Campbell v. Hospitality Motor Inns, Inc.

• Court: Ohio Supreme Court
• Writing for the Court: PER CURIAM; CELEBREZZE; LOCHER; DOUGLAS; CLIFFORD F. BROWN; DOUGLAS
• Citation: Campbell v. Hospitality Motor Inns, Inc., 493 N.E.2d 239, 24 Ohio St.3d 54, 24 OBR 135 (Ohio 1986)
• Decision Date: 28 May 1986
• Docket Number: No. 85-807,85-807
• Parties: , 55 USLW 2038, 24 O.B.R. 135 CAMPBELL, Appellant, v. HOSPITALITY MOTOR INNS, INC., Appellee.

Page 54

24 Ohio St.3d 54

493 N.E.2d 239, 55 USLW 2038, 24 O.B.R. 135

CAMPBELL, Appellant, v. HOSPITALITY MOTOR INNS, INC., Appellee.

No. 85-807.

Supreme Court of Ohio.

May 28, 1986.

Stewart & DeChant Co., L.P.A., and Lawrence E. Stewart, Cleveland, for appellant.

Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., Sheldon Berns and James J. Bartolozzi, Cleveland, for appellee.

PER CURIAM.

The question presented is whether the appellee corporation may be bound on a contract neither expressly authorized nor expressly ratified by its board of directors. The answer to this question turns on well-settled principles of the law of agency.

Directors and officers are agents of the corporation and can bind their principal, the corporation, by their acts. Kimball v. Kimball Bros., Inc. (1944), 143 Ohio St. 500, 56 N.E.2d 60 [28 O.O. 425]. In Kimball, supra, at 506-507, 56 N.E.2d 60, this court also stated that " * * * a corporation * * * may become bound by acquiescing in and ratifying an unauthorized act done on its behalf by its agent."

It is uncontroverted that this employment agreement ¹ was not expressly approved at a formal meeting of the board of directors. Thus, appellee claims, the execution of the agreement by Cowell and appellant was unauthorized. Appellee also contends that, pursuant to R.C. Title 17, the only way this unauthorized agreement could have been subsequently ratified was by express formal action of the entire board. We do not agree. We find the better view to be set forth in Piening v. Titus, Inc. (1960), 113 Ohio App. 532, 536-537, 179 N.E.2d 374 [18 O.O.2d 174], which stated, "[t]he requirement that binding action must be taken at a formal meeting of directors is no longer as rigid as was once the case."

Ratification of an unauthorized contract by the directors of a corporation need not be express; it may also be implied by the board's conduct. Kimball, supra, 143 Ohio St. at 506-507, 56 N.E.2d 60. This principle is ably explained in Fletcher's well-known treatise on private corporations:

"Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption of the act, acceptance of benefits or acquiescence.

Ratification may be effected by a resolution or vote of the board of directors expressly ratifying previous acts either of corporate officers or agents; but it is not necessary, ordinarily, to show a meeting and formal action by the board of directors, in order to establish a ratification. As a general rule, ratification of a contract or other act will be implied if the corporation, represented by the board of directors, who have knowledge of the facts, accepts and retains the benefits of the contract or act, or recognizes it as binding, or acquiesces in it. They may ratify by acquiescence, and need not act at a meeting regularly called, but may ratify without any formal action. * * * " (Emphasis added.) 2A Fletcher, Cyclopedia of the Law of Private Corporations (1982) 444-445, Section 762. Accord London & Lancashire Indemn. Co. v. Fairbanks Steam Shovel Co. (1925), 112 Ohio St. 136, 147 N.E. 329; City Trust & Sav. Bank v. Kennedy (App.1934), 17 Ohio Law Abs. 698; Midland Acceptance Corp. v. Saunders (1935), 50 Ohio App. 123, 197 N.E. 589 [3 O.O. 455].

Further, ratification may sometimes be implied where the corporation fails to repudiate an unauthorized contract within a reasonable period of time. United States Rolling Stock Co. v. Atlantic & Great Western R.R. Co. (1878), 34 Ohio St. 450, 462 (" 'Where the principal is informed of what has been done, he must dissent, and give notice of it within a reasonable time; and if he does not, his assent and ratification will be presumed.' "). (Citation omitted.) Accord Johndahl v. Columbus Trotting Assn. (1956), 104 Ohio App. 118, 133, 147 N.E.2d 101 [4 O.O.2d 179]. See, also, Fletcher, supra, at Sections 766 and 769-772.

We therefore reaffirm the rule that an unauthorized contract entered into by a corporate officer or agent may be impliedly ratified by the corporate board of directors where the directors have actual knowledge of the facts and (1) accept and retain the benefits of the contract, (2) acquiesce in it, or (3) fail to repudiate the contract within a reasonable period of time.

In the instant case, we must now examine the record and determine whether there is sufficient evidence of ratification to preclude summary judgment in favor of the appellee. It is axiomatic that summary judgment shall be rendered only when the movant has shown that there is no genuine issue as to any material fact. Civ.R. 56(C). Further, upon appeal from summary judgment, the reviewing court should look at the record in the light most favorable to the party opposing the motion. Williams v. First United Church of Christ (1974), 37 Ohio St.2d 150, 151, 309 N.E.2d 924 [66 O.O.2d 311].

The affidavits and depositions relied on by appellant in opposing the motion for summary judgment contain evidence tending to show that the members of Hospitality's board of directors were aware that the employment agreement at issue was to be offered to appellant. These affidavits and depositions also indicate that the directors may have had actual knowledge that the agreement was then executed by appellant and an officer signing on behalf of the corporation. This evidence further demonstrates that, under the terms of the agreement, the corporation may have accepted and retained the benefits of appellant's services during the transition period of the sale to Hosmin, Inc. The actions of the corporation, represented by the board of directors, raise issues regarding its acquiescence in and approval of appellant's employment agreement. At the least, the appellant's evidence could be viewed as demonstrating corporate ratification by silence or failure to repudiate within a reasonable time after learning of the execution of the agreement.

Thus, summary judgment in favor of the appellee was improper. Appellant has presented evidence sufficient to raise a question of material fact as to whether appellee's board of directors impliedly ratified this "Agreement Concerning Employment" and consequently bound the corporation to honor it.

For the foregoing reasons, the judgment of the court of appeals is reversed and the cause is remanded to the trial court for further proceedings consistent with this opinion.

Judgment reversed and cause remanded.

CELEBREZZE, C.J., SWEENEY, HOLMES, CLIFFORD F. BROWN and WRIGHT, JJ., concur.

LOCHER, J., concurs in judgment only.

DOUGLAS, J., dissents.

CLIFFORD F. BROWN, Justice, concurring.

I wholeheartedly endorse the well-reasoned analysis and sound result expressed in the majority opinion. I write separately to reinforce that it would be inequitable, in my view, to permit appellee corporation, having accepted and retained the benefits of an employment contract with appellant, to repudiate that contract simply because corporate formalities were not technically followed in the consummation of the contract.

Both the majority and dissent ably recite 2A Fletcher, Cyclopedia of the Law of Private Corporations (1982), in support of their respective analyses. My concurrence with the majority's viewpoint rests on my belief that the facts as alleged, if proven, fall squarely within the long-recognized doctrine of ratification by acquiescence. As the name of the doctrine implies, acquiescence does not require any particular formality, but instead is implied from the facts and circumstances surrounding the transaction.

"Ratification, being purely a voluntary act upon the part of the principal, ordinarily requires some positive act. But the rule that when a principal has not disaffirmed an unauthorized act of his agent within a reasonable time after it came to his knowledge, he will be deemed to have acquiesced in such act, applies to corporate bodies as well as individuals. Ratification may be implied, or the corporation be held estopped to deny ratification, from acquiescence on the part of the corporation. When the officers or agents of a corporation exceed their powers in entering into contracts or doing other acts, the corporation, when it has knowledge thereof, must promptly disaffirm the contract or act and not allow the other party or third persons to act in the belief that it was authorized or has been ratified. If it acquiesces, with knowledge of the facts, or fails to disaffirm, a ratification will be implied, or else it will be estopped to deny a ratification. In other words, acquiescence with the full knowledge of the facts is equivalent to ratification of unauthorized acts of corporate officers or directors. After knowledge of the unauthorized contract, the corporation must repudiate it within a reasonable time or else consent and approval will be presumed to have been given to the officer's act or contract. * * * " 2A Fletcher, Cyclopedia of the Law of Private Corporations, supra, at 472-473, Section 769.

I agree with the majority's holding that summary judgment in favor of appellee herein was improper because the evidence presented was sufficient to raise questions of material fact. If the majority of the board of directors indeed had actual knowledge that an employment contract had been entered into with appellant, and the corporation accepted and retained the benefits of appellant's services rendered in accordance with that contract during the transition period, that scenario would clearly constitute ratification by acquiescence. To hold otherwise would unduly elevate form over substance, and would unnecessarily penalize appellant for his legitimate reliance on the validity of his contract with appellee.

Accordingly, I concur.

DOUGLAS, Justice, dissenting.

I am compelled to dissent. The position taken by the majority in this case defies logic and any sense of fair play. Ratification by acquiescence, in which no formal action by the board of directors is required, has never...