Campbell v. Hospitality Motor Inns, Inc.

493 N.E.2d 239, 24 Ohio St. 3d 54, 24 Ohio B. 135, 1986 Ohio LEXIS 647

• Court: Ohio Supreme Court
• Decided: May 28, 1986
• Docket: No. 85-807
• Status: Published

Opinions

Per Curiam.

The question presented is whether the appellee corporation may be bound on a contract neither expressly authorized nor expressly ratified by its board of directors. The answer to this question turns on well-settled principles of the law of agency.

Directors and officers are agents of the corporation and can bind their principal, the corporation, by their acts. Kimball v. Kimball Bros., Inc. (1944), 143 Ohio St. 500 [28 O.O. 425]. In Kimball, supra, at 506-507, this court also stated that “* * * a corporation * * * may become bound by acquiescing in and ratifying an unauthorized act done on its behalf by its agent.”

It is uncontroverted that this employment agreement¹ was not expressly approved at a formal meeting of the board of directors. Thus, appellee claims, the execution of the agreement by Cowell and appellant was unauthorized. Appellee also contends that, pursuant to R.C. Title 17, the only way this unauthorized agreement could have been subsequently ratified was by express formal action of the entire board. We do not agree. We find the better view to be set forth in Piening v. Titus, Inc. (1960), 113 Ohio App. 532, 536-537 [18 O.O.2d 174], which stated, “[t]he requirement that binding action must be taken at a formal meeting of directors is no longer as rigid as was once the case.”

Ratification of an unauthorized contract by the directors of a corporation need not be express; it may also be implied by the board’s conduct. Kimball, supra, at 506-507. This principle is ably explained in Fletcher’s well-known treatise on private corporations:

“Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption of the act, acceptance of •benefits or acquiescence.

“Ratification may be effected by a resolution or vote of the board of directors expressly ratifying previous acts either of corporate officers or agents; but it is not necessary, ordinarily, to show a meeting and formal action by the board of directors, in order to establish a ratification. As a general rule, ratification of a contract or other act will be implied if the corporation, represented by the board of directors, who have knowledge of the facts, accepts and retains the benefits of the contract or act, or recognizes it as binding, or acquiesces in it. They may ratify by acquiescence, and need not act at a meeting regularly called, but may ratify without any formal action. * * *” (Emphasis added.) 2A Fletcher, Cyclopedia of the Law of Private Corporations (1982) 444-445, Section 762. Accord London & Lancashire Indemn. Co. v. Fairbanks Steam Shovel Co. (1925), 112 Ohio St. 136; City Trust & Sav. Bank v. Kennedy (App. 1934), 17 Ohio Law Abs. 698; Midland Acceptance Corp. v. Saunders (1935), 50 Ohio App. 123 [3 O.O. 455].

Further, ratification may sometimes be implied where the corporation fails to repudiate an unauthorized contract within a reasonable period of time. United States Rolling Stock Co. v. Atlantic & Great Western RR. Co. (1878), 34 Ohio St. 450, 462 (“ ‘Where the principal is informed of what has been done, he must dissent, and give notice of it within a reasonable time; and if he does not, his assent and ratification will be presumed.’ ”). (Citation omitted.) Accord Johndahl v. Columbus Trotting Assn. (1956), 104 Ohio App. 118, 133 [4 O.O.2d 179]. See, also, Fletcher, supra, at Sections 766 and 769-772.

We therefore reaffirm the rule that an unauthorized contract entered into by a corporate officer or agent may be impliedly ratified by the corporate board of directors where the directors have actual knowledge of the facts and (1) accept and retain the benefits of the contract, (2) acquiesce in it, or (3) fail to repudiate the contract within a reasonable period of time.

In the instant case, we must now examine the record and determine whether there is sufficient evidence of ratification to preclude summary judgment in favor of the appellee. It is axiomatic that summary judgment shall be rendered only when the movant has shown that there is no genuine issue as to any material fact. Civ. R. 56(C). Further, upon appeal from summary judgment, the reviewing court should look at the record in the light most favorable to the party opposing the motion. Williams v. First United Church of Christ (1974), 37 Ohio St. 2d 150, 151 [66 O.O.2d 311].

The affidavits and depositions relied on by appellant in opposing the motion for summary judgment contain evidence tending to show that the members of Hospitality’s board of directors were aware that the employment agreement at issue was to be offered to appellant. These affidavits and depositions also indicate that the directors may have had actual knowledge that the agreement was then executed by appellant and an officer signing on behalf of the corporation. This evidence further demonstrates that, under the terms of the agreement, the corporation may have accepted and retained the benefits of appellant’s services during the transition period qf the sale to Hosmin, Inc. The actions of the corporation, represented by the board of directors, raise issues regarding its acquiescence in and approval of appellant’s employment agreement. At the least, the appellant’s evidence could be viewed as demonstrating corporate ratification by silence or failure to repudiate within a reasonable time after learning of the execution of the agreement.

Thus, summary judgment in favor of the appellee was improper. Appellant has presented evidence sufficient to raise a question of material fact as to whether appellee’s board of directors impliedly ratified this “Agreement Concerning Employment” and consequently bound the corporation to honor it.

For the foregoing reasons, the judgment of the court of appeals is reversed and the cause is remanded to the trial court for further proceedings consistent with this opinion.

Judgment reversed and cause remanded.

Celebrezze, C.J., Sweeney, Holmes, C. Brown and Wright, JJ., concur. Locher, J., concurs in judgment only. Douglas, J., dissents.

1 The “Agreement Concerning Employment,” executed on August 4,1978 by Cowell and appellant, provided as follows:

“RECITALS

“A. It is the desire of Employer to provide Executive with an incentive to remain and continue in the employment of Employer.

“B. It is the intent of Executive to continue in the employ of Employer performing services to the best of his ability.

“C. This limited Agreement concerning employment, is being entered into in view of the possible sale of Employer to new owners and the desire to provide a continuity of management for a limited period.

“NOW, THEREFORE, IT IS AGREED:

“1. Initial Term. The term of this Agreement shall commence on the date of this Agreement and continue until May 30, 1979 (herein ‘the Initial Term’). The term of this Agreement shall be extended as provided in paragraph No. 2 hereof unless The Standard Oil Company determines not to sell its stock interest in Employer and Employer gives Executive not less than thirty (30) days written notice prior to the end of the Initial Term that this Agreement will expire at the end of the Initial Term.

“2. Renewal Term. Except as otherwise provided in paragraph No. 1, the term of this Agreement shall automatically be extended following the Initial Term for successive terms of six (6) months each (herein each six (6) month term shall be a ‘Renewal Term’) unless upon not less than thirty (30) days written notice prior to the end of any Renewal Term either party shall give notice that this Agreement shall no longer be subject to automatic extension in which case this Agreement shall terminate at the end of the Renewal Term following the Renewal Term in which such written notice was so given. The parties recognize that termination of this Agreement does not and shall not constitute a termination of the employment of Executive except as provided in paragraph 5 hereof.

“3. Base Compensation. Compensation shall be paid to Executive:

“a. during the Initial Term in accordance with Executive’s present base salary compensation schedule; and

“b. during each Renewal Term in accordance with Executive’s base salary compensation schedule then in effect.

“4. Bonus. Executive shall receive such bonus under the Employer’s Executive Bonus Plan (herein the ‘Plan’) as Employer may determine in accordance with the terms and provisions of the Plan.

“5. Termination of Employment by Executive. Upon the termination of employment by Executive prior to the end of the Initial Term or any Renewal Term, other than by reason of action taken by Employer, the terms and provisions of this Agreement shall cease and Employer shall be obligated to pay Executive (or Executive’s successor in interest) only unpaid compensation through the date of said termination of employment.

“6. Termination of Employment by Employer. If Employer terminates the employment of Executive, and the effective date of said termination occurs prior to the effective date of termination of this Agreement, the Employer shall pay to Executive an amount equal to the monthly current basic salary (not including any amount classified as bonus or incentive compensation) received by Executive during the last full calendar month of employment prior to said termination and said monthly amount shall be paid for a period of twelve (12) months with the first said monthly payment commencing on or about the tenth of the month following the month of said termination of employment and each of the eleven remaining monthly payments to be made on or about the same date of each succeeding month until full payment has been made.

“7. Payroll Deductions. All payments to Executive made pursuant to the provisions of paragraph No. 6 above shall take into account and there shall be deducted therefrom all required Federal, state and local withholding taxes on wages and FICA and other amounts required of Employer to withhold from payments to Executive.”