Farmers Co-Operative Exchange Co. v. Fidelity & Deposit Co.

Quinn, J. Action to recover upon an indemnity bond issued by defendant to the plaintiff to cover loss by larceny or embezzlement through its agent, Emil O. Rosnow. Plaintiff recovered a verdict and from an ordei denying its motion for judgment ox a new trial, defendant appeals. Plaintiff is engaged in operating a grain elevator at Good Thunder, in buying, selling and handling grains for present and future delivery. Rosnow was employed as its manager, and as such had charge of its affairs, with authority to issue checks, 'buy, ship and sell grains and to hedge on the market so as to protect purchases, subject to the order of the board of directors and the president. On March 30, 1917, defendant, in consideration of plaintiff’s application and the payment of $37.50 premium, executed its bond in the form attached to the com- . plaint, whereby it obligated itself to reimburse plaintiff to the extent of $2,500 for such pecuniary loss as it might sustain by reason of any larceny or embezzlement on the part of such agent in connection with his duties between March 30, 1917, and March 30, 1918, at 12 o’clock, noon. The books, records and auditing reports pertaining to plaintiff’s business were placed in evidence. They showed that hedging transactions — 173 — and shipping of grain had been carried on. with divers firms, including E. W. Wagner & Company, by such manager during the year 1916, and up to March, 1917; that profits and losses had been sustained thereon; and that hedges were outstanding at the time of the taking effect of the bond in question. On April 11, 1917, car No. 18,843 was'loaded with -wheat, billed and shipped from plaintiff’s elevator by Rosnow tfco E. W. Wagner & Company at Minneapolis, in the usual -way. On April 26 and 28, Rosnow drew two checks against plaintiff’s bank -account in the State Bank of Good Thunder for $2,200 -and $2,000, respectively, payable to E. W. Wagner & Company, or order, and transmitted the same to that firm at Mankato to -cover hedges. These -checks were presented to the bank at Good Thunder for payment on May 1, 1917. The cashier of that bank immediately notified Rosnow of the receipt of the -checks and informed him that they would create an overdraft exceeding $4,000. Rosnow then called the directors of plaintiff together. The cashier appeared before the board with the checks, and informed it that to pay the same would cause an overdraft, 'and asked that they provide the funds therefor. The directors finally decided to make a draft on the John Miller Company, of Minneapolis, to take care of the cheeks, which was done. The Miller Company refused to honor the draft, -and later the board raised funds sufficient for the purpose by the sale of stock. On May 2 after arrangement had been made for the payment of the two checks, the president and two directors of plaintiff went to- the office of Wagner & Company at Mankato, and demanded the Tetum -of the car of wheat or the proceeds of the sale thereof. Subsequently suit was brought by the plaintiff -against Wagner & Company to recover the proceeds of the sale of the wheat, claiming that the same had been sold for and on behalf of the plaintiff. The -defendant answered, claiming the right to retain the proceeds of the sale of the wheat to apply upon account then due it from plaintiff. Upon trial of the i-n-stant case defendant offered the complaint in that suit in evidence, which upon objection was ruled out. This ruling is assigned as error. Defendant ■further contends that the transaction pursuant to which the -checks were given, was not covered by the bond, since the hedgings were outstanding at the time the bond took effect, they having been made in the regular — 174 — course of plaintiffs business. It further contends that the giving of the cheeks was ratified by the acts of plaintiff at the time payment was arranged for, land that the evidence in the case, taken as a whole, is not sufficient to sustain a recovery. The bringing of the suit against Wagner & Company was authorized by plaintiff’s board of directors. It was alleged in the complaint that “plaintiff’s agent sold and delivered to defendant” E. W. Wagner & Company the car of wheat in question, and a recovery of the proceeds thereof was demanded. The offer should have been received as bearing upon the question whether the car was shipped by the agent in the ordinary 'course of plaintiff’s business, 'and as bearing upon ratification of the agent’s 'act. It is a well settled rule that a -pleading made and verified by a party in 'another action, is competent evidence, so far as relevant, in an 'action to which he is a party. Siebent v. Leonard, 21 Minn. 442; Rich v. City of Minneapolis, 40 Minn. 82, 41 N. W. 455; Humphrey v. Monida & G. Co. 115 Minn. 18, 131 N. W. 498. A copy of the. shipping hill upon which the wheat was transported is in evidence. It appears therefrom that the ear -was shipped from the Farmers Cooperative Exchange Company, at Good Thunder, Minnesota, on April IV, 1917, in apparent good condition, to E. W. Wagmer & Company, at Minneapolis, per E. O. Rosnow, agent. The car was received by that company, and, after the difficulty over the two checks arose on May 1, plaintiff demanded return of the wheat from Wagner & Company, or the proceeds from the sale thereof, and subsequently brought suit to recover the proceeds. We are unable to discover any testimony in the record tending to show that Eosnow ever received any part of such grain or the proceeds derived therefrom. If he has never received the proceeds and did not ship'the oar to Wagner & Company for the -purpose of haring the proceeds applied on his past indebtedness, then he never embezzled the grain. It is insisted that the proofs show conclusively that the transaction for which the checks were given was a gambling transaction and covered by the 'bond, while it is earnestly contended on behalf of defendant that they were given to cover hedges made in plaintiff’s business prior to the date of the bond, and that by its acts at the time of arranging for the payment of the same plaintiff ratified the transaction. — 175 — II the cheeks were given to cover hedges made to protect plaintiff against loss on grain purchased, they were legal, notwithstanding the fact that they were payable to a party with whom Eosnow was not specifically instructed to transact business. Eosnow, as appears from the testimony of the president, -was expected to protect his purchases of grain by hedging, and the mere fact that the checks were made payable and delivered to Wagner & Company, would not render them unauthentic. Nor would the fact, standing alone, be any evidence that they were unlawfully issued. The claim that Eosnow had no authority to ship grain to, or deal in any manner with, Wagner & Company, became an issue on the trial, and in relation thereto the court submitted to the jury whether the dealings with that company were ratified by plaintiff. In this connection it may be noticed that the books, records, auditor’s reports, his testimony and the files show that, during .the preceding year, hedges had been made and grain shipped to that company. Plaintiff had arrangements with Carl Flo to audit its books every three months. His last report was made in February, 1917. There was testimony that there were about 14,000 bushels of grain in plaintiff’s elevator in January, 1917; that it was difficult to obtain cars; that the grain was largely shipped out during the first two or three months of the year; that the market was very panicky; that the witness Flo found a 2,000 bushel hedge that had not been taken up when the grain was sold, and that he had reported the same to Mr. Ulrich, one of plaintiff’s directors. He further testified, in effect, that when he started to make his audit report Eosnow had given him the books, including the ledger, grain book, check stubs, deposit book, all 1the letter files, statements and confirmations that had been received from grain brokers; that in the course of his examination he found reports on future trades in the files, and that they were turned over to Mm and examined in connection with the books. In submitting the question. of ratification the court instructed the jury, among other things, as follows: "The failure to disaffirm such unlawful act and the taking and keeping of the fruits or benefits of such unlawful act will deny the plaintiff the right to recover against the defendant if it is found by a fair preponderance or greater weight of the evidence in the case that the plaintiff accepted the fruits or benefits of such transaction and adopted and — 176 — ratified the transaction by such use and acceptance thereof * * * in the form suggested or by reason of the matters suggested, as the jury shall determine from all ithe evidence in the case. “And you do not find that notwithstanding such larceny the plaintiff after notice thereof accepted the fruits and benefits: thereof.” “If notwithstanding you shall find such larceny on the pari, of Rosnow you shall find by a greater weight of the evidence in the ease that after knowledge or notice of the unlawful act or acts of Rosnow that the plaintiff accepted the fruits and benefits of such unlawful act and appropriated the same to its own use, then yoúr verdict shall be for the defendant.” This instruction, as we read it, is tantamount to saying to the jury, that to constitute a ratification of a transaction requires an acceptance on the -part of the plaintiff of the fruits and benefits of Rosnow’s dealings with Wagner & Company. Under the evidence in this case the instructions must have been prejudicial to the defendant, as no benefits could have accrued ,to the plaintiff from the acts claimed. To ratify is to confirm, approve or sanction a previous act or an act done in behalf of the party ratifying, without sufficient authority. A party may ratify a contract only when it was originally made for him without authority. There can be no ratification of a contract which could not have been made binding on the ratifier at the time it was made. McArthur v. Times Printing Co. 48 Minn. 319, 322, 51 N. W. 216, 31 Am. St. 653; Steffens v. Nelson, 94 Minn. 365, 102 N. W. 871; 31 Cyc. 1245, 1247, and cases cited. If Rosnow made hedgings with Wagner & Company without authority, but in such a way as to have been lawful if made in pursuance of authority, then the same would have been capable of ratification. There was evidence offered to the effect that the checks were given to cover .past indebtedness of Rosnow’s. If such testimony were true and plaintiff’s directors authorized the bank to pay the checks and at the time had no knowledge or notice of such fact, the jury might find embezzlement. But, if the directors had knowledge or notice of that fact, there could be no embezzlement. In other words, if, with such knowledge or notice, plaintiff saw fit to honor the checks, it could not be said that Rosnow embezzled the money so advanced. We discover no proof in the record — 177 — that any hedgings were.made subsequent to the date of the bond. It n'ojge were made subsequent to that date/then the matter covered by the ehSbks nfust have antedated the giving of the bond and the defendant would not he liable, if the transaction were ratified by the plaintiff. We think the instructions were prejudicial to the rights of defendant. Reversed.