Iron v. H. C. Patterson, Patterson Constr. Co.

• Decision Date: 09 April 1952
• Docket Number: NO. 2764.,2764.
• Citation: 39 Haw. 346
• Parties: EASTERN IRON AND METAL CO. v. H. C. PATTERSON, PATTERSON CONSTRUCTION CO., LTD., WILLIAM G. MEAGHER, INDUSTRIAL DEVELOPMENT, AN HAWAIIAN [SIC.] COPARTNERSHIP, JOHN DOE ONE, JOHN DOE TWO AND JOHN DOE THREE.
• Court: Hawaii Supreme Court

39 Haw. 346

EASTERN IRON AND METAL CO.

v.H. C. PATTERSON, PATTERSON CONSTRUCTION CO., LTD., WILLIAM G. MEAGHER, INDUSTRIAL DEVELOPMENT, AN HAWAIIAN [SIC.] COPARTNERSHIP, JOHN DOE ONE, JOHN DOE TWO AND JOHN DOE THREE.

NO. 2764.

Supreme Court of the Territory of Hawai‘i.

Argued February 19, 1952.

Decided April 9, 1952.

APPEAL FROM CIRCUIT JUDGE FIRST CIRCUIT, HON. P. L. RICE, ASSIGNED JUDGE.

Syllabus by the Court

A president of a corporation has apparent authority to make a contract of sale in the name of the corporation so as to bind it, and the purchaser has the right to rely on that authority where the contract is made in the usual course and scope of the corporation's business as adopted by the corporation without dissent in prior transactions of a similar nature.

Liabilities of joint adventurers are governed, in general, by rules which are similar or analogous to those which govern the corresponding liabilities of partners, except as they are limited by the fact that the scope of a joint venture is narrower than that of the ordinary partnership.

A sale by one joint adventurer within the scope and authority of the joint venture binds the other, whether disclosed or undisclosed, the knowledge of the one being the knowledge of the other, and does so even though the one fraudulently purported to sell property as his own and the purchaser dealt with him as an individual.S. Shapiro ( E. Berman with him on the briefs) for appellant.

B. H. Levinson ( Levinson & Cobb on the brief) for appellees W. G. Meagher and Industrial Development.

J. O. Hughes for Patterson Construction Co., Ltd. (submitted on his brief).

TOWSE, C.J., LE BARON AND STAINBACK, JJ.

OPINION OF THE COURT BY LE BARON, J.

This is a bill in equity for injunction, establishment of constructive trust and incidental relief. Attached to it and made parts thereof are a written agreement for sale and delivery executed at Los Angeles, California, between the petitioner, a foreign corporation, as buyer, and the respondent, Patterson Construction Company, Limited, a Hawaiian corporation, as seller, and a supporting bill of sale contemporaneously delivered to the petitioner by that respondent. The terms of the agreement are that the respondent corporation warranted that it was “the owner * * * and in a position to convey title and possession” of 1500 tons of cast-iron scrap and agreed to sell that cast-iron scrap to the petitioner at the rate of $50 per ton to be delivered at Los Angeles by a certain steamship line, in consideration of which the petitioner agreed to purchase such scrap at that rate so delivered and to pay $35,000 in advance. The agreement recited that the “bill of sale transferring title as of this date for said merchandise” was delivered as evidence of the warranty expressed in the agreement or contract itself and that “Title is conveyed for the purpose of assuring performance of this contract, but the fact that title is so conveyed shall not affect the liabilities or responsibilities fixed upon the Seller [ i. e., the respondent corporation] by reason of the fact that the merchandise is being sold F.O.B. rail cars Los Angeles Harbor.” The bill of sale, so delivered and so conveying title, described the 1500 tons of cast-iron scrap sold as 600 tons thereof “now located at Wainae Sugar Mill, Oahu” and as 900 tons “now located at Waimea Sugar Mill, Kauai, Territory of Hawaii.” The bill for injunction alleges that the “Petitioner has in accordance with his contract paid to Respondent Patterson Construction Company, Limited, the sum of $35,000.00 in and for partial payment for said scrap cast iron.”

As grounds for equitable relief, the bill alleges (1) that the respondent corporation “is insolvent and has no intention of complying with the terms of said contract or of delivering said merchandise” [ i. e., said cast-iron scrap]; (2) that the respondent corporation and H. C. Patterson, its president, and respondent Industrial Development, a foreign copartnership, and William G. Meagher, its attorney in fact, “have entered into a plan to defraud Petitioner of said merchandise and to convert same to their own use”; (3) that “in furtherance of their plan said Respondents are now in the process of loading said merchandise on a barge or barges * * * to be shipped to an unknown destination * * * [and of] mixing the cast iron scrap sold to Petitioner with other scrap so that the same cannot be identified” and have already done so in part; (4) that “if said scrap is converted as alleged, Petitioner will suffer irreparable damage”; (5) that “Petitioner does not have a complete, full and adequate remedy at law.”

The relief prayed in the bill is (1) to require the respondents to show cause why they should not be permanently enjoined from shipping said merchandise to anyone other than to the petitioner at Los Angeles; (2) to issue a temporary restraining order restraining them from conveying, transferring, shipping, loading or encumbering any cast-iron scrap until the title to the same has been determined judicially; (3) to impress a trust on said merchandise in favor of petitioner; (4) to set aside and cancel any sale of said merchandise made from respondent corporation to any of the other respondents; (5) to issue a mandatory injunction requiring respondent corporation to comply with the terms of said agreement and to give proper security therefor; (6) to order respondents to pay damages sustained by petitioner and his costs, and for such other and further relief as may be appropriate.

On the filing of the bill, a temporary restraining order and an order to show cause issued. After various returns, answers, motions to dissolve the temporary restraining order and other pleadings made by the respondents, the cause came to issue and on stipulation of the parties a trial on the merits was held. At the close of trial the presiding judge in equity, by oral decision and thereafter by interlocutory decree, dismissed the bill in its entirety and denied its prayer for equitable relief but reserved the question of damages which may have been suffered by the respondent copartnership pending disposition of the instant appeal, which the petitioner had indicated that it would take from that decree.

The specifications of error meriting consideration challenge the interlocutory decree and present five paramount and interdependent questions pertaining to the written warranty agreement for sale and delivery. The first question so presented is whether that agreement constitutes a valid and binding contract of sale and purchase upon the respondent corporation and the petitioner as parties thereto. The second is whether the sale made therein was authorized by the terms of an existing oral agreement for joint venture which the respondent corporation had entered with the respondent copartnership. The third is whether the sale made by the respondent corporation to the petitioner was an exercise of such authority within the scope of the joint venture. The fourth is whether the respondent copartnership is bound by the contract made by the respondent corporation. The fifth is whether those respondents are in breach of contract, and if so, what is the nature thereof and the part played therein by the other respondents?

As to the first question, the written warranty agreement for sale and delivery on its face unquestionably meets every requisite of a valid and binding contract. The respondents claim that it does not bind the respondent corporation because that corporation did not expressly ratify the contract but, according to respondent Patterson's testimony, subsequently rejected it. They do not seriously claim, however, that the respondent Patterson, who signed the contract on behalf of the corporation as its president, did not have authority to bind the corporation to that contract. Nor could they reasonably do so under the undisputed evidence which shows that the contract was executed by the president of the corporation in the ordinary course of the corporation's business as had been adopted by the corporation without dissent in the past, such as in its prior transfer to the joint venture and dealings of a similar nature with the petitioner itself. That evidence establishes that the respondent Patterson, as president and chief administrative officer, had at least apparent authority, if not expressed or implied authority, to bind the corporation to the contract and that the petitioner had the right to rely on that authority. (For collection of authorities see 13 Am. Jur. § 890, p. 870.) Being so authorized, the contract did not require ratification. Admittedly, the act of the respondent Patterson was on behalf of the corporation in executing the contract and in perpetrating a fraud upon the petitioner. Under the undisputed evidence, that act as to both phases, assuming arguendo it be unauthorized, was impliedly ratified by the corporation when it accepted $35,000 on the contract and retained that money for a corporate expenditure and then rejected the contract without returning or repaying such money and without any intention of doing so. In any event, the respondents Patterson and corporation are estopped to deny the validity and binding effect of the contract. (See 2 Fletcher Cyc. Corp. [perm. ed.] § 773, p. 826.) Nor can corporate liability be avoided on the contention that the respondent corporation was under duress because it was in desperate need of money and because the petitioner would not admit or pay what the respondent corporation claimed the petitioner owed it on a prior but separate and distinct transaction. The petitioner at all times consistently claimed that the respondent corporation owed it money on that transaction.

At no time surrounding the instant contract did the petitioner threaten the respondent corporation but when pressed by the respondent Patterson merely exercised its legal right to deny the respondent corporation's assertion of prior...