Outlook Farmers' Elevator Co. v. American Surety Co. of New York
| Decision Date | 18 February 1924 |
| Docket Number | 5338. |
| Citation | 223 P. 905,70 Mont. 8 |
| Parties | OUTLOOK FARMERS' ELEVATOR CO. v. AMERICAN SURETY CO. OF NEW YORK ET AL. |
| Court | Montana Supreme Court |
Appeal from District Court, Sheridan County; Stanley E. Felt, Judge.
Action by the Outlook Farmers' Elevator Company, a corporation against the American Surety Company of New York, a corporation, and Oscar J. Brown. Judgment for plaintiff, and defendants appeal. Affirmed.
Spurdeon E. Paul, of Plentywood, and Alfred T. Vollum, of Albert Lea Minn., for appellants.
Howard M. Lewis and James G. Wagner, both of Plentywood, for respondent.
From November, 1913, until August, 1917, the Farmers' Elevator Company of Outlook employed Oscar J. Brown as its manager in the business of buying, selling, and storing seed and grain. To secure the faithful performance of his duties, Brown gave to the elevator company a fidelity bond in the sum of $3,000 with the American Surety Company as surety. By the terms of the bond Brown, as principal, and the surety company, as surety, promised to reimburse the elevator company for such losses of money or other personal property, not exceeding $3,000, as it might suffer by reason of any acts of fraud, dishonesty, forgery, theft, embezzlement, wrongful abstraction, or misapplication on the part of Brown during his employment. This action was instituted to recover for losses alleged to have been suffered by the elevator company through the wrongful acts of Brown in his capacity as manager. Specifically, the charge is made that from October 1, 1916, to February 15, 1917, in violation of his duties and the by-laws of the elevator company, Brown engaged in purchasing and selling options and futures under such circumstances as constituted the transactions gambling in grain; that the transactions were conducted in the name and upon the credit of the elevator company, with the result that funds of the elevator company to the extent of $6,973.88 were lost.
The defendants answered separately, but each answer contains the admission that Brown did engage in buying and selling options and futures in violation of the by-laws of the elevator company, and that losses resulted from some of these transactions. An affirmative defense was interposed which will receive consideration later. Issues were joined by reply. Upon the trial of the cause plaintiff prevailed. Defendants have appealed from the judgments, and have attempted to appeal from the order denying their motion for a new trial. Likewise they seek to bring before this court for some sort of review the action of the trial court in failing to pass upon the motion for a new trial.
Section 9400, Revised Codes 1921, provides that, if the court shall fail to pass upon a motion for a new trial within 15 days after the same is submitted, it is deemed denied. The statute declares the consequences of the court's inaction, but the failure of the court to act is not subject to review.
By section 9745, Revised Codes 1921, appeals from orders denying new trials are abolished, but all questions formerly reviewable on an appeal from an order denying a new trial are now subject to review on appeal from the judgment.
While the complaint contains superfluous matter, it is not open to the attacks made upon it by special demurrer. The sufficiency of the complaint to state a cause of action has not been and is not now challenged.
Defendants make 80 assignments of error, but these are grouped for the purpose of discussion, and three principal contentions are advanced:
1. It is insisted that plaintiff could recover only upon the theory that the losses resulted from acts of fraud perpetrated by Brown, and that the evidence fails to make out a case of fraud. It is sought to justify this theory of limited liability by reference to a memorandum filed by the trial court, Judge Hurley presiding, when the separate demurrers to the complaint were overruled. In that memorandum Judge Hurley expressed the opinion that the complaint would admit of recovery only upon the theory that plaintiff's losses resulted from "the fraudulent dealings of the defendant Oscar J. Brown as alleged in paragraph 10 of plaintiff's complaint." When the demurrers were submitted, the court was called upon to sustain or overrule them, and, if the order overruling them was correct, it is altogether immaterial what reason may have prompted it. Brown v. Daly, 33 Mont. 523, 84 P. 883; City of Butte v. Goodwin, 47 Mont. 155, 134 P. 670, Ann. Cas. 1914C, 1012. Judge Hurley's memorandum is not properly a part of the record, and cannot be considered for any purpose. Phillips v. Coburn, 28 Mont. 45, 72 P. 291. Assuming that the complaint states a cause of action upon any theory, it will be sustained (Grover v. Hines, 66 Mont. 230, 213 P. 250), and the trial court was authorized to grant to plaintiff any relief consistent with it and fairly embraced within the issues (section 9316, Rev. Codes 1921). The statute just cited does not impinge in the least upon the general rule which prevails in this jurisdiction, and elsewhere, that a plaintiff may not adopt one theory of the case in his complaint and recover upon another, or adopt one theory in the trial court and insist upon another in the appellate court. However, the memorandum filed by Judge Hurley did not establish a theory binding upon the plaintiff or fix the law of the case. Judge Felt, who presided at the trial of the cause, was free to put his own construction upon the pleadings, notwithstanding Judge Hurley's previously expressed opinion. 15 C.J. 963, § 359.
As we interpret the language of the complaint, plaintiff proceeded upon the theory that the transactions carried on by Brown in dealing in options and futures were of such character as to constitute them gambling transactions prohibited by his employment and by the express provisions of the elevator company's by-laws; that the use of the elevator company's money or other personal property to carry on such transactions constituted a misapplication of such property; and that the resulting losses are recoverable under the terms of the bond. It appears to us from the record that the theory thus adopted has been adhered to consistently, and that under that theory the right of the plaintiff to recover cannot be questioned.
2. As an affirmative defense each of the defendants alleged in effect that during 1915 and 1916, and until the termination of his employment, Brown engaged in dealing in options and futures in violation of the by-laws; that in such transactions large profits were realized from time to time; that with full knowledge of the character of such transactions and the source of the profits plaintiff accepted and distributed them to its stockholders as dividends, and thereby ratified Brown's acts, and ought not now to be heard to repudiate such of the transactions as resulted in losses. It is insisted that there is some evidence in the record tending to support this defense, but, notwithstanding the fact, the court refused to submit the matter to the jury. The principal contention upon this branch of the case, however, is that the court erred in refusing to admit evidence which it is claimed would have established the defense.
The principle for which defendants contend is expressed in section 7940, Revised Codes 1921, as follows:
"A ratification can be made only in the manner that would have been necessary to confer an original authority for the act ratified, or where an oral authorization would suffice, by accepting or restraining [retaining] the benefit of the act, with notice thereof."
In referring to the provisions of the section just quoted, this court, in Koerner v. Northern Pacific Ry. Co., 56 Mont. 511, 186 P. 337, said:
"To constitute a ratification there must be an acceptance of the results of the act with an intent to ratify and with full knowledge of all the material circumstances."
The record discloses that the alleged gambling transactions which resulted in the losses sought to be recovered in this action were conducted by Brown through a commission house in Minneapolis, many of them in purely fictitious names, and that the commission house rendered monthly reports to the elevator company. It is insisted that, since the reports for 1916 and 1917 were received by the elevator company, became a part of its office records, were open to the inspection of its officers and directors, and disclosed the character of Brown's transactions, they impute knowledge of their contents to the plaintiff, whether they were ever actually inspected or not.
Assuming as we may, that Plaintiff's Exhibits 1 to 12 are copies of the monthly reports submitted by the commission house, we observe that, while it may be true that to one familiar with grain gambling transactions these reports disclosed Brown's illegal operations, to the members of this court they have no such effect, and the record discloses that the officers and directors of the elevator company could not understand them, when they were received after Brown's employment terminated. They appear to have been drawn artfully to conceal the fact that any of the transactions were of the prohibited character. But, aside from this consideration, the evidence discloses further that Brown, as manager of the elevator company, had charge of the books and records, and it is not pretended that there is any evidence in the record tending to prove that he ever called the attention of the officers or directors of the company to these reports or to any of them; on the contrary, it appears that they did not know of the existence of the reports until after the termination of Brown's employment; that they depended upon Brown for information concerning the records, and that Brown had told them...
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