Rakestraw v. Rodrigues

• Decision Date: 27 September 1972
• Docket Number: S.F. 22883
• Citation: 104 Cal.Rptr. 57,8 Cal.3d 67,500 P.2d 1401
• Court: California Supreme Court
• Parties: , 500 P.2d 1401, 11 UCC Rep.Serv. 780 Joyce A. RAKESTRAW, Cross-complainant and Respondent, v. Sherwood T. RODRIGUES, Cross-defendant and Appellant. In Bank

Page 57

104 Cal.Rptr. 57

8 Cal.3d 67, 500 P.2d 1401, 11 UCC Rep.Serv. 780

Joyce A. RAKESTRAW, Cross-complainant and Respondent, v. Sherwood T. RODRIGUES, Cross-defendant and Appellant.

S.F. 22883.

Supreme Court of California,

In Bank.

Sept. 27, 1972.

Bronson, Bronson & McKinnon, Charles F. Wilkinson, and Paul J. Sanner, San Francisco, for cross-defendant and appellant.

Nathan Cohn, and H. Lee Evans, San Francisco, for cross-complainant and respondent.

WRIGHT, Chief Justice.

Cross-defendant Sherwood T. Rodrigues (Rodrigues) appeals from a judgment upon a jury verdict for $30,000 in favor of cross-complainant Joyce Rakestraw (Joyce). His claimed liability arises out of involvement in a transaction whereby Joyce's name was forged on a promissory note and a deed of trust in order to obtain funds for a business venture of her then husband, William Rakestraw (William), who was also a cross-defendant. We have concluded that as a matter of law the alleged fraudulent acts of Rodrigues in connection with the forgeries were ratified by Joyce and that he was thereby absolved of liability to her.

The action was initiated by Acme Financial Corporation (Acme) and Security Title Insurance Company (Security) to enforce payment of a $75,000 promissory note bearing Joyce's purported signature which in fact had been forged and which was secured by a deed of trust (also forged) covering property owned by her. Joyce, Robert Ellinghouse (Ellinghouse), who affixed the notarial acknowledgment on the deed of trust and Agricultural Insurance Company (Agricultural) as surety on Ellinghouse's bond as a notary public were named defendants. Joyce asserted the forgeries as a defense to the action and cross-complained against Acme, Security, Ellinghouse, Agricultural, Rodrigues and William. Ellinghouse and Agricultural cross-complained against William and Rodrigues.

Joyce entered into a stipulated judgment with Acme and Security by which she agreed to be bound by the note and deed of trust and to dismiss her cross-complaint as against them. Ellinghouse and Agricultural settled the claim against them under Joyce's cross-complaint for $1,000 and stipulated to a nonsuit on their cross-complaint against Rodrigues and William.

Joyce's cross-complaint against the remaining cross-defendants, Rodrigues and William, proceeded to trial and resulted in a jury verdict in her favor. Rodrigues' motion for judgment notwithstanding the verdict was denied as were motions of the two cross-defendants for a new trial. Rodrigues and William appealed from the judgment. Since William's appeal was dismissed for failure to file an opening brief, we do not discuss the validity of the judgment against him.

In late 1964 Joyce discussed with William the possibility of using her separate improved real property in Woodside as collateral for a loan to provide capital for the operation of a supermarket. On January 28, 1965, Joyce executed but did not deliver a promissory note in the amount of $40,000 and, as security for the obligation, a deed of trust on her Woodside property. Although at that time she expected to obtain a loan, the transaction was never completed. Joyce thereafter withdrew her consent to the use of her Woodside property as collateral. William, however, signed Joyce's name to both a promissory note for $75,000 in favor of Acme and a deed of trust on her Woodside property securing the loan. The signature on the deed of trust was notarized by Ellinghouse on February 18, 1965. Although Rodrigues, an auditor and a close friend and business associate of William, denied any participation in the execution and notarization of the deed of trust, the evidence supports implied findings that he told Ellinghouse he had seen Joyce sign the document and requested Ellinghouse to attest that she had acknowledged the execution of the instrument. ¹

William took the forged documents to Acme and arranged for the loan. A check was drawn by Acme payable to William and Joyce which she endorsed without realizing that she was purportedly liable on the note or that her property had purportedly been encumbered. The major portion of the proceeds of the loan was used to satisfy obligations incurred in connection with a supermarket which was owned and operated by the William Rakestraw Co., Inc. (the corporation).

Joyce concedes that within a few days after she endorsed the check she learned of the forgeries. Later in conversations with her husband and others she claimed that she was the owner of the supermarket since her property had been used as security to finance it. She also demanded that stock in the corporation be issued to her. William, however, refused to issue or transfer any stock to her and initially refused to permit her to take any active role in the operation of the business.

Shortly after the discovery of the forgeries Joyce consulted an attorney who advised her to report the matter to the trustee designated in the deed of trust. Joyce, however, did not follow this advice and sought no remedy until three years later when both the business and her marriage had failed and the complaint had been filed by Acme and Security. ² Notwithstanding the position first taken by William he later permitted Joyce to take an active role in the affairs of the corporation during a period of time before its ultimate failure. Although she denied at trial that she managed the business, she did testify that she went to the market 'every single day' and she further testified that one of the primary reasons why she did not take more timely action to challenge the forgeries was her belief that she had an equitable interest in the corporation.

Joyce benefited financially through corporate operations made possible by the loan. Approximately $1,000 from an account of the corporation was applied toward a loan previously obtained by Joyce which was also secured by a deed of trust covering her Woodside property, and the corporation paid $3,612.50 in taxes on the parcel. In addition, William's paychecks from the corporation were deposited in a joint account standing in the names of William and Joyce and all payments applied on the Acme loan (totaling $36,250) were made by the corporation. ³ Pursuant to the stipulated judgment Joyce paid Acme the balance of $38,750. The jury impliedly found that she received benefits made possible by the loan in the sum of $8,750 and, accordingly, awarded her $30,000 compensatory damages on her cross-complaint. Rodrigues asserts that because Joyce ratified the forgeries he is relieved from any liability in damages to her. ⁴ We agree.

The issues we deal with involve the application of traditional principles of agency law. Two basic rules are involved: (1) ratification by a person of an act purportedly done on his behalf not only creates the relationship of principal and agent but also constitutes approval by the ratifier of the purported agent's act, relieving such agent of liability to the ratifier for the act; and (2) forgeries can be ratified thereby relieving the wrongdoer agent of liability to the principal. ⁵

The first rule is embodied in Civil Code section 2307 which provides: 'An agency may be created, and an authority may be conferred, by a precedent authorization Or a subsequent ratification.' (Italics added.) Ratification is the voluntary election by a person to adopt in some manner as his own an act which was purportedly done on his behalf by another person, the effect of which, as to some or all persons, is to treat the act as if originally authorized by him. (McCracken v. City of San Francisco (1860) 16 Cal. 591, 623--624; Reusche v. California Pac. Title Ins. Co. (1965) 231 Cal.App.2d 731, 737, 42 Cal.Rptr. 262; Rest.2d Agency, §§ 82, 83, 100.) A purported agent's act may be adopted expressly or it may be adopted by implication based on conduct of the purported principal from which an intention to consent to or adopt the act may be fairly inferred, including conduct which is 'inconsistent with any reasonable intention on his part, other than that he intended approving and adopting it.' (Ballard v. Nye (1903) 138 Cal. 588, 597, 72 P. 156, 159; see also Bissell v. King (1928) 91 Cal.App. 420, 428, 267 P. 356; Rest.2d Agency, § 83.) It is essential, however, that the act of adoption be truly voluntary in character. Moreover, there can be no adoption if the act, although voluntary, is done only because the purported principal is obligated to minimize his losses caused by the agent's wrongful act (Pacific Vinegar etc. Works v. Smith (1907) 152 Cal. 507, 511--512, 93 P. 85), or because of duress or misrepresentation by the agent (Rest.2d Agency, § 416).

Generally, the effect of a ratification is that the authority which is given to the purported agent relates back to the time when he performed the act. (Ballard v. Nye, supra, 138 Cal. 588, 597, 72 P. 156; Civ.Code, § 2307; Rest.2d Agency, § 100.) Since he is considered to be an agent with authority at the time he performed the act, he does not incur liability for acts done within the scope of that authority. (Pacific Vinegar etc. Works v. Smith, supra, 152 Cal. 507, 93 P. 85.)

As to the second rule here involved, it is well settled in California 'THAT A PRINCIPAL MAY RATIFY THE FORGERy of his signature by his agent (Volandri v. Hlobil (1959) 170 Cal.App.2d 656, 659--660, 339 P.2d 218; Kadota Fig. Assn. of Producers v. Case-Swayne Co. (1946) 73 Cal.App.2d 815, 167 P.2d 523) . . .' (Navrides v. Zurich Ins. Co., supra, 5 Cal.3d 698, 703--704, 97 Cal.Rptr. 309, 312, 488 P.2d 637, 640.) ⁶ We conclude that the ratification of an act of forgery by one held out to be a principal creates an agency relationship between such person and the purported agent and relieves the agent of civil liability to the principal which otherwise would result from the fact that he acted independently and without authority. ⁷

We now turn to the facts of this case. Joyce concedes that she became aware of...