Collentine v. Johnson , 203 Iowa 109 ( 1925 )

I must confess that I am not free from doubt in this case. I concurred in the opinion as originally filed, but on rehearing I am very much in doubt as to the correctness of the original opinion. The supplemental opinion does not altogether answer the troubles that confront me.

We are committed in this state to the doctrine of an undisclosed principal. All of the courts of the country and all of the text-writers recognize the doctrine as being an anomaly, and wholly inconsistent with the general principles of the law of contract. It has been engrafted on the law by virtue of necessity, to effectuate justice. I am willing to concede that the doctrine has been recognized and is in force in this state. We have so declared a number of times, and I am not disposed to dispute the proposition now.

But granted that we recognize the anomalous theory that one may be bound by a contract to which he is not a party, our cases predicate the right of recovery solely on the theory of agency. In other words, the party is bound because he is the undisclosed principal to a contract procured in his behalf by hisduly authorized agent. Not all of the courts base the right of action upon this ground, but we are committed to it.

Therefore, we have a situation where, in this instance, Collentine is claiming the right to hold Johnson on a contract because it is claimed that the contract was made by Johnson, through his agent. Collentine never heard of Johnson at all in connection with the matter. He sold his land to Bestor. Soesbe brought Collentine and Bestor together. Collentine never heard of Johnson in the deal, and was content and satisfied to make his contract with Bestor, to receive the down payment that was made, and to take a mortgage upon the land for the deferred payments. This was Collentine's contract.

It is suggested in the supplemental opinion that Soesbe, and even Johnson, might be liable for fraud, because of misrepresentations made to Collentine by Soesbe in connection with the deal. The only fraud that could possibly be made the basis of recovery, as I read the record, would be the representations that Bestor was good financially, when in fact he was insolvent. There is no evidence whatever that Johnson knew that Soesbe made any such representations, and not a suggestion of evidence that, even if he knew that Soesbe made them, he authorized him to make them, or entered into any conspiracy with Soesbe that they should be made. Therefore, the suggestion that an action at law for deceit might lie against Johnson, on the theory of a conspiracy with Soesbe to deceive Collentine regarding the financial standing of Bestor, is quite by the mark. If Collentine has any such action, he has never suggested it in this case. This is a suit in equity, to foreclose a mortgage upon real estate, and for recovery on certain promissory notes, with interest and attorneys' fees, as provided in the notes. No claim of a vendor's lien is asserted. It is simply an attempt to hold Johnson, as though he had assumed and agreed to pay a mortgage which he in fact did not assume and agree to pay. In fact, no recovery for the purchase price, as such, is sought. The action is to hold Johnson on Bestor's mortgage, according to its terms.

I will concede that, if Soesbe was Johnson's agent in buying the premises, Johnson, as an undisclosed principal, could be liable in so far as Soesbe had power and authority to bind him. But I have yet to learn that any agent can bind his principal in the purchase of property by other and different terms than the principal authorized, where there is neither estoppel nor ratification involved.

There is no question, under the record, but that Johnson expressly limited the authority of Soesbe, in purchasing the land from Collentine. He agreed to make the down payment in cash, and this he did. He never agreed, directly or indirectly, in any way, to make any further payments on the land. The land itself was to stand as security for the deferred payments. This was his agreement — a common one. Collentine never dreamed of a personal liability on the part of Johnson. He sold the land with a down payment and security on the land for the deferred payments. The only authority in the world that Soesbe had from Johnson was to buy the land on the express terms that Johnson would make the down payment, and assume no personal liability for the deferred payments, but that the land itself should stand as security for the deferred payments. The undisputed record shows this, and that Johnson absolutely refused to accept the deed from Bestor until it was drawn so as to express the original authority which he granted to Soesbe, — that he should not be personally liable.

We therefore have a simple situation by which the seller, Collentine, is seeking to hold a man with whom he never made any contract whatever, whom he never heard of in connection with the deal, who he never dreamed was in existence, to a personal liability to pay a debt which the other man never agreed to pay, and which he positively and unequivocally prohibited his agent from contracting in his behalf.

I am willing to go the one step, and hold that a seller may recover against an undisclosed principal, even though he did not have a direct contract with him. Such a holding is unscientific, illogical, and properly recognized as "an anomaly" in the law; it is making a contract for parties without any semblance of a meeting of the minds of those parties. But we have recognized it.

But when we have gone that far, I think we should stop; and I cannot see how we can hold this undisclosed principal in a contract purporting to have been made by his agent which is directly contrary to the express authority given to the agent.

This is not a case of holding one out as an agent, because Collentine never heard of Johnson. It is not a case of estoppel; for Collentine never acted in any way on any assumption that Johnson was connected with the deal. He sold his land to Bestor, and not until after he had commenced this action did he ever dream of such a thing as that Johnson was connected with the deal in any way, — much less by contract with him.

Collentine got exactly all he contracted for. He sold his land to Bestor, and got his down payment and a mortgage back. If Bestor was insolvent, that was Collentine's lookout when he traded with him; and, if Soesbe deceived him about Bestor's financial situation, it may render Soesbe liable to Collentine for his false representations, but it does not bind Johnson, who knew nothing of these representations.

The result of the opinion is that we are making for Collentine a contract with a party he never heard of, and with whom he never attempted to make a contract at all, and, in addition, we are making a contract that was never authorized. We are binding Johnson to terms which his agent had no authority whatever to make, but which are in direct and positive violation of his absolute instructions.

I cannot bring myself to believe that we have a right to make a contract for parties who never made it between themselves, and, in addition to that, make the contract in direct and positive violation of the understanding and agreement of one of the parties thereto. This is more than a court of equity would do by way of reformation under its plenary power.

In addition to all of this, the action is brought to foreclose the mortgage, and for judgment on the notes given by Bestor, and for personal judgment thereon against Johnson; and recovery was sought and allowed at the rate of interest fixed in the notes, including an allowance for attorneys' fees. There was no semblance of authority to bind Johnson to anything of this kind, but I submit that it is consistent; for, if Soesbe had a right to violate his positive instructions and bind Johnson for personal liability for the deferred payments on the purchase price, I do not see why it is not consistent to hold that Soesbe could also bind him to pay attorneys' fees. Why could he not have made it all cash, as well? If we are not to limit Johnson's liability by what he authorized Soesbe to do as his agent, why stop at interest and attorneys' fees? I see no place to put the limit of Johnson's liability, under this holding. If he could not limit it by positive instructions to his agent, then I do not know where the bounds are to be set.

Suppose, to illustrate what I have in mind, we leave Bestor out of the deal entirely. Suppose Johnson had told Soesbe to buy the land of Collentine at the agreed purchase price, on condition that he pay so much down payment, and that security be given for the balance on the land only, with no personal liability on Johnson's part therefor. Suppose that, armed with this authority, Soesbe had gone to Collentine and purchased the land under written contract, which he signed as agent for Johnson, and in that written contract, instead of following Johnson's instructions and buying the land on a down payment and security on the land for the balance, without personal liability, he had bound Johnson to be personally liable for the purchase price. Suppose Collentine had then sued Johnson on this contract, executed in his name and in his behalf by Soesbe, would we hold Johnson liable under such a contract? Certainly not. And why not? Simply because his agent exceeded his authority in making the contract, and therefore could not bind his principal to the unauthorized terms. But we are now holding that, where the principal is undisclosed, he can be bound in behalf of a third party by his agent, to terms which he never agreed to, and which he never authorized his agent to make.

We started with Thurston v. Mauro, 1 G. Greene 231, recognizing that "recovery may be had from an undisclosed principal for goods sold to an agent acting within the scope of his authority." We followed the rule down to Strohmeier v. Anderson, 195 Iowa 828, but always reiterating, repeating, and emphasizing that, where the undisclosed principal is held, it must be because of the act of his agent, "acting within the scope of his authority." If we now cast this limitation to the winds, I am at a loss to know where we are to stop; and I fear that we are laying down a rule by which an undisclosed principal may be held liable for unauthorized contracts made by an agent in direct violation of instructions, when such contracts could not be enforced or upheld if they were made directly for a disclosed principal.

If the plaintiff in this action has any remedy against Soesbe, it is not disclosed in the pleadings in this case. If he has any remedy against Johnson, it is in no way within the issues of this action to foreclose a mortgage. The doors of the law courts are still open to him for any actionable fraud, conspiracy, or deceit against any party or parties who may be liable therefor. If Johnson is liable at all, it could only be for the purchase price, and not on the Bestor notes. If he is liable as a purchaser, it can be only on the terms under which he purchased; not on some other and wholly unauthorized terms.

I think a rehearing should be granted.

ALBERT, J., joins in this dissent.