Case ID: wis_156/html/0534-01.html
Source: Caselaw Access Project
Author: {"author": "KeRwin, J. Maeshall, J. Winslow, O. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Tripp, Respondent, vs. Foster, imp., Appellant.
    
      February 26
    
    April 9, 1914.
    
    
      Principal and, agent: Sale of pledged stock by agent of pledgor: Fraud: Ratification: Liability of pledgee.
    
    Defendant, tie holder of a note given hy a corporation, held stock of the corporation as collateral security. An agent of the corporation, who did not act or assume to act as agent of defendant, sold a-part of said stock to the plaintiff by means of fraudulent representations as to its value. Defendant took no part in the sale and had no knowledge of the fraud; but on receiving from the corporation, the proceeds of the sale he assigned and surrendered the shares so sold. Held, that he did not thereby ratify the acts of the agent of the corporation so as to become liable either to return the consideration paid by the- purchaser or to answer in damages for the fraud. Mab-shaxIí, J., dissents.
    Appeal from a judgment of the circuit court for Eond du Lac county. Ohesteb A. Eowlee, Circuit Judge.
    
      Reversed.
    
    This action was brought to recover on two alleged causes of action, $1,000 on the first and $500 on the second, alleged to have been procured from the plaintiffs hy fraud in the sale of a portion of the capital stock of the Bates-Oden-brett Automobile Company, a corporation. The sale was made by one Bates, and it is claimed that he was acting as the agent of defendant Foster in making such sale.
    
      Foster answered denying specifically that Bates was his agent or had any authority to act for him, that he received •any benefits from the acts of Bates, that he was the owner of any of the stock in the alleged corporation, and denying generally other allegations of the complaint.
    The jnry returned the following verdict:
    “(1) Did Mr. Bates, to induce Mr. Tripp to purchase the stock, represent to him, in substance, that the company was then doing a successful and profitable business ? A. Yes.
    “(2) Was such representation false? A. Yes.
    “(3) If false, did Mr. Bates know it to be false ? A. Yes.
    “(4) If false, then ought Mr. Bates to have known it was false? A. Yes.
    “(5) Did Mr. Tripp rely on such representation ? A. Yes.
    “(6) Was Mr. Tripp induced by such representation to purchase the stock ? A. Yes.
    “(7) Did Mr. Bates, to induce Mr. Tripp to purchase the stock, represent to him, in substance, that the company had paid fifteen to twenty per cent, dividends annually since its organization? A. Yes.
    “(8) Did Mr. Tripp rely on such representation? A. Yes.
    “(9) Was Mr. Tripp induced by such representation to purchase the stock ? A. Yes.
    “(10) Did Mr. Bates, to induce Mr. Tripp to purchase the stock, point out to him the automobiles in the salesroom and say to him that they all belonged to the company and were all paid for ? A. Yes.
    “(11) Was such representation false to any material degree? A. Yes.
    “(12) Did Mr. Tripp' rely on such representation? A. Yes.
    “(13) Was Mr. Tripp induced' by such representation to take the stock? A. Yes.
    “(14) What was the stock worth at the time of the purchase ? A. Nothing.
    “(15) What would the stock have been worth had such of these representations been true as you find were made and were false? A. One thousand ($1,000) dollars.”
    The defendant Foster insists that a verdict should have been directed, or a nonsuit granted as to him, • or judgment should have been rendered in his favor notwithstanding the verdict.
    Judgment was entered against the defendants for $1,138 ■damages on the first canse of action and costs, from which judgment the defendant Foster appealed to this court.
    Eor the appellant there was a brief by T. L. Doyle, attorney, and Marslmtz & Hoffman, of counsel, and oral argument by Mr. Doyle and Mr. J. H. Marshutz.
    
    
      Andrew Gilbertson, for the respondent.
   KeRwin, J.

It is established by the evidence that the defendant Foster held the stock in question as collateral security to a note of the “Bates-Odenbrett Automobile Company,” of which one Dr. E. W. Timm was president and the defendant Bates was secretary and treasurer from 1905 to 1912, and severed his official relations in January, 1912. On the back of the notes of said corporation was the indorsement of said Timm and Bates. On receipt of the collateral .■stock the defendant Foster executed the following:

“I hereby agree on the payment of a certain sum of five thousand dollars ($5,000) together with the interest as specified by oné certain note of five thousand dollars ($5,000) due •October first, 1911, to deliver to the Bates-Odenbrett Auto ■Company stock certificate number eight (8).
“J. W. FOSTER.”

Bates made the representations to plaintiff about a month before plaintiff bought the stock. The $1,000 received by Bates from plaintiff went to the Bates-Odenbrett Automobile ■Company at Milwaukee, and later in May, 1911, the Bates-'Odenbrett Automobile Company sent a check for $1,000 to the defendant Foster to apply on the $5,000 note, and sent four notes of $1,000 each, which with the $1,000 cash took np the $5,000 note.

It is established by the evidence and so found by the learned trial judge in his opinion that defendant Foster had no knowledge of any representations made by defendant Bates; that Foster did not own the stock, but merely held it ¡as collateral security and had it in his possession at the time ■of sale, and upon being informed by Bates of its sale executed an assignment and sent it to Bates, who filled in tbe name of the pnrebaser and delivered it and received $1,000, which, was paid to defendant Foster and credited upon the debt which the stock in part secured.

Upon the facts above stated and others found by the jury the court below held that the defendant Foster was liable for the fraud of Bates. Foster was not the owner of the stock. He merely held it in pledge as security for the debt of the Automobile Company to him. Bates sold the stock as the agent of the Automobile Company, which was the owner subject to the pledge. The Automobile Company redeemed the pledge and got possession of the stock by paying its value, or supposed value, to Foster, which was credited upon the debt. What the Automobile Company did with the stock after it was turned over to it through Bates was a matter of no concern to Foster.

But the court below seems to have rested Foster s liability on the question of agency, namely, that by receipt of the $1,000 Foster ratified the sale and made Bates his agent. But the record shows that Bates was not the agent of Foster for any purpose, either by appointment or by ratification. It is clear from the undisputed evidence that Foster never appointed Bates as his agent to sell the stock, and he could not be bound by ratification of Bates’s fraud, because he had no knowledge of it and was in no way implicated in it or connected with the sale made by Bates.

We think it clear upon principle and authority that Bates was not the agent of Foster for any purpose. Clark v. Dillman, 108 Mich. 625, 66 N. W. 570; Deering v. Starr, 118 N. Y. 665, 23 N. E. 125; 31 Cyc. 1632, 1644; Emmons v. Dowe, 2 Wis. 322; McGoldrick v. Willits, 52 N. Y. 612; First Nat. Bank v. Bentley, 27 Minn. 87, 6 N. W. 422; Gifford v. Landrine, 37 N. J. Eq. 127.

The theory of the court below obviously was that when Foster received the $1,000 he ratified the acts of Bates re-speeting tbe fraud in tbe sale of tbe stock. But Foster could not, by merely accepting tbe $1,000 due bim from a third person, make tbe agent of sucb third person bis agent or ratify an agency which was never attempted and which never existed, nor tbe fraudulent acts of one who was not bis agent, as to false representations of which be bad no knowledge. But Foster received tbe $1,000 from bis debtor, tbe corporation, and not from Bates, although tbe latter may have been tbe agent of tbe corporation in paying to Foster tbe money due bim. Tbe fact that it was a part payment, accompanied with a request that tbe security be split up and some of tbe shares retained by Foster as security for tbe balance due, cannot change tbe ordinary effect of tbe payment by a debtor to bis creditor. Tbe latter is not bound to inquire bow bis debtor got tbe money so long as it was at tbe time of payment tbe money of tbe debtor. 31 Cyc. 1251. Tbe plain situation is that Foster surrendered tbe stock held as collateral, receiving tbe agreed value, which was credited on tbe debt of tbe owner of tbe stock, and bad no connection with tbe frand committed by Bates, and had no knowledge of it when be surrendered tbe stock. Under sucb circumstances no case is made against tbe defendant Foster. Other questions discussed by counsel for appellant need not be treated.

By the Court. — -The judgment is reversed, and tbe cause remanded with instructions to enter judgment for tbe defendant Foster dismissing tbe complaint as to bim.

Tbe following opinion was filed April 16, 1914:

Maeshall, J.

(dissenting). I dissent from tbe decision in this casé, and more particularly, from tbe reasoning upon which it is based. I apprehend I am not alone in regard to tbe latter.

To give a clearer view of tbe facts than tbe court’s statement affords I will give them as they appear to me. Defendant held $5,000, par value, of .the corporate stock of tbe Automobile Company of wbicb Bates was manager. It was important for tbe company; but more particularly for appellant, to realize on tbe stock. It was for sale for the purpose' of paying a debt to appellant who held tbe stock as pledgee but possessed tbe legal title thereto. Bates, as manager of tbe company, and without tbe knowledge of appellant, assumed authority to sell tbe stock and did so, depending upon appellant to ratify tbe sale by turning over tbe certificate, properly indorsed, so tbe title could be vested in respondent, tbe vendee, in consummation of the sale. Such consummation took place by means of fraudulent representation made by Bates. He did not pretend to own tbe stock or that it belonged to bis company. He stated that it was in tbe bands of a third party from whom be could get it so as to complete tbe sale. By means of tbe fraud, respondent’s money was obtained and paid over to tbe company to be rendered to appellant, as owner of the stock, after consummation of tbe sale. Appellant was notified of tbe sale agreement and requested to indorse and turn over tbe certificate so as to enable tbe company to make delivery upon such agree; ment. He complied, and later received tbe consideration from tbe company wbicb respondent bad paid to it. Up to this time appellant was ignorant of tbe means employed to effect tbe sale. Later that was brought to bis attention and a return of tbe consideration parted with by respondent demanded. With full knowledge of tbe facts restitution was refused. Then this action was brought.

Now why does not tbe principle, with wbicb I suppose all are familiar, apply in favor of respondent ? Tbe trial court so decided, reasoning from numerous decisions of this court, as we shall see. Here is tbe rule as commonly stated:

“A person is liable for tbe fraudulent act of bis agent in tbe conduct of bis business whether be authorized such acts originally or adopted them by taking the benefit of tbe act with knowledge of tbe facts or retained such benefit with such knowledge, or was enriched by such act without original or subsequent knowledge of the wrong committed in his interest.”
“A person cannot retain the avails of an unauthorized contract, made for his benefit by another assuming to act as his agent, and repudiate the responsibilities of such contract, and any attempt to do so, with full knowledge of the facts, constitutes a ratification of the unauthorized act, and creates a liability on the part of such person to the same extent as if such contract were originally authorized.” McDermott v. Jackson, 97 Wis. 64, 76, 72 N. W. 375.

One cannot have the benefit of a transaction and repudiate its responsibilities. Ratification of the assumption of authority as to the principal thing by taking the benefit of the transaction and retaining the same with knowledge of the facts ratifies not only such principal thing but the manner of acquiring it. If the taker insists upon vitality of the major element he subjects himself to the subsidiary features as regards civil remedies. Fraser v. Ætna L. Ins. Co. 114 Wis. 510, 517, 90 N. W. 476; Glassner v. Johnston, 133 Wis. 485, 493, 113 N. W. 977; Stelting v. Bank of Sparta, 136 Wis. 369, 371, 117 N. W. 798; Twentieth Century Co. v. Quilling, 136 Wis. 481, 487, 117 N. W. 1007. Now how does that apply to the facts here ?

Appellant, as it must be observed, held the stock to all intents and purposes as owner. No one could sell it without his' permission. The company, through Bates, necessarily assumed to have such permission and appellant acquiesced in all it did, from first to last, though not having given any express authority. Let it be conceded, that Bates acted for the company in a measure, yet it is undisputed that he also acted for respondent, actually or by assumption of authority and, certainly, in his interest. What difference does it make that the company received the money and then paid it to appellant? That is commonly the case where a person, pretending to be the agent, or to act in the interest of another, without disclosing his representative capacity, receives the consideration from a third party and turns it over to such other who may be entirely ignorant of the matter until tender of such consideration. The receipt of it relates back to the assumption of authority and gives original validity to it, only waiting upon refusal to disaffirm and restore the former situation in case of the contract having been fraudulently made, upon being fully informed of the facts in that regard.

■ The whole transaction here, even if, ostensibly, for the company, was, evidently, chiefly for appellant. Certainly it, through Bates, acted for him in enabling him to realize on his collateral. It was not specially benefited by the transaction for it only exchanged a liability on the note held by appellant for one on the stock. Appellant was the only one really enriched in such transaction. He was favored to the impoverishment of respondent by just so much as the latter paid and which eventually reached the pocket of appellant. Why do not Bates, the company, and appellant stand on the same platform as the trial court held ?

The court says, substantially, that Bates was not the agent of Foster either by appointment or ratification. There was no agency because Foster never appointed any agent in the matter. He could not be bound by what he had no knowledge of. That seems to have been said without appreciating the elementary principles before stated. Agency by ratification of an unauthorized' act, by keeping the fruits thereof after knowing of the facts, is about as well known as anything in the law of agency. Why say there was no .agency because no appointment nor ratification? Was it overlooked th^t if a person, after being informed of the facts as to another having perpetrated a fraud in his interest upon a third person, retains the fruits thereof, he thereby ratifies the act of such other and becomes liable for the wrong though entirely innocent of any original sin ?

McDermott v. Jackson, 97 Wis. 64, 72 N. W. 375, covers the whole subject involved here. It followed Morse v. Ryan, 26 Wis. 356, 361, where the court substantially said: If a person accepts the benefit of a contract made by one professing to have authority to act for him, he thereby ratifies the means by which it was obtained and such ratification is equivalent to previous authorization. He cannot object to evidence of fraudulent representations made in procuring* the same, on the ground that the actor was not his agent, or that the representations were not authorized. That was followed in Burke v. M., L, S. & W. R. Co. 83 Wis. 410, 415, 53 N. W. 692, and again in Garlick v. Morley, 147 Wis. 397, 399, 132 N. W. 601, where it was said: “Ratification may appear circumstantially as well as expressly. It may be presumed by conduct such as by carrying out the contract and accepting the benefits in like manner as if the person assuming to be authorized to represent him had authority in fact.”

Thus, it will be seen, that this court has over and over again proclaimed and applied the principle which the trial court supposed ruled this case. Why was it wrong? The opinion of the court is silent on that. It does not refer to the stated principle or any principle or any authority which at all fits the case, so far as I can see. It is said there was no agency because no original authorization or- subsequent ratification, quite ignoring, seemingly, the existence of the facts so often held sufficient to work ratification in law with all the consequences of original authority.

The following opinion was filed April 18, 1914:

Winslow, O. J.

(concurring). The principle that one cannot, with knowledge of the facts, retain the avails of an unauthorized contract made 'for him by another assuming to act as his agent and repudiate the responsibilities of the contract, is so well understood that it needs no restatement. This constitutes agency by ratification, and it is just as effective to charge the principal with responsibility for the acts of tbe agent in tbe transaction as original authority. McDermott v. Jackson, 97 Wis. 64, 72 N. W. 375; Twentieth Century Co. v. Quilling, 136 Wis. 481, 117 N. W. 1007. I do not understand tbat there is any intention to depart from that principle in tbe decision of tbe present case. The trial court came to tbe conclusion tbat. Bates assumed to act for Foster in tbe sale of tbe stock, and tbat when Foster, with knowledge of Bates’s alleged fraud, retained tbe $1,000 which tbe Bates-0denbrett Company afterwards sent him, be ratified tbe entire transaction and became liable for tbe fraud perpetrated by Bates in selling tbe stock to Tripp. If tbe trial court’s premise be right tbe conclusion must also be right, but I understand tbat tbe decision of tbe court in this case is based on tbe proposition tbat tbe premise is not right, i. e. Bates was not in fact acting for Foster, nor did be assume to be so acting. If it were to be held tbat Foster is liable for Bates’s misrepresentations in tbe present case, we think it would be a serious shock to tbe commercial world and tend to unsettle a very well recognized business custom. Such a bolding would mean tbat whenever a creditor takes collateral security from a debtor and consents tbat tbe debtor may dispose of tbe collateral and apply tbe proceeds on tbe debt, the creditor, though taking no part in tbe transaction and really indifferent as to its success, may be compelled to return the consideration or respond in damages for bis debtor’s fraud. Probably there is and always will be a very large amount of collateral held under just such arrangements. It cannot be justly said in such a case tbat in making sale of tbe collateral tbe debtor or bis agent is acting for tbe creditor. Under ordinary circumstances tbe creditor is indifferent in tbe matter; be bolds tbe property as bailee for a particular purpose. He is not interested in its sale, but simply in tbe payment of tbe debt. If tbe debtor can obtain tbe money to make tbe payment by selling tbe collateral be is willing to take tbe money; if tbe debtor can obtain tbe money to pay tbe debt in other ways, tbe creditor is equally willing-to take it. Of course, tbe creditor may himself take an active part in tbe sale of tbe collateral, and in this case a different proposition would arise; but where, as in tbe present case, tbe creditor simply bolds tbe collateral as security, taking no part whatever in tbe sale thereof, except to transfer it when' requested and to receive from bis debtor payment of' tbe debt, we think it cannot be justly or fairly said that the-person making tbe sale has assumed to act or has in fact acted as tbe creditor’s agent in tbe transaction. So understood,, this decision does not in any way discredit the well established legal results of tbe ratification of an unauthorized contract by retention of tbe avails thereof.

BarNES, J. I concur in tbe foregoing.

ViNjE, J. I concur in tbe foregoing opinion of Chief’ Justice WlNSLOW.