Summary
In Mattice v. Equitable Life Assurance Society, 270 Wis. 504, 71 N.W.2d 262, 55 A.L.R.2d 1206 (1955), and Lamb v. General Associates, Inc., 60 Wn.2d 623, 374 P.2d 677 (1962), the Courts reviewed the rules with regard to the authority of an agent to borrow money in the name of the principal.
Summary of this case from Gunn v. SchaefferOpinion
June 3, 1955 —
June 28, 1955.
APPEAL from a judgment of the circuit court for Sauk county: BRUCE F. BEILFUSS, Circuit Judge, Presiding. Reversed.
For the appellant there was a brief by Rieser, Mathys, McNamara Stafford of Madison, and oral argument by Willard S. Stafford.
For the respondent there was a brief by Langer Cross of Baraboo, and oral argument by Clyde C. Cross and H. M. Langer.
This action was brought by the plaintiff against the Equitable Life Assurance Society of the United States to recover the sum of $6,500 with interest and costs. The material allegations of the complaint are as follows:
"3. That in December, 1952, and January, 1953, for many years prior thereof, and at all other times here material, the defendant was represented in Baraboo, Wisconsin, and vicinity, by one C. W. Schroeder, as its agent. That during all of said time the said C. W. Schroeder extensively advertised throughout the said community that he was the agent of the defendant; that the defendant likewise represented to the community that he was its local agent; and authorized to accept money for it; and that during all of the said time the said C. W. Schroeder did in fact regularly transact the defendant's business in the said community and accept money for it, as its agent.
"4. That prior to December, 1952, plaintiff had desired to purchase an annuity policy as a means of savings, and investment for her economic protection in her old age; and plaintiff had talked with the said C. W. Schroeder about procuring such an annuity policy on different occasions. That the said C. W. Schroeder had advised plaintiff that she would need to invest about $8,000 to get a policy of any consequence. That plaintiff did not at that time have such an amount available for investment in the said annuity policy, and was unable to purchase the annuity policy, as desired.
"5. That in December of 1952, C. W. Schroeder came to plaintiff and reminded her of her previously expressed desires to take out an annuity policy providing a monthly income to her after she could no longer work; and he did then advise plaintiff that he then had a better plan than an annuity policy. The said C. W. Schroeder did then represent to plaintiff that she could loan to the defendant company the money she had available for eventual investment in an annuity policy, and receive five per cent interest thereon, and that through this method she could then accumulate the total amount invested with the company to a sum sufficient to convert it into an annuity policy with the company of the type that she desired to obtain.
"6. That following the discussions of the plaintiff and C. W. Schroeder outlined above, and directly pursuant to and in reliance upon the said representations made to her by him, the plaintiff did pay over to the said C. W. Schroeder the sum of $1,500, on December 2, 1952. That the said sum was solicited by Schroeder, and paid by plaintiff, as a loan to the defendant company, and was so paid to Schroeder in his capacity as agent for defendant.
"7. That at that time C. W. Schroeder gave to plaintiff a promissory note executed by himself as owner of the C. W. Schroeder Agency, in the sum of $1,500, dated December 2, 1952, due in one year, with interest thereon at five per cent, as evidence of the payment so made by plaintiff to the defendant. That the said C. W. Schroeder did specifically represent to plaintiff that this note so given to her was in the nature of a receipt until he got the proper papers from the defendant company acknowledging its indebtedness to plaintiff.
"8. That subsequently, on December 4, 1952, the said C. W. Schroeder again came to plaintiff and suggested that she place an additional sum with the defendant company in the same manner; and pursuant to his requests and representations plaintiff did pay over to the said C. W. Schroeder, as agent of the defendant company, the further sum of $4,000. That on December 4, 1952, C. W. Schroeder gave plaintiff a note for the amount of $4,000 due one year from date, with interest at five per cent, executed by him as owner of the C. W. Schroeder Agency. That the said C. W. Schroeder again specifically represented to the plaintiff that the note was given to her in that fashion to protect plaintiff until he obtained the necessary papers evidencing the indebtedness of the company to her from the company.
"9. That subsequently, on January 6, 1953, the said C. W. Schroeder again approached plaintiff and obtained from her an additional sum of $1,000, under the same conditions, provisions, and representations as set forth above.
"10. That subsequent to January 6, 1953, plaintiff inquired of C. W. Schroeder on several occasions as to when she would receive her policy, certificates, or other papers from the defendant company, evidencing its indebtedness to her for the $6,500 invested with him as its agent. That on each such occasion C. W. Schroeder told plaintiff that those matters took time, and that the proper papers would be coming through from the company in due course. That C. W. Schroeder further assured plaintiff on those occasions that she had nothing to worry about, that her money was safe, as the defendant company was financially sound and reliable, and that she could depend upon the said company.
"11. That plaintiff did believe and rely upon each and all of the said representations made to her by C. W. Schroeder, as set forth above.
"12. That the plaintiff has never received any annuity, policy, certificate, or any other evidence of indebtedness from defendant to her for the $6,500 so invested. That the said company has recently advised the plaintiff that it recognizes no obligation under, or responsibility for, the said $6,500 so paid by her to its agent C. W. Schroeder, and that it therefore denies any and all liability to plaintiff in connection therewith.
"13. That, upon information and belief, the said $6,500 so paid over by plaintiff to C. W. Schroeder as a loan to the defendant company was never received by defendant, but was fraudulently converted by the defendant's agent, said C. W. Schroeder, to his own private use and purposes.
"14. That throughout all the plaintiff's dealings with the said C. W. Schroeder, he had represented to her, and she did verily believe, that he was acting solely in his capacity as agent for defendant, with full authority to do so. That all of the actions by the said C. W. Schroeder in the course of his dealings with plaintiff were within the scope of the said C. W. Schroeder's apparent authority, as agent for defendant.
"15. That by reason of the premises set forth above, the defendant has, by the acts of its duly constituted and acting agent, C. W. Schroeder, fraudulently converted the sum of $6,500 belonging to plaintiff ; and that by reason thereof, defendant is liable to plaintiff for said sum, with interest thereon."
On motion of the defendant, C. W. Schroeder was impleaded as a defendant. The case was tried to the court and a jury. The jury found, in answers to questions in a special verdict, that the defendant Schroeder represented to the plaintiff that the $6,500 paid over to him by her was a loan to the company; that the defendant Schroeder was acting within his apparent authority as an agent of the company when he accepted the money from the plaintiff; that the plaintiff relied upon the representations of Schroeder to the effect that the money was a loan to the company; and that in relying upon said representations of Schroeder the plaintiff acted with ordinary care and prudence.
Judgment was entered on January 31, 1955, in favor of the plaintiff and against the company. The company was also given judgment on its cross complaint against the impleaded defendant Schroeder, conditioned upon the payment to the plaintiff by the company of the judgment against it. The Equitable Life Assurance Society of the United States appealed from the judgment in favor of the plaintiff. The impleaded defendant Schroeder did not appeal. The Equitable Life Assurance Society of the United States will hereinafter be referred to as "the defendant."
Upon this appeal the defendant relies upon language in the case of Hansche v. A. J. Conroy, Inc., 222 Wis. 553, 269 N.W. 309, wherein this court said (pp. 560, 561):
"Three elements are necessary to establish apparent agency: (1) Acts by the agent or principal justifying belief in the agency. (2) Knowledge thereof by the party sought to be held (in the present case, appellant). (3) Reliance thereon by the plaintiff, consistent with ordinary care and prudence. Domasek v. Kluck, 113 Wis. 336, 339, 89 N.W. 139. . . .
"The apparent authority for which the principal may be liable must be traceable to him, and cannot be established by the acts and conduct of the agent. The principal is only liable for that appearance of authority caused by himself. Maryland Casualty Co. v. Moon, 231 Mich. 56, 203 N.W. 885, 887; Berryhill v. Ellett (C.C.A.), 64 F.2d 253, 256. If words or conduct of the agent are relied upon, it must be shown that the principal had knowledge of and acquiesced in them. 1 Mechem, Agency (2d ed.), p. 513, sec. 725; Berryhill v. Ellett, supra, at p. 256, and cases cited."
The plaintiff relies in particular upon the following sections from the Restatement, 1 Agency:
Page 582, sec. 261 — "A principal who puts an agent in a position that enables the agent, while apparently acting within his authority, to commit a fraud upon third persons is subject to liability to such third persons for the fraud."
Page 583, sec. 262 — "A person who otherwise would be liable to another for the misrepresentations of one apparently acting for him, under the rule stated in sec. 261, is not relieved from liability by the fact that the apparent agent acts entirely for his own purposes, unless the other has notice of this."
These rules were approved by this court in Ripon Knitting Works v. Railway Express Agency, 207 Wis. 452, 240 N.W. 840, and Motor Castings Co. v. Milwaukee County Bank, 254 Wis. 493, 36 N.W.2d 687. As general rules of the law of agency they are correct. In the cases where cited they were applicable and there was no need to apply other rules of the law of agency that must necessarily be looked to in other cases. They are too broad in scope to cover every situation. One rule of agency that has been repeatedly stated by this court appears in Sell v. General Electric Supply Corp. 227 Wis. 242, 278 N.W. 442, as follows (p. 248):
"The burden of proof to establish the apparent authority of Cooke was upon the plaintiffs. Smith v. Starkey, 203 Wis. 56, 62, 233 N.W. 576; Commonwealth Telephone Co. v. Paley, 203 Wis. 447, 449, 233 N.W. 619; Hansche v. A. J. Conroy, Inc., supra, p. 562. In Commonwealth Telephone Co. v. Paley, supra, the court said:
"`It is the rule that a person dealing with an agent known to be acting for a principal must at his peril ascertain the extent and nature of the agent's authority. . . . Boelter v. Hilton, 194 Wis. 1, 215 N.W. 436; Pluto Powder Co. v. Cuba City State Bank, 153 Wis. 324, 141 N.W. 220. However this rule is to be read in connection with another rule stated in McDermott v. Jackson, 97 Wis. 64, 72 N.W. 375, quoted approvingly in Voell v. Klein, 184 Wis. 620, 622, 200 N.W. 364, that "if a third person, because of appearances for which the principal was responsible, believes and has reasonable ground to believe that the agent possessed power to act for the principal in the particular transaction, if such third person was, in the exercise of reasonable prudence, justified in believing that the agent possessed the necessary authority, then the principal is responsible to such third person the same as if the agent possessed all the power he assumed to possess."'" (Emphasis supplied.)
The main issue presented by this case is whether or not the agent had apparent authority to bind his principal in the particular transaction. The particular transaction was the borrowing of money on behalf of the principal by the agent. Accordingly, we must look to the rules dealing with the apparent authority of an agent to borrow money on behalf of his principal.
In Restatement, 1 Agency, p. 178, sec. 74, the law with respect to an agent borrowing money on behalf of his principal is stated as follows:
"Unless otherwise agreed, an agent is not authorized to borrow unless such borrowing is usually incident to the performance of acts which he is authorized to perform for the principal."
In 2 C.J.S., Agency, p. 1294, sec. 110, the rule is stated as follows:
"Like other specific powers of an agent, the power to lend or borrow money is not to be inferred without clear evidence of such a grant, and must be either expressly conferred or necessarily implied from the authority granted, not being subject to implication from a mere general authority, unless the character of the business or the duties of the agent are such in nature as to render it reasonably requisite for him to borrow or lend in order to carry out his instructions and the duties of his office, although, of course, if the agent is clothed with ostensible authority to borrow, transactions of that nature within the scope of his apparent powers will be sustained. Representations by the agent himself are insufficient as a basis for any such ostensible power. While a course of conduct of the principal in allowing the agent to borrow on his account may, under the general rules as to a course of conduct, be a sufficient foundation for the power to borrow, no such power is to be implied from a power merely to manage or act for the principal in his business generally or in other specific matters, unless such authority is reasonably necessary to enable the agent to execute his authority, and then only within the limits of such necessity; such an agent is without the authority to pledge the principal's credit for future payments, and a mere power of management of the principal's business or property, even though accompanied by authority to purchase goods on credit, does not suffice to establish an implied authority of borrowing.
"The power being held not to flow by implication from such a broad and general power as that of management, it is, of course, even more to be expected that the courts will hold it, as they do, not to be implied from other more limited mandates such as a power to lend, or a power merely to buy or sell property, or to make deposits and draw or indorse negotiable paper. . . ."
2 Am. Jur., Agency, p. 122, sec. 153, gives the rule as follows:
"Authority to Borrow on Principal's Credit. — If the transaction of a business carried on by an agent for his principal requires the exercise by the agent of the power to borrow money in order to carry it on, then such power is impliedly conferred as an incident to the employment; but the fact that the act proposed is more convenient or advantageous or more effectual in the transaction of the business provided for does not afford a sufficient ground for the inference of such a power; it must be practically indispensable to the execution of the duties really delegated, in order to justify its inference from the original employment. This is, in substance, the rule adopted by the American Law Institute, which is to the effect that unless otherwise agreed, an agent is not authorized to borrow upon the principal's credit unless such borrowing is usually incident to the performance of acts which he is authorized to perform for the principal. If there is no necessity for an agent to borrow money to effect any purpose of the agency, it will not be presumed, without evidence, that it is proper or usual, in the ordinary course of the business, for him to do so.
"Merely placing one in charge of a sales agency of a manufacturing concern with supervision of sales and local agents does not confer the implied power to borrow money for the concern; and it is immaterial that the principal is a corporation. Nor does authority to discount a note include the authority to borrow by giving the note as collateral security. Likewise, in the absence of express authority, a commercial traveler has no implied authority to borrow upon the credit of his principal. Nor does the mere power to buy personal property imply power to borrow funds with which to make payment. In fact, it has been held that power conferred upon an agent to manage real estate, execute deeds and mortgages and the necessary promissory notes, and pay taxes, and generally to act as fully as the principal might do personally, does not include authority to borrow money on the credit of the principal with which to pay the taxes."
In the case of Pluto Powder Co. v. Cuba City State Bank, 153 Wis. 324, 141 N.W. 220, the plaintiff was a manufacturer of explosives with headquarters in New York. It maintained a storage magazine for these explosives in Cuba City. One Robinson was employed as a representative of the company at Cuba City to make sales of the goods. The explosives were shipped in carload lots, freight prepaid, to Pluto Powder Company at Cuba City. The bills of lading were sent to Robinson and he received the shipments from the railroad company, placed them in the storage magazine, and sold the same to mining companies and others, reporting the sales to the office of plaintiff in New York. Invoices were sent to purchasers by plaintiff from its offices. Purchasers were to remit to the office of the plaintiff although some small sales were made for cash and the money collected in such instances by Robinson. He also had authority to collect from two mining companies which desired to deal directly with him. On January 28, 1909, Robinson began endorsing checks in the name of the plaintiff and obtaining money thereon at the defendant bank. On April 30th, Robinson, without authority, drew a draft for $200 upon a certain mining company, signed plaintiff's name thereto, delivered the same to the defendant bank, and obtained the amount thereof. Plaintiff brought action to recover from the defendant the amount of the checks and draft paid by the defendant bank to Robinson. This court there held that the facts that an agent had possession of the goods of his principal for sale, that he was accustomed to receive checks for goods sold payable to his principals and sometimes collected money on sales, that he receipted for goods and also for moneys collected in the name of the principal and had authority to employ help, to incur expense for livery, did not clothe such agent with apparent or implied authority to indorse the principal's name upon checks so received or to draw drafts in the name of the company. In that case the company first discovered on April 30th that Robinson was so acting. It then made an investigation, discovered the defalcations, and discharged Robinson. The bank was held liable for the amount of the checks and the sight draft. The court quoted with approval from Tiedeman on Commercial Paper, that the presumption of the law is more strictly opposed to an implied authority to execute and negotiate commercial paper than to anything else and the rule is strictly enforced that the authority to execute bills and notes as agent will not be implied from an express authority to transact some other business unless it is absolutely necessary to the exercise of the express authority.
In the case of Smith v. Starkey, 203 Wis. 56, 233 N.W. 576, 13 farmers agreed to construct an electric line to their farms and to purchase electric current for their respective uses. Each was to contribute to the cost of constructing the line and for current purchased according to an agreed plan. One of their number was selected to make collections and to pay the cost of construction and for current purchased. Two of the group failed to pay the cost of construction. Their agent paid the contractor and this resulted in an overdraft at the bank. Later, to make up the overdraft, he executed a note to the bank signed "Farmers Elec. Line." Thereafter the bank went into receivership and the receiver brought suit against the 13 farmers to recover from them on said promissory note. The Pluto Powder Co. Case., supra, was cited with approval, and it was held that the rule that persons with notice that they are dealing with an agent are bound to inform themselves as to the extent and limitation of his authority is strictly enforced with respect to the execution and negotiation of commercial paper, and authority of an agent to execute a note will not be implied merely from the fact that he had general power to manage the business of his principal unless the borrowing of money and the issuance of a negotiable note was necessary to the exercise of the power conferred by the principal on the agent. The receiver was not permitted to recover from the appellants.
It will be noted in the above cases that the rule is relaxed where it is absolutely necessary for the agent to borrow money on behalf of his principal in order to carry out the purpose of the agency or if it is usual in the ordinary course of the business for him to do so.
It is conceded that Schroeder had no actual authority to borrow money on behalf of the defendant. There is no testimony in the record tending to show that it was absolutely necessary for Schroeder to borrow money in order to sell insurance and annuities, nor is there any evidence in the record tending to show that it is customary or usual in the insurance business for agents to borrow money on behalf of insurance companies. Authority to borrow money would carry with it the authority to execute notes on behalf of the principal. There is sufficient evidence in the record that Schroeder made the representations claimed by the plaintiff to justify the affirmative answer of the jury that he did so represent to the plaintiff, but representations of the agent alone cannot be the basis for a finding of apparent authority. Apparent authority must be traceable to the principal. We can find no evidence in the record of any acts or representations on the part of the defendant that gave any appearance of authority to Schroeder to borrow money. The defendant was not in the business of borrowing money, it had not authorized Schroeder to borrow money, nor is there any evidence that Schroeder had borrowed money from prospective buyers of insurance or anyone else to the knowledge of the defendant.
Under the authorities and cases above cited, we are forced to hold, from the record before us, that there was no evidence to support the determination by the jury that Schroeder was acting with apparent authority when he borrowed the money from the plaintiff. Since Schroeder did not have actual or apparent authority to bind the defendant, the plaintiff cannot hold the defendant.
By the Court. — Judgment reversed. Cause remanded with directions to dismiss the complaint.