stock on hand; that there was no meeting of the board of directors authorizing him to send the telegram to the title company but three of them met and authorized it to be sent because they didn't want to sell the property for less than $32,000. As to the claimed informal meeting on May 7, 1945, he testified that it was agreed among the group that Mrs. Spaulding was to see Mr. Tupman and see if the ‘$32,000’ offer was still good and if so to go ahead ‘but it would have to be approved by the board before any deal could be put through’.

Evidence was received that after the ‘schist’ zone was discovered at Edison and a prolific producer was obtained in ‘Well 3 Brockman’, the values of property in that zone increased considerably and the value of the property here in question was, as of July 29, 1945, in excess of $142,500.

Plaintiffs now argue that the granting of a nonsuit was error because the complaint stated a valid cause of action; that the escrow agreement contained necessary and essential elements of a contract to sell real property; that the record contains evidence that Mrs. Spaulding was authorized to sign the contract on befalf of the corporation not only expressly but by necessary implication; and also that there was a ratification of her acts.

Defendants argue that plaintiffs failed to meet the burden of proving that the contract of sale was authorized by the corporation; that it being a sale of substantially all of the assets of the corporation the added approval of all of the stockholders was required; that the authority of the claimed agent, Mrs. Spaulding, was not in writing and that plaintiffs had actual notice of her lack of authority; that there was no ratification of her claimed authority and no estoppel operated against the company to deny it; that there was no ratification of the alleged contract; that since plaintiff Jeppi, himself, later bid for the property and cancelled the escrow agreement and drew out his money before the expiration of the time defendants had to perform he is now barred from seeking the relief prayed for in this action.

The complaint does state a cause of action. Sec. 3306, Civ.Code; 25 Cal.Jur. pp. 815–817, sec. 265; Shaw v. Union Escrow etc. Company, 53 Cal.App. 66, 200 P. 25; Morgan v. Stearns, 40 Cal. 434.

The escrow agreement followed the standard form set out in Tuso v. Green, 194 Cal. 574, 229 P. 327.

As a general rule, the president of a corporation has no power, merely by virtue of his office, to sell the property of the corporation. Neuhart v. George K. Porter Co., 23 Cal.App. 526, 531, 138 P. 951; Leo G. McLaughlin Co. v. Phillips, 46 Cal.App. 637, 640, 189 P. 788; Mariposa Commercial etc. Company v. Peters, 215 Cal. 134, 8 P.2d 849.

In Black v. Harrison Home Company, 155 Cal. 121, at page 127, 99 P. 494, at page 497, it is said: ‘It is true that the board of directors may expressly authorize the president to contract; or his authority to contract may arise from his having assumed and exercised that power in the past; or the corporation may ratify his contract or accept the benefits of it, and thereby be bound. But the general rule is that the president cannot act or contract for the corporation any more than any other one director.’

In Fudickar v. East Riverside Irr. District, 109 Cal. 29, 39, 41 P. 1024, it was held in a quiet title action, that for the plaintiff to prevail (where the corporate deed did not bear the corporate seal), (see sec. 374, Civ.Code) it was incumbent on the plaintiff to show affirmatively that the deed was executed by authority of a resolution of the board of directors, entered on the records of the corporation, or that it was ratified by such a resolution; that any deed purporting to convey any interest in real property not so authorized is void. It likewise held that the right to avoid such a deed must be exercised by the corporation itself or a stockholder acting for it. See also, Mariposa Commercial etc. Co. v. Peters, supra, at page 141 of 215 Cal., 8 P.2d 849.

Plaintiffs cite and rely upon McCartney et al. v. Clover Valley Land & Stock Co., 8 Cir., 232 F. 697, 701, where this is quoted: ‘In our judgment section 2309 of the California (Civil) Code, requiring an agent's authority to execute a contract in writing to be itself in writing, does not apply to the executive officers of a corporation.’

In Corporation of America v. Harris, 5 Cal.App.2d 452, 458, 43 P.2d 307, 310, in discussing this quotation, the court said: ‘The court added, however, * * * it should be established that the making of such contract was within the scope of the officer's authority. On the other hand, it has repeatedly been held in California that the president of a corporation has no authority, by virtue of his office alone, to bind the corporation by contract * * * Nor may the business agent of a corporation, in violation of the statute of frauds, execute a note on behalf of his principal without appropriate resolutions of the board of directors authorizing him so to do. * * * The weight of authority, we believe, supports the view that the agent of a corporation, whether he be an executive officer or not, may not, merely because of his office, bind his principal upon a lease of real property for longer than a year, unless he has written authority from his principal so to do.’

Incidentally, it was likewise there pointed out that ratification of the lease could have been made ‘only in the manner necessary to confer original authority for the act ratified.’ Citing Civ.Code sec. 2309.

In Butler v. Solano Land Co., 46 Cal.App. 171, at page 173, 188 P. 1019, at page 1020, it is stated: ‘As the plaintiff must recover, if at all, upon a written contract * * * the only question presented upon this appeal is whether or not the corporation is bound by the above-quoted writing. The record contains no proof of express authority of the president to make this contract; there is no seal affixed to the document to make it prima facie proof against the corporation. It was incumbent upon the plaintiff to prove either that the officer executing the instrument was expressly authorized to execute the same, or that it was an act fairly within the implied powers incidental to his office, or that the corporation is estopped to deny his authority by reason of having accepted the benefit of the contract, or otherwise.’

Since defendant corporation and its stockholders received no benefits and retained none under the escrow agreement executed by the president of the corporation, and a majority of the directors holding shares of stock repudiated the agreement shortly after discovering its terms and conditions, it cannot be said that there was an estoppel or ratification of the unauthorized agreement. Corporation of America v. Harris, supra; International Magazine Co. v. National Radio Co., 67 Cal.App. 498, 502, 227 P. 818; Black v. Harrison Home Company, surpa.

The only question remaining, which is a more serious one, is whether there was sufficient evidence to have supported a judgment based upon the claim that the president had the implied or apparent authority of the directors and stockholders to bind the corporation to alienate the remaining parcels of its real property, which property was ‘substantially all’ of the remaining assets of the corporation. See secs. 343–345 Civ.Code.

All substantial evidence points to the conclusion that the Holding Company was endeavoring to dispose of its entire holdings in order that the company might be dissolved. The resolution of May 1, 1944, so states. There was no property owned by the company of any appreciable value outside of the Kern County property and the lot in Los Angeles County. Plaintiff did not desire to have that lot but defendant's president insisted that it be included in the deal as it was the last piece of realty owned by the company. The notes of the title company agent show that he was informed by one of the parties to the escrow agreement, in the presence of the other, that such a sale would constitute a sale of all, or substantially all of the company's assets. The title company, in its letter to the secretary of the Holding Company, asking for a certificate of such approval by the stockholders, clearly shows that there was such a conversation and such an approval was necessary before the title company would transfer the property. Plaintiffs do not deny that there was such a conversation but Jeppi said ‘it didn't mean anything to him’. The escrow agreement itself provides that the seller will furnish a deed ‘with proper resolution attached’.

From the record it appears that Mrs. Spaulding did not, on the evening before going into escrow, obtain the consent of Ralph Harvey, the secretary, to the sale as proposed. According to the evidence, only one other director besides herself consented. Her failure to apprise plaintiff of this fact may have led him to believe she had obtained the consent of a majority. Even if she had told him she had, her statement of that fact would not have been binding against a majority of nonconsenting directors or stockholders. Harris v. San Diego Flume Co., 87 Cal. 526, 25 P. 758; 1 Cal.Jur. p. 741, sec. 41.

From that transaction it clearly appears that the president was signing the escrow instructions with plaintiff conditioned on the fact that the directors and stockholders would subsequently approve the sale as arranged by her and would furnish a certificate to that effect before the sale would be considered effectual. Smith v. Sleepy Hollow Investment Co., 65 Cal.App.2d 75, 149 P.2d 754.

The testimony of the directors as to the so-called ‘informal meeting’ of May 7, 1945, whether made in or out of regular session, indicates that any arrangement she made as to a sale would be subject to their approval. Therefore, it cannot be said that plaintiff has established, by any substantial evidence, that the president had apparent or implied authority to bind the corporation or stockholders to sell the property at the price and on the terms suggested in the escrow instructions.

Section 343 of the Civil Code provides: ‘No corporation may sell * * * all or substantially all of its property * * * unless under authority of a resolution of its board of directors and with the approval of the principal terms of the transaction and the nature and amount of the consideration by vote or written consent of shareholders entitled to exercise a majority of the voting power.’ (Emphasis ours.)

Even though the directors held the right to vote a majority of the stock of the corporation, the resolution of the directors on May 1, 1944, was merely a declaration of policy that the property of the company should be sold. To whom, at what price, the terms thereof, and who was to effect such sale was not indicated. There is no evidence that it had been or was the custom or duty of the president to effect such sales of real property. The articles of incorporation did not so provide. Therefore, it cannot be said that this resolution, in itself, bound the directors or stockholders to affirm whatever action was subsequently taken by the president of the corporation without further approval on their part.

The minutes of the meetings of the directors and the stockholders show no further approval was given by way of any resolution or official proceeding. Therefore, some further action by them, either by authorization or ratification of the president's act, was necessary in order that the corporation might be bound under the agreement.

It appears from some of the more recent cases that there has been a relaxation of some of the stricter interpretations requiring certain acts of agents and officers of corporations to be authorized by resolution where such acts are within the general powers of the agent or officer so acting for the corporation. Pixley v. W. P. R.R. Co., 33 Cal. 183, 91 Am.Dec. 623; Mannon v. Pesula, 59 Cal.App.2d 597, 603, 139 P.2d 336; Brainard v. De La Montanya, 18 Cal.2d 502, 116 P.2d 66; 6A Cal.Jur. 1148, sec. 653 (relied upon by plaintiffs).

In Grummet v. Fresno Glazed Cement Pipe Co., 181 Cal. 509, 185 P. 388, which was an action on a contract for services as assistant manager of the corporation, the court, after stating the rule in reference to nonsuits, remarked that any contract pertaining to corporate affairs, executed by the president, within his general powers, will, in the absence of proof to the contrary, be presumed to have been done by the authority of the corporation.

International Magazine Co. v. National Radio Co., 67 Cal.App. 498, 499, 227 P. 918, after citing the Grummet case, held, in sustaining a judgment of nonsuit (quoting from the syllabus) that ‘if plaintiff had simply proved the making of the contract in question on behalf of the defendant (corporation) by its president a prima facie case of liability on the part of defendant would have been made out; but plaintiff's proof having included affirmative evidence that there was no provision in the by-laws of the defendant corporation giving the president power to make contracts and that there had been no special authorization by the board of directors, which facts were brought out by the plaintiff's witnesses, plaintiff's case must fall of its own weight.’

In the instant case plaintiffs' proof included affirmative evidence that there was no provision in the by-laws of the corporation giving the president power to make the contract, and that there had been no special authorization by the board of directors for her to so execute said contract, on the terms therein set forth, in behalf of the directors or with the consent of the stockholders. See, also, Salfield v. Sutter Co. L. I. & R. Co., 94 Cal. 546, 29 P. 1105; Bean v. Pioneer Mining Co., 66 Cal. 451, 6 P. 86, 56 Am.Rep. 106.

Since Mrs. Spaulding would not be personally liable under the agreement, the judgment of nonsuit as to both was proper. Hall v. Crandall, 29 Cal. 567, 89 Am.Dec. 64; 6A Cal.Jur. pp. 1198, 1199, sec. 682; 19 Cal.Jur. p. 824, sec. 25.

Judgment affirmed.

GRIFFIN, Justice.

BARNARD, P. J., and MARKS, J., concur.