Case Title: Hagel v. Buckingham Wood Products, Inc.

Citation: 261 N.W.2d 869

Docket Number: 9370

State: north-dakota

Court: North Dakota Supreme Court

Date: 1977-12-19T00:00:00Z

Document:
261 N.W.2d 869 (1977) Gary M. HAGEL and Susan I. Hagel, Plaintiffs and Appellants, v. BUCKINGHAM WOOD PRODUCTS, INC., d.b.a. Midwestern Homes, and Ed Koch, Individually, and as Agent for Buckingham Wood Products, Inc., Defendants and Appellees. Civ. No. 9370. Supreme Court of North Dakota. December 19, 1977. Rehearing Denied January 11, 1978. *870 Orville A. Schulz, New Salem, for plaintiffs and appellants. Zuger & Bucklin, Bismarck, for defendants and appellees; argued by Robert V. Bolinske, Bismarck. SAND, Justice. Plaintiffs Gary M. and Susan I. Hagel (hereinafter Hagels) appealed from that portion of the Burleigh County District Court's judgment dismissing the complaint against co-defendant Buckingham Wood Products, Inc., d.b.a. Midwestern Homes (hereinafter Midwestern Homes). Hagels brought an action against Midwestern Homes and Ed Koch, individually and as agent for Midwestern Homes, which resulted in a judgment only against Koch and in favor of Hagels, in the amount of $16,208.17, for failing to complete the construction of a home. The Hagels initiated their first contact with Midwestern Homes by responding to an ad placed in the Bismarck Tribune. The Hagels mailed the ad to Midwestern Homes' main office in Rapid City, South Dakota, in October 1974, and received a catalog in which a letter from Midwestern Homes designating Randall Pooley as the area representative was enclosed. In November 1974, Koch telephoned the Hagels, and according to their testimony, advised them that he was a representative of Midwestern Homes. (Koch disputed that he was a representative.) A meeting between the Hagels and Koch was subsequently arranged. At that meeting, Koch gave the Hagels a newer edition of Midwestern Homes' catalog, which contained the handwritten notation, "Ed Koch Cost. Co., Bismarck, 223-8260," on the cover's upper left-hand corner. Koch also gave the Hagels a pen with "Midwestern Homes" advertised on it. At this first meeting in November 1974, Koch assisted the Hagels in reviewing the housing designs contained in the Midwestern Homes' catalog. According to Koch's testimony, he informed the Hagels that he was a local builder-contractor involved in constructing prefabricated homes. After several meetings with Koch, the Hagels selected the "Jamestown" home design with modifications, including the addition of a double garage and a recreation room. According to undisputed testimony, the Hagels could purchase the home as (1) packagematerial only; (2) partially completed; or (3) fully completed. The Hagels chose a fully completed "Jamestown" home, with only the exterior painting and landscaping left unfinished. In a January 1975 letter, Midwestern Homes quoted Koch the figure of $19,298.54 as the retail price of the "Jamestown" home package. On 3 February 1975, the Hagels and Koch signed a single instrument entitled "Proposal" for both the purchase and construction of the home, for a total price of $36,543.18, including $20,700.03 specified for the "Jamestown" home package. The agreement was subject to financing, which the Hagels secured from the Veterans Administration with the help of Koch and the technical assistance of Midwestern Homes' personnel. Koch then ordered the home from Midwestern Homes. On 24 March 1975, Midwestern Homes sold the "Jamestown" home package to *871 Koch for $17,665.12, or almost a ten percent discount on the retail price of $19,298.54 quoted earlier for Koch and the Hagels. Construction on the Hagels' home began 22 April 1975. During the period of construction, signs were placed in front of the site and in the picture window of the house advertising it as a Midwestern Home. Before the prefabricated walls were delivered, Randall Pooley, area representative for Midwestern Homes, visited the construction site to measure the basement of the home. At the time the prefabricated walls were delivered to the home site, a Midwestern Homes' truck or crane assisted in raising the walls. Construction on the Hagel home proceeded smoothly until August 1975, when Koch, apparently out of funds, abandoned the construction, leaving the home incomplete. The Hagels' action against Buckingham Wood Products, Inc., d.b.a. Midwestern Homes, and Ed Koch, individually, and as an agent of Midwestern Homes, sought damages in the amount of $30,000.00 for a breach of contract allegedly committed by Midwestern Homes and its agent, Koch. The trial court gave the Hagels a judgment but only against Koch individually, in the amount of $16,208.70, but dismissed the complaint against Midwestern Homes. The Hagels appealed from the judgment dismissing the complaint against Midwestern Homes. The Hagels contend the trial court erred by not finding that a continuing relationship of principal and agent existed between Midwestern Homes and Koch for the construction of the home, making Midwestern Homes liable for the breach of contract committed by Koch, its agent. The pertinent findings of fact by the trial court are: *872 The trial court's memorandum opinion states, in part, as follows: The trial court, in its conclusions of law, stated: A brief review of some of the pertinent evidence and the atmosphere it produced under which the transaction took place will be helpful in developing a better understanding and resolution of the ultimate issue. The first contact the Hagels had with Midwestern Homes, outside of the newspaper ads, was the catalog they received from Midwestern Homes (in response to their mailing in a clipping of the newspaper ad) containing the following letter which was attached to the inside of the first page of the catalog: *873 This letter created the atmosphere under which the Hagels and Koch discussed the selection, purchase, and construction of the "Jamestown" home. It also justified Hagels' belief that Koch was an agent of Midwestern Homes, as can be readily determined from Randall Pooley's answers to questions submitted by the trial court. The court then inquired whether Koch was aware of the cash-in-advance requirement at the time he entered into the Hagel contract which was accepted by Midwestern Homes. Mr. Pooley replied: This clearly establishes that the letter was designed to carry the message, by implication, that Midwestern Homes not only sold, but constructed the homes. Pooley's testimony clearly establishes that at the time this letter was sent out in the 50's it was the practice of Midwestern Homes to not only sell, but also construct the homes. The Hagels should not be blamed for the error or oversight of Midwestern Homes by not revising the letter after a change in business practices occurred. After reviewing the record, we are satisfied there is substantial evidence supporting the trial court's finding of fact that an agency relationship existed between Midwestern Homes, as principal, and Koch, as agent, for the sale of the "Jamestown" home to the Hagels. We also note that the trial court had the benefit of reading the newspaper ad which was introduced and received as an exhibit but was lost and later replaced by a substitute, which was also lost, and as a result this Court did not see it. The trial court observed that the exhibit was last in the possession of Koch. We therefore cannot charge the loss against the Hagels. We now examine the statutory provisions and case law as they may relate to the issues of this case. Section 3-01-03, North Dakota Century Code, provides as follows: In Scherbenske v. Maier, 71 N.W.2d 770, 773 (N.D.1955), the Court referred to § 3-01-03, NDCC, and quoted from Bernard v. Madsen, 52 N.D. 822, 204 N.W. 196, 200, as follows: Section 3-02-02, NDCC, provides as follows: This Court, in McLane v. F. H. Peavey & Co., 72 N.D. 468, 8 N.W.2d 308, 310 (1943), set down a test for apparent or ostensible agency, which is based upon the principle of estoppel: See also, Duluth Herald and News Tribune v. Plymouth Optical Company, 286 Minn. 495, 176 N.W.2d 552 (1970). Section 3-03-03, NDCC, provides as follows: In Meyer v. National Fire Insurance Co. of Hartford, Conn., 67 N.D. 77, 269 N.W. 845, 849 (1936), involving an insurance question, this Court said: In Southwestern Portland Cement v. Beavers, 82 N.M. 218, 478 P.2d 546, 549 (1970), the Court said: In Duluth Herald and News Tribune v. Plymouth Optical Company, 286 Minn. 495, 176 N.W.2d 552, 555 (1970), the Court said: 1 Restatement, Agency (2d) § 8, comment a." In McGee v. Breezy Point Estates, 283 Minn. 10, 22, 166 N.W.2d 81, 89 (1969), the Minnesota Supreme Court said: Section 78, page 482, 3 Am.Jur.2d, Agency, states: In Hodson v. Wells & Dickey Co., 31 N.D. 395, 154 N.W. 193, 194 (1915), this Court said: *876 While this is an accurate statement of the law, it does not apply here because the letter addressed to the Hagels and attached to the catalog constituted sufficient grounds for the Hagels to justifiably assume that Koch was an agent for Midwestern Homes and that there was no need to inquire further. In this case we do not have the question as to the extent of the agent's authority, but merely whether he was an agent. In an Annotation found in 55 A.L.R.2d, AgentAuthority to Purchase Goods, page 111, the following statement is made: In Fargo National Bank v. Agricultural Ins. Co., 184 F.2d 676, 683 (8th Cir. 1950), the Court, with reference to § 3-03-03, NDCC, said: In Rodine v. Iowa Home Mutual Casualty Company, 171 Neb. 263, 106 N.W.2d 391, 398 (1960), the Court said: It also said: We have no difficulty in affirming the trial court's finding of fact that Koch was an agent for Midwestern Homes for purposes of selling the "Jamestown" home. However, we cannot agree with the trial court's determination that Koch was not an agent for the construction of the home. Both the sale and construction of the home were included in a single instrument entitled "Proposal," which was executed by Koch and the Hagels. We have difficulty in attempting to treat them as two separate transactions. We must apply the attending circumstances to the entire instrument. We have given due regard to the form of the "proposal" which had "Ed Koch Construction Co." stamped after the word "From" in the upper left corner. The opening paragraph, however, states, "We hereby propose to furnish all materials and perform all labor," which can be construed to mean Koch Construction and Midwestern Homes as "we." If we were to rely solely upon the executed "proposal" without regard to the circumstances and atmosphere under which it came into being and was agreed upon, or if the sale and construction were contained in separate instruments with a time interval, we would have no difficulty in agreeing with the trial court that no agency existed for the construction portion. But we must consider the entire transaction from beginning to end. From and after Midwestern Homes' initial contact with the Hagels through the letter in the catalog which created the appearance of principal and agent between Koch and Midwestern Homes, Midwestern Homes performed no act disclosing a contrary situation, nor did Midwestern Homes communicate with Hagels indicating that Koch was not its agent. The actions of Midwestern Homes were compatible with an agency relationship. Midwestern Homes created this situation and stood to gain by it by the sale of a home. Midwestern Homes, by want of ordinary care, caused the Hagels to believe Koch was *877 its ostensible agent for both the sale and construction of the home. Sections 3-01-03 and 3-02-02, NDCC; Meyer and McLane, supra. Under the provisions of § 3-03-03, NDCC, Midwestern Homes is bound by the mere ostensible authority it created and permitted to continue in Koch causing the Hagels to rely upon Koch's authority and to part with value because of such ostensible authority. Midwestern Homes either knew, or should have known, that the letter in the catalog could or would create an erroneous impression. In fact, the testimony of Pooley clearly establishes that the letter was used in the late 1950's by the company when it not only sold homes to the general public but also contracted to construct them. We believe the principal, after allowing or permitting the creation of an ostensible agency relationship, is obligated to correct the erroneous impression left by means at least equal to, or greater than that which permitted or allowed the impression to be created. Failure to correct an ostensible agency relationship will make the principal liable to third parties which acted thereunder in good faith. Southwestern Portland Cement v. Beavers, 82 N.M. 218, 478 P.2d 546 (1970). Midwestern Homes did nothing to cause the Hagels from continuing to believe that Koch was the agent for Midwestern Homes. We do not believe the agency relationship impression left by the letter was corrected by the statement found in the catalog under the heading "COMPLETE." Nor did the following language, as found on page 4 of the catalog, correct the impression. The letter was addressed to the Hagels, whereas the foregoing statements were found in the catalog generally. We also observe that the letter does not make reference to dealerships mentioned in the catalog. We believe that he who creates an erroneous impression and stands to gain from the transaction should be held liable for the resulting damages, if any, to the innocent third party. Southwestern Portland Cement v. Beavers, supra. In summary, the Hagels believed, and justifiably so, that Koch was an agent for Midwestern Homes. The trial court found that Koch was an agent for Midwestern Homes for the sale of the home. There was sufficient evidence to support this finding. The discussions on the sale and construction of the home culminated in the execution of one instrument entitled "Proposal," covering both the sale and construction. The use of the word "we" in the proposal could have been understood by the Hagels to mean Koch and Midwestern Homes. The letter attached to the catalog, and Hagels' testimony that Koch stated he represented Midwestern Homes at the first meeting, justified Hagels' belief that Koch was an agent for Midwestern Homes. Midwestern Homes did not take any affirmative action to point out that Koch was not an agent. By applying the statutory provisions and case law cited earlier herein, we believe that the trial court did not give sufficient consideration to the atmosphere surrounding *878 the transactions culminating in the execution of a single instrument for both the sale and construction of the home. We have difficulty in trying to separate the sale contract from the construction contract. We are convinced the trial court made a mistake in this respect. We therefore conclude that the trial court erred in determining that Midwestern Homes is not liable for Koch's failure to complete the construction of the home and in dismissing the complaint against Midwestern Homes. Accordingly, that portion of the judgment dismissing the complaint and action against Midwestern Homes is hereby reversed and the case is remanded for the entry of judgment in the amount of $16,208.17 in favor of Gary M. Hagel and Susan I. Hagel and against Midwestern Homes, Inc., a division of Buckingham Wood Products Co., Inc., and Ed Koch, individually and as agent for Midwestern Homes. ERICKSTAD, C. J., and PAULSON, PEDERSON, and VOGEL, JJ., concur.