Grace Sec. Corp. v. Roberts

• Decision Date: 16 June 1932
• Citation: 164 S.E. 700
• Parties: GRACE SECURITIES CORPORATION. v. ROBERTS.
• Court: Virginia Supreme Court

164 S.E. 700

GRACE SECURITIES CORPORATION.

v.ROBERTS.

Supreme Court of Appeals of Virginia.

June 16, 1932.

EPES, J., dissenting.

Error to Law and Equity Court of City of Richmond, Part 2.

Action by Judith Selden Roberts against the Grace Securities Corporation. Judgment for plaintiff, and defendant brings error.

Judgment amended, and, as so amended, affirmed.

Argued before CAMPBELL, C. J., and HOLT, EPES, HUDGINS, and GREGORY, JJ.

John A. Cutchins, of Richmond, for plaintiff in error.

R. H. Talley and John S. Davenport III, both of Bichmond, for defendant in error.

HUDGINS, J.

This is an action to recover $2,655 for a breach of contract to repurchase stock sold the defendant in error by the plaintiff in error. The case was submitted, on stipulation of counsel, to the trial judge without a jury, and judgment was rendered for the defendant in error.

The parties will be designated plaintiff and defendant, as they appeared in the trial court. The facts are brief, and may be stated thus:

On September 21, 1927, at the office of the defendant, the Grace Securities Corporation, in the city of Richmond, the plaintiff was induced by Mr. Oscar E. Parrish, at that time its senior executive and active vice president, to buy sixty shares of stock in the corporation at $44.25 per share, with the written assurance that the corporation would repurchase the same at any time she desired to sell.

At that time the stock of the defendant corporation was offered on the Richmond market at $46.50 and bid $44 per share. Dividends were duly paid on the stock during the years 1927, 1928, and for the first six months of 1929. Some time during that year, and after the October dividend was passed, the offering price of the stock was $15, and bid $8, per share. On December 2 the plaintiff demanded that the defendant repurchase the 60 shares in accordance with its promise. The demand was refused, and this action followed.

The defendant contends (1) that the act of Parrish in making this agreement to repurchase the stock was ultra vires; (2) that the words, "at any time" contained in the promise meant a reasonable time, and that a reasonable time in which to repurchase the stock had expired before the plaintiff requested the defendant to comply with its written offer.

The defendant, both in stating the first assignment of error and in its argument thereon, failed to make the distinction between an act which is ultra vires--i. e., an act of a corporation which is not within the power conferred by its charter or the general law--and an act of an officer or agent which is within the charter powers but not authorized by the corporation.

The first question to be determined is whether or not the contract, if within the charter powers of the corporation, was executed under such circumstances as to make it the act of the corporation.

The plaintiff knew that the defendant held out to the public Parrish as its active chief executive officer, and that it maintained an office for him. Parrish made the agreement in the name of the corporation and for its benefit. The plaintiff paid her money to the investment department of the corporation, and was given a receipt therefor with the contract written thereon, a duplicate copy of which was retained by the department, with a notation thereon to send check for dividend October 1st. While it is stated that neither the board of directors nor the executive committee ever passed a formal resolution directing Parrish to make the contract with the plaintiff, there is no denial of the fact that the members of the board had full knowledge of the conditions under which the plaintiff paid her money to the corporation. With this knowledge the corporation will not be permitted to repudiate the act of Parrish on the ground that his act was not authorized by it. Fletcher, Cyc. Corp., § 1965, where it is said: "If officers of a corporation exceed their powers, their acts may be repudiated by the board of directors. However, if directors desire to repudiate a sale by executive officers, they should act promptly, notify the oth-er party to the contract, and return benefits received."

In Winston v. Gordon, 115 Va. 899, at page 907, 80 S. E. 756, 760, Keith, P., in discussing a similar question, cites the following authorities:

"In Kelsey v. National Bank, 69 Pa. 426, it is said: 'The law is well settled that a principal who neglects promptly to disavow an act of his agent, by which the latter has transcended his authority, makes the act his own; * * * and the maxim which makes ratification equivalent to a precedent authority is as much predicable of ratification by a corporation as it is of ratification by any other principal, and it is equally to be presumed from the absence of dissent.'

"And in 2 Kent's Com. 616, the law is thus stated: 'It is a very clear and salutary rule in relation to agencies that where the principal, with knowledge of all the facts, adopts or acquiesces in the acts done under an assumed agency, he cannot be heard afterwards to impeach them under pretense that they were done without authority, or even contrary to authority.' * * *

"In Sherman v. Pitch, 98 Mass. at page 64, the court said, speaking of the authority of an agent to execute a mortgage on behalf of a corporation: 'It is not necessary that the authority should be given by a formal vote. Such an act by the president and general manager of the business of the corporation, with the knowledge and concurrence of the directors, or with their subsequent and long-continued acquiescence, may properly be regarded as the act of the corporation. Authority in the agent of a corporation may be inferred from the conduct of its officers, or from their knowledge and neglect to make objection, as well as in the case of individuals.'

"In Ft. Worth Publishing Co. v. Hitson et al., 80 Tex. 216, 14 S. W. 843, 16 S. W. 551, * * * the court said: 'We can see no good reason why a corporation may not be bound by acts of acquiescence in a transaction which may be irregular on its face if not prohibited, or which may be in excess of the officer's power acting for the corporation.' "

See, also, Holstein-Harvey-Kirk Co. v. II. Kirk & Sons, 150 Va. 82, 142 S. E. 373.

When the contract was made with the defendant, plaintiff was not informed whether the defendant was acting for itself or as agent for an undisclosed principal. It is now claimed in defendant's brief that the stock was owned by a pool composed of its directors, and not by the corporation itself. The only proof in the record on this subject is as follows: (1) Letter from Oscar E. Parrish to Robert H. Talley, dated May 6, 1930; (2) stipulation of counsel containing an agreed state ment of facts; (3) the pool contract of December, 1929.¹

The pertinent paragraph of the letter of May 6, 1929, is as follows: "As the corporation at that time through pool operations, composed of members of the board of directors, was buying and selling its stock, I recommended that she purchase this stock with the understanding that the Corporationwould redeem it, if necessary, at the purchase price"

The following is the statement contained in the stipulation of counsel: "It is, however, denied by officers of Grace Securities Corporation that the Corporation was buying and selling its stock through pool operations. A pool was formed by certain individual stockholders as per the attached copy of an agreement entered into in December, 1929, and marked 'Exhibit C as a part of this stipulation.

"It is further denied by officers of the Corporation that 'sales had been made through the officers of institutions with these agreements, ' or that any action of the board or executive committee was ever taken authorizing such agreements."

Parrish states that the corporation, through the pool, was buying and selling its stock. The stipulation denies that the corporation was buying and selling its stock, but does not affirm that the pool owned this stock, or whether or not it bought and sold any stock. There is no proof that any part of the plaintiff's money was ever paid to the pool. The corporation acknowledged that it received her money and gave her a receipt therefor, with the distinct understanding that the money would be returned by the defendant on her making demand upon it. Parrish confused the action of the board of directors in managing corporate affairs with the action of the board when and if it was operating as a pool. If these matters were distinct, they were within the peculiar knowledge of the defendant, and, inasmuch as it did not avail itself of the opportunity to clarify the sale, we will regard the ownership of the stock in question as in the defendant corporation.

Having disposed of these preliminary questions, we now turn to the question raised by the first assignment of error, viz.: Did the corporation have the power to make the contract to repurchase its stock?

There are current two inconsistent doctrines on the subject. One is that it is inherently illegal, in the absence of statutory authority, for a corporation to purchase its own stock. The other is that a corporation may buy its own stock, if' the interest of creditors be not adversely affected, and if its power to buy be not restricted by its charter or by the general law. Both doctrines are fully discussed in the following cases and in the annotations thereto in the L. R. A. series: C. R. Fitzpatrick v. C. E. McGregor, Receiver, etc., 133 Ga. 332, 65 S. E. 859, 25 L. R. A. (N. S.) 50; Atlanta & Walworth Butter & Cheese Ass'n v. Smith, 141 Wis. 377, 123 N. W. 106, 32 L. R. A. (N. S.) 137, 135 Am. St. Rep. 42; Schulte v. Boulevard Gardens Land Co., 164 Cal. 464, 129 P. 5S2, 44 L. R. A. (N. S.) 156, Ann. Cas. 1914B, 1013; Lefker v. Rachel Harner, 123 Ark. 575, 186 S. W. 75, L. R. A. 1916F, 281; Kelly v. Central Union Fire Ins. Co., 101 Kan. 91, 165 P. 806, L. R. A. 191SC, 1170. See, also, 6 Fletcher, Cyc. Corp. (Perm. Ed.) §§ 2845, 2878.

The following authorities hold...