Ryan v. Charles E. Reed &a Co.

• Decision Date: 26 February 1929
• Citation: 266 Mass. 293
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: GEORGE F. RYAN & another v. CHARLES E. REED & Co.

266 Mass. 293

GEORGE F. RYAN & another v. CHARLES E. REED & Co.

Supreme Judicial Court of Massachusetts, Essex.

February 26, 1929

January 16, 1929.

Present: RUGG, C.

J., CROSBY, PIERCE CARROLL, & SANDERSON, JJ.

Corporation Officers and agents. Agency, Scope of authority, Ratification by principal. Contract, Consideration, Under seal Construction, Validity.

An inventor sent a letter to a corporation "directing attention" to a certain machine which he had "just perfected," and expressed a hope of hearing from the corporation. The corporation replied that the subject was of interest to it and requested the inventor to hold the matter open for a time, when the president of the corporation would call upon him to investigate the proposition "with a view of making some kind of deal with you if it develops that there is a satisfactory market for your inventions." After some further correspondence, the president, who was also a director, and another director had a conference with the inventor, at which the machine was demonstrated to them. Another conference was had the next day, at which was present also an attorney who had been working on a patent for the machine. After examination and discussion of the papers and drawings, the president instructed the attorney to finish and file the papers, and said to him that, when everything was ready, he was to send his bill for services to the corporation; and that he was working from that time for the corporation and not for the inventor. A contract under seal thereupon was executed, whereby the inventor agreed to assign his application for a patent to the corporation which, in consideration thereof, agreed to issue to him a certain number of its shares of stock and to redeem them within a specified time. The contract contained no warranty that the machine was patentable. The president stated therein that he was "duly authorized" by the corporation and that he would "personally guarantee" performance by it. The contract was signed by the president individually and also as president in behalf of the corporation. The by-laws of the corporation, of which the inventor had no actual knowledge, gave the president authority to execute contracts

"subject to the control and direction of the Board of Directors." The inventor duly filed application for a patent and then assigned his application to the corporation, and the assignment, after being returned from the patent office, was forwarded by the attorney to the corporation and kept by it. The attorney sent his bill for services to the corporation and it was paid by a check of the corporation signed by its treasurer. The inventor thereafter sent a letter to the corporation requesting the issuance of stock to him, to which it replied suggesting the cancellation of the contract and the making of a new one to include certain provisions which the board of directors thought had been omitted from the contract unintentionally. The inventor declined such suggestion and brought an action on the contract against the corporation, at the trial of which the trial judge denied a motion by the defendant that a verdict be ordered in its favor. Held, that

(1) In the circumstances, the defendant's by-law as to the authority of the president had no force, binding on the plaintiff as a matter of law, as a limitation upon the president's authority to make the contract with the plaintiff;

(2) Findings were warranted that the president had ostensible authority to execute the contract on behalf of the corporation; and that the corporation ratified such act;

(3) The fact that the contract was under seal imported a valid consideration for the agreement by the defendant;

(4) A finding was not required that the defendant entered into the contract in reliance on a misrepresentation by the plaintiff that the machine was patentable;

(5) Under the provisions of the contract, the only thing sold by the plaintiff and bought by the defendant was the plaintiff's interest in his application for a patent;

(6) The motion by the defendant properly was denied.

CONTRACT. Writ dated July 16, 1925. Material portions of the pleadings, and of the evidence at the trial in the Superior Court before Greenhalge, J., are stated in the opinion. At the close of the evidence, the judge denied a motion by the defendant that a verdict be ordered in its favor. The jury found for the plaintiffs in the sum of $13,284.62, and the defendant alleged exceptions.

E.B. Cook, (H.C. Splane with him,) for the defendant. J.W. Santry & E.S. Underwood, for the plaintiffs.

PIERCE, J. This is an action of contract, tried to a jury, in which the plaintiffs in their amended declaration allege, in substance that on November 13, 1924, they made a contract in writing with the defendant, a copy of which is annexed to the declaration, whereby they assigned to the defendant three applications for patents, and certain machines built in accordance with said applications, with all wood patterns and drawings in connection therewith, and the defendant in consideration thereof, agreed to issue to the plaintiffs preferred stock of the defendant company to the value of $15,000, and to redeem $2,500 worth of said stock during the month of January, 1925, and the balance thereof, $12,500, within three years from November 13, 1924; "that the plaintiffs have done everything that they are required to do under said agreement but the defendant has refused to issue said shares of stock or pay said sums of $2,500 and $12,500; wherefore the plaintiffs say that the defendant owes them the sum of $15,000."

The defendant's answer is a general denial, payment, a denial of its signature to the agreement, with a demand that it be proved at the trial; and the further answer that the plaintiffs made false and fraudulent representations concerning material facts, which were relied upon by the defendant and were an inducement to its entering into the alleged contract.

At the close of all the evidence the defendant requested the court, in writing, to direct a verdict for the defendant; this request was refused and an exception taken. The defendant also saved exceptions to the admission or exclusion of certain evidence, and to the refusal to give or to the giving of certain instructions, all of which will be considered as they are referred to and argued in the defendant's brief.

The answer does not deny that the defendant is a corporation, G.L.c. 231, Section 30; and the defendant states in its brief that "It is not denied that Charles E. Reed, president of Charles E. Reed & Company, affixed his signature as president." It is to be further observed that the instrument declared on is executed in triplicate and is signed and sealed by all parties to it. Obviously the fundamental questions for decision on the reported evidence, are: (1) Did Charles E. Reed as president of the defendant have actual authority to execute the alleged contract in the name and behalf of the company. As president his authority is defined by art. III, section 3, of the defendant's by-laws, which provides,

"He shall exercise a general supervision over the affairs and the business of the company, and shall have authority to execute, together with the Secretary, in the name of the company all deeds, bonds and other contracts of the company, subject to the control and direction of the Board of Directors"; (2) Did Charles E. Reed have ostensible authority to bind the company in this contract? and (3) Did the board of directors ratify the contract?

The facts which led up to and induced the execution of the agreement by the plaintiffs and Charles E. Reed for himself and in behalf of the defendant corporation, are as follows: On September 17 1924, the plaintiffs sent the defendant a letter directing attention to machines which they had "just completed and perfected," designed to take the bunch off the toe and heel of a last mechanically, without the use of a model, and, in the case of the heel, in such a manner as to give a perfect stick length and heel curve. The letter expressed a hope to hear from the corporation and to "have the pleasure of seeing you," presumably Charles E. Reed, in the near future. On September 24, 1924, the defendant replied to the plaintiffs' letter as follows ". . . . The subject is of interest to us and Mr. Charles E. Reed will come East at an early date to investigate your proposition. There are some other matters requiring his attention here at the present time, so it will probably be about the middle of October before he can leave, and we would appreciate it very much if you could hold the matter open until that date, so as to give Mr. Reed an opportunity to call on you with a view of making some kind of deal with you if it develops that there is a satisfactory market for your inventions." The plaintiffs in a letter dated October 8, 1924, addressed to the corporation, expressed the wish that the defendant would hurry up the trip of Mr. Reed because they were receiving inquiries from last factories and they did not wish to make any statements to them until they had gone over the matter with the defendant. On October 13, 1924, the defendant, in reply, stated that Mr. Reed was out of town, "upon his return, the writer will take up the subject of your letter with him and endeavor to get him to start on his Eastern trip a little earlier than planned. . . . Thanking you again for holding this matter up for us, we are. . . ." On October 17, 1924, the defendant wrote the plaintiffs, "we are pleased to advise you that Mr. Reed, Sr., is leaving for the East on November 1st and is planning on calling on you on the 3rd." On November 1, 1924, A.E. Reed, then one of the board of directors, wrote the plaintiff, "I just received word from...