CAROLINA EQUIPMENT AND PARTS COMPANY, a corporation,
v.
Woodrow ANDERS.
No. 114.
Supreme Court of North Carolina.
October 13, 1965.*257 Van Winkle, Walton, Buck & Wall, by Roy W. Davis, Jr., Asheville, for plaintiff appellant.
Harold K. Bennett, Asheville, and E. Glenn Kelly, Beaufort, for defendant appellee.
SHARP, Justice.
Plaintiff assigns as error the failure of the trial court to allow its motion to dismiss defendant's counterclaim. Defendant, having admitted the execution and delivery of the conditional sales contract in suit, must establish the novation he has alleged if plaintiff is not to recover the amount it claims.
To establish the terms of the novation he alleges, defendant relies upon his conversations with Manuel, plaintiff's sales agent for Western North Carolina. The evidence discloses, however, that Manuel himself had no authority to modify the contractual relations existing between plaintiff and defendant, and that defendant knew this. 2 C.J.S. Agency § 114, p. 1324. Manuel's declarations to defendant on September 19, 1963, which tended to show his authority to take back the Eimco and to modify the contract by a "separation" were not, as the trial judge held, competent to establish the nature and extent of Manuel's agency. Commercial Solvents, Inc. v. Johnson, 235 N.C. 237, 69 S.E.2d 716. They were, however, competent to establish the terms of the alleged new contract which, defendant contends, Manuel purported to make on behalf of plaintiff, and which plaintiff thereafter ratified.
A novation is the substitution of a new contract for an old one which is thereby extinguished. Tomberlin v. Long, 250 N.C. 640, 109 S.E.2d 365. One of the several methods by which a contract may be discharged is the substitution of a new contract, the terms of which differ from the original. Bixler Co. v. Britton, 192 N.C. 199, 134 S.E. 488; Southern Public Utilities Co. v. Town of Bessemer City, 173 N.C. 482, 92 S.E. 331; Redding v. Vogt, 140 N.C. 562, 53 S.E. 337. "In such cases the release of the obligation of the old and the substitution of new obligations constitute valuable considerations." Lipschutz v. Weatherly, 140 N.C. 365, 369, 53 S.E. 132, 133; 66 C.J.S. Novation § 12. While a contract is wholly executory the mutual consent of the parties to discharge each other from its obligations is sufficient consideration for a rescission. When, however, as here, the contract has been executed by one of the parties, a valid novation requires a consideration. Palmer v. Lowder, 167 N.C. 331, 83 S.E. 464; McKinney v. Matthews, 166 N.C. 576, 82 S.E. 1036. The return of the Eimco to plaintiff would be sufficient consideration for the alleged novation, which released defendant from his obligation to pay for the Eimco and set up a new schedule of payments for the tractor-trailer only.
The determinative question here is whether plaintiff's acceptance of the check for $496.02 for "payment on truck & trailer," coupled with the other circumstances disclosed, was "evidence of ratification fit to be considered by a jury." Acme Mfg. Co. v. McPhail, 181 N.C. 205, 209, 106 S.E. 672, 674.
"`If certain acts have been performed or contracts made on behalf of another without his authority, he has, when he obtains knowledge thereof, an election either to accept or repudiate such acts or contracts. If he accepts them, his acceptance is a ratification of the previously unauthorized acts or contracts, and makes them as binding upon him from the time they were performed as if they had been authorized in the first place.' Gallup v. Liberty County, 57 Tex. Civ. App. 175, 122 S.W. 291, 296." *258 McNeely v. Walters, 211 N.C. 112, 113, 189 S.E. 114, 115.
In order to establish the act of a principal as a ratification of the unauthorized transactions of an agent, the party claiming ratification must prove (1) that at the time of the act relied upon, the principal had full knowledge of all material facts relative to the unauthorized transaction, Wilkins-Ricks Co. v. Welch, 179 N.C. 266, 102 S.E. 316; Wise & Bro. v. Texas Co., 166 N.C. 610, 82 S.E. 974, and (2) that the principal had signified his assent or his intent to ratify by word or by conduct which was inconsistent with an intent not to ratify. The jury may find ratification from any course of conduct on the part of the principal which reasonably tends to show an intention on his part to ratify the agent's unauthorized acts. 3 Am.Jur.2d, Agency § 162. "It is what a party does, and not what he may actually intend, that fixes or ascertains his rights under the law. He cannot do one thing and intend another, and very different and inconsistent, thing. The law will presume that he intended the legal consequences of what he does, or, in other words, that his intention accords in all respects with the nature of his act." Norwood v. Lassiter, 132 N.C. 52, 56-57, 43 S.E. 509, 510.
A principal who acted without actual knowledge of the material facts will not be held to have ratified an unauthorized act of his agent even though he failed to exercise due diligence which would have revealed the truth. "This general rule pertains whether the want of knowledge arises from the intentional or the unintentional concealment or misrepresentation of the agent, or from his mere innocent inadvertence; and, of course, if the material facts are suppressed or unknown, the ratification is invalid, because founded on mistake or fraud." 3 Am.Jur.2d, Agency § 173. However, as stated by the American Law Institute, "knowledge by the purported principal can be inferred as in other cases; when he has such information that a person of ordinary intelligence would infer the existence of the facts in question, the triers of fact ordinarily would find that he had knowledge of such fact." Restatement (Second), Agency § 91; 1 Mechem, Law of Agency § 406 (2d ed. 1914). See Fisher v. John L. Roper Lumber Co., 183 N.C. 485, 111 S.E. 857, 35 A.L.R. 1417 and Hall v. Giessell & Richardson, 179 N.C. 657, 103 S.E. 392, cases in which the court, in sustaining judgments based on the juries' findings of ratification, commented that the facts were sufficient to show that the principals knew or should have known the terms of their agents' contracts and that the juries had the right to consider this and other evidence as bearing upon the question of ratification. See also Breckenridge, Ratification in North Carolina, 18 N.C.Law Rev. 308, 327-334 (1940).
A principal is not permitted to repudiate the act of its agent as being beyond the scope of his authority while accepting the benefits of what he has done. Jones v. Bank of Chapel Hill, 214 N.C. 794, 1 S.E.2d 135. "It is also a settled principle of ratification that the principal must ratify the whole of his agent's unauthorized act or not at all. He cannot accept its benefits and repudiate its burdens." Parks v. Security Life & Trust Co., 195 N.C. 453, 456, 142 S.E. 473, 474. Accord, Maxwell v. Procter & Gamble Distributing Co., 204 N.C. 309, 168 S.E. 403.
Clearly, if plaintiff's president, Stephenson, knew that defendant had attached conditions to the acceptance of his check he could not endorse it, collect the proceeds for plaintiff, and then repudiate the conditions attached to it notwithstanding he may have intended to do so. DeLoache v. DeLoache, 189 N.C. 394, 127 S.E. 419; Acme Mfg. Co. v. McPhail, supra; Wilkins-Ricks Co. v. Welch, supra; Moore v. General Accident, Fire & Life Assurance Corp., 173 N.C. 532, 92 S.E. 362; Southwest Nat. Bank v. Justice, 157 N.C. 373, 72 S.E. 1016; Norwood v. Lassiter, supra. Such knowledge and conduct would *259 have made Stephenson's position equivalent to that of the man who cashes a check which purports to be in full payment of a disputed account. Speaking to this situation in Petit v. Woodlief, 115 N.C. 120, 20 S.E. 208, the Court said, "When the plaintiff indorsed this draft and collected the money, with the proposal staring him in the face that it should, if received, operate to discharge the whole debt, instead of returning it to the drawer and declining the offer, we think that his conduct amounted to an acceptance of it * * *." 115 N.C. at 125, 20 S.E. at 209. Accord, Sylva Supply Co. v. Watt, 181 N.C. 432, 107 S.E. 451; Aydlett v. Brown, 153 N.C. 334, 69 S.E. 243; Armstrong, Cator & Co. v. Lonon, 149 N.C. 434, 63 S.E. 101; Kerr v. Sanders, 122 N.C. 635, 29 S.E. 943.
In Lipschutz v. Weatherly, supra, plaintiff agreed with defendants that they should have an exclusive contract for the sale of plaintiff's cigars (which they were authorized to purchase at a special price) in a specific area so long as they complied with certain conditions. Plaintiff, contending that defendants had violated the conditions, notified them that in the future defendants could order only upon the same terms and conditions as any other person. Thereafter plaintiff declined to fill defendants' orders until they agreed to the cancellation of the previous contract. This defendants did and ordered cigars upon the new terms. When defendants refused to pay for these cigars, plaintiff sued for the purchase price and defendants set up a counterclaim for damages for breach of contract. In affirming the trial judge's peremptory instruction in favor of plaintiff, the Court said that, assuming plaintiff had breached the original contract, defendants could have sued for damages; instead, they assented to plaintiff's terms for further sales and made a new contract which discharged the old, thereby eliminating any claim for damages resulting from its breach. See also Acme Mfg. Co. v. McPhail, supra.
The evidence here strongly suggests that if Manuel's prospect in Kings Mountain had purchased the Eimco, this lawsuit would have been averted; that Manuel, thinking he had the Eimco sold elsewhere, talked one way to defendant Anders, and thereafter, when the sale was not made, another way to his employer Stephenson. It was then, no doubt, that he blotted out the figure 3 within the parentheses on the check. But, be that as it may, Stephenson knew that defendant had requested "a separation of the truck and trailer and the Eimco tractor," and that at the time defendant made the request he had issued a check for $496.02 which stated that it was "for (3) payments on truck & trailer." Each monthly payment under the original contract was to have been an even $496.00. The notation of plural payments totalling $496.02 negated a payment on the original indebtedness. Obviously defendant was not making a payment on the original contract. Stephenson said that, after telling Manuel defendant's proposition was ridiculous and not to be considered, he asked him "if he had emphatically told Mr. Anders that we must use the check that we had collected against the obligations." Curiously enough, Stephenson did not testify what reply, if any, he got to this inquiry. He merely said that after asking this question he "then had the check endorsed and forwarded."
We think there was "evidence of ratification fit to be considered by the jury." The court instructed the jury, in effect, that in order for it to find that plaintiff and defendant entered into a new contract on September 19, 1963, defendant must satisfy the jury (1) that defendant and Manuel made the agreement defendant alleged; (2) that defendant's payment of three installments on the tractor-trailer under the new contract was received by the plaintiff with knowledge of the new contract and with "intent on the part of the plaintiff corporation to ratify and confirm the transaction and substitute this contract for the contract of June 1963," and that if defendant failed to satisfy the jury of these *260 facts it would answer the first issue (novation) against defendant. Plaintiff has no cause to complain of this instruction. The verdict that there had been a novation was supported by competent evidence, the credibility of which was for the jury. Plaintiff's motion to nonsuit defendant's counterclaim was properly overruled. The fact that defendant prayed damages to which he is not entitled does not preclude recovery on a theory supported by the allegations and proof. Fremont City Board of Education v. Wayne County Board of Education, 259 N.C. 280, 130 S.E.2d 408; Strong, N.C.Index, Pleadings § 4.
Plaintiff's assignment of error No. 12 relates to the limitation which the court placed upon that testimony of Mr. Stephenson as noted in the statement of facts. Conceding the error in limiting this evidence to the corroboration of Manuel, we regard the probable effect of this limitation upon the jury as entirely too tenuous to justify a new trial. Technical error alone will not upset a judgment. Appellant must show a reasonable probability that the error affected the result of the trial. Johnson v. Heath, 240 N.C. 255, 81 S.E.2d 657. As heretofore pointed out, the crucial question of fact is, what knowledge did Stephenson have when he accepted the defendant's check for $496.02. Unrestricted evidence establishes that he knew of defendant's request "for a separation in the contract" of the Eimco from the tractor-trailer and that with this knowledge he accepted a check "for (3) payments on truck & trailer."
The issues submitted were sufficient to embrace the questions in dispute between the parties, and plaintiff's assignment of error based on the failure of the judge to submit the issues it tendered is not sustained. Hall v. Giessell & Richardson, supra. Each of plaintiff's other assignments of error has been considered; no prejudicial error appears. The judgment of the court below is
No error.