Case Name: Fannie J. Collentine, Appellee, v. E. L. Johnson, Appellant, et al., Appellees
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1925-03-17
Citations: 203 Iowa 109
Docket Number: 
Parties: Fannie J. Collentine, Appellee, v. E. L. Johnson, Appellant, et al., Appellees.
Judges: - Favtlle, C-. J., and Arthur and Albert, JJ., concur. •
Reporter: Iowa Reports
Volume: 203
Pages: 109–127

Head Matter:
Fannie J. Collentine, Appellee, v. E. L. Johnson, Appellant, et al., Appellees.
March 17, 1925.
Supplemental. Opinion April 9, 1926.
Kehearing Denied February 16, 1927.
Pike, Bias, Zimmerman •& Frank, for appellant. ■
W. E. Salisbury and E. J. Fitzgerald, for plaintiff, appellee.
Graven Graven, for defendants, appellees.

Opinion:
Evans,' J.
On and prior to April 30, 1919, the plaintiff and her husband (since deceased) were the. owners of a 197-acre farm, situated in Floyd County. . On or about the same date, ^e7 listed the same for sale with one Soesbe, a banker and real-estate agent. On April 30, 1919, Soesbe obtained their signature to a con tract which amounted, to an offer of sale, if accepted within 10 days. The proposed purchaser named in the contract was P. H. Bestor, defendant herein. Bestor was not, in fact, the proposed purchaser-to-be. He was an employee of Soesbe's, and his name was occasionally used by Soesbe, with his consent, as a so-called "straw man." Soesbe had' in contemplation an arrangement with the defendant Johnson, and was, at or about this- time, carrying on negotiations with Johnson for the acquisition of this farm, whereby Johnson should -become the purchaser of the farm, and should furnish the funds therefor, and whereby Soesbe himself should take a one-half interest in the contract of purchase, and put his own time and efforts in handling the transaction against the funds actually invested by J ohnson. Such arrangement was actually entered into between Soesbe and Johnson, first orally and then in writing, before plaintiff's written offer was accepted. On May 10, ' 1919, Soesbe caused the acceptance to be. made in the name of Bestor, and Bestor signed the contract accordingly. Immedi'ately thereafter, on May 12th, Bestor assigned the Contract to J ohnson. The assignment executed by Bestor assumed to charge Johnson with the performance of all the obligations of the contract, including the payment of the purchase price. ' Under this contract, the purchase price was $37,922.50, of which $1,000 was to be paid down, with the execution of the contract, and $4,000 was to be paid on March 1, 1920. The balance of the purchase price was to run for 10 years, at 5 per cent annual interest. The vendors were never informed of Johnson's interest in the purchase. On February 28th following, they Conveyed the property by warranty deed to Bestor, and Bestor conveyed to Johnson. Johnson paid the installment of $1,000 at the time of the execution of the contract, and paid the further installment of $4,000 at the time of execution of the deed. The balance of the purchase price was separated into two mortgages: a first mortgage of $15,000, and a second mortgage of $17,922.50. These were executed by Bestor. The first mortgage was negotiated. This suit was brought as a foreclosure of the second mortgage. After a conveyance to Bestor by the vendors, Bestor executed a deed to Johnson, by the terms of which Johnson assumed the payment of the mortgages, and mailed the same to Johnson at Waterloo. Thereupon, Johnson objected to the assumption clause, and returned the deed, with the assertion that, by his understanding with Soesbe, he was not to be personally liable for the mortgages. He therefore .asked that another deed be executed, wherefrom such clause should be omitted. His claim in this respect was conceded by Bestor, and another deed was executed and sent to him, in the form desired by him. The understanding between Soesbe and Johnson was in. the first instance oral, and was reduced to writing and duly signed by both parties on May 5, 1919. It is undisputed that Johnson insisted that his name should not be known in the transaction. It was also agreed between him and Soesbe that this could be accomplished by the use of the name of Bestor as a "straw man." While much emphasis is laid by the plaintiff upon this .circumstance, as amounting to a fraudulent conspiracy, it is to be said that it was not necessarily- such. There were legitimate reasons for Johnson's desire that his name should not appear in the transaction. He was a banker; and was not engaged in the real-estate business. He was not a borrower. The appearance of his name upon the public records as a mortgagor of property might easily be misunderstood, and its significance might be readily distorted. • Such a course on his part would not necessarily operate as a fraud against the plaintiff, provided that he had thereafter consistently maintained the relation- thus assumed by him, and had performed the legal obligations that arose out of his relation. However, his repudiation of his relation to the transaction presents a quite different question.
The theory of recovery'sustained by the trial court was that Johnson was an undisclosed principal in the transaction; that Soesbe was his agent, as such; that they were the only parties in interest in the transaction; that Soesbe's interest was also undisclosed; that Bestor had no interest therein, but lent himself as a mere mask to conceal the identity of the real parties in interest. Soesbe was not made a party defendant; so that the question of his liability, if any, either to the plaintiff or to Johnson, is not involved herein.
The theory of defense presented by counsel for the appellant, Johnson, is that he was not in or of the original transaction ; that Soesbe and Bestor had acquired the farm from plaintiff before he became interested therein; that the written contract between him and Soesbe, dated May 5, 1919, was not signed, by bim until May. 20th, which was 10 days after the contract of purchase from the plaintiff was made; that, therefore, he was a mere, subsequent vendee,, who was liable only to his own vendor, and to the extent of his contract with .his own vendor, . .
It will be noted, therefore, that the pivot of the case upon which the result must turn is a question of fact, viz: Was there an understanding between Johnson and Soesbe, oral or written, prior to May. 10,: 1919, that he was. to be the purchaser; or did his relation to the transaction have its origin after May 10, 1919? The evidence of Soesbe is that the oral understanding between him and Johnson had been reached before he accepted the contract on May 10th. The contract of May 5, 1919, was as follows:
"This agreement made this 5th day of May, 1919, between B. L. Johnson, Waterloo, Iowa, party of the first part, and C. W. Soesbe of Greene, IoWa, party of the second' part, witnesseth:
"That whereas, party of the first part is purchasing and taking a deed to the' following described premises, namely, the west half of the northeast quarter and the southeast quarter of the northwest quarter and the north half of the northwest quartet, except railway right of way, of Section Number twenty-two (22) in Township Number ninety-five (95) north, of Range Number Twenty-six (26) west of the 5th P. M. in Floyd County, for which he is 'paying $192:50 per acre for 197 ' acres] of which $1,000.00" has been paid down as earnest money, and $4,000.00 is to be paid down on March 1st, 1920, and the balance of $32,922.50 is to run ten years at 5 per cent with option to pay any part thereof on any interest day. The party of the second part, having received a commission of $2.50 per acre of the 197 acres amounting to $492.50, which has been deduetéd from the payment of $1,000.00 paid as earnest money, the total sum to be paid by the first party shall be the net sum or $4,507.50.
"Whereas, it is desired by the parties hereto to enter into an agreement regarding the sale of said land and provide compensation to said second party for the selling of the same.
"Now, therefore, it is hereby mutually agreed that party of the first part does hereby give and grant to party of the second part, the exclusive right to sell said premises for and during a period of two (2) years from the'date hereof, provided that said land shall not be sold at a less price than twenty-five ($25.00) dollars per acre over and above the cost of said lands to party of the first-part' and that in the-event that said lands are not sold within said two years' period, then at the end of said period, the same shall be put up for sale,' at public auction, and sold' unless otherwise mutually agreed upon. It is further agreed that party of the first part will advance such money as may be necessary to pay all taxes and assessments and insurance, such -buildings and improvements, if any, to be mutually agreed upon by the parties hereto.' It is further' agreed that party of the second -part shall have the right to enter into leases with responsible' parties for-said land or part thereof at a rental of not less than ($8.00) eight dollars per acre, -and such leases to extend not longer than March 1st, 1922, unless otherwise mutually agreed by the parties' hereto-, and it is the duty of second party to keep said lands leased to responsible parties. Party of the second part agrees to give his time and attention to the .care and to the sale of said premises and to use his best efforts and good faith in the carrying out of this agreement, and that no charge • shall be made or compensation asked or claimed for his time or efforts under this agreement .other-than is specifically set forth herein, and that no charge shall be made by him for any commissions in connection with the purchase or in connection with the sale of said lands, or in connection with the lease or collection of the rent. It is further agreed, that- all income and receipts from the said premises shall be. paid over to the party of the first part as -collected and due account of the same kept by him, and that upon the sale of said premises, there shall- be added to the purchase price of said lands, all moneys advanced by party of the first part for taxes, assessments, insurance, buildings, improvements or other proper expenses in connection with said lands,-and there shall be computed upon and added to the said amount, interest at the rate of eight (8) per-cent per annum, payable annually, and .that said -total amount and interest shall be deducted from -the selling price of said lands plus all moneys received as income and profits from the same, and that the balance so remaining. shall thereupon be. divided equally between- the .parties - hereto, the said one half such -balance so found to. be in full compensation ,to party .of the second: part for his,care, attention and services rendered under this contract or in connection with the said lands. In the event of the death of the party of the second part before the expiration of this agreement, then the authority to sell and. to manage said lands, to him herein granted, shall;cease, and such authority shall revert to the party of the first part, his heirs and assigns,- and upon the sale of the said premises in accordance with this contract the share which would be .due said party of the second part hereunder shall be paid over, when determined, as above set forth, to the legal representatives of the party.of the second part.
"It is further understood and agreed by the parties hereto that in case sale of said lands shall be made at a loss computing the same, as above set forth, that party of the second-part-does hereby agree to share one half of the said loss and pay the same to pa/rty. of the first part as soon as the amount thereof is deter-mined. . , -
' '.In witness whereof- we have hereunto set our hands the day first above written.
."aw. Soesbe
"'E. L.. Johnson
"Witness:-
"K. L. Walsh."
Counsel for appellant contends that this contract was not signed by Johnson until May 20th. This contention of fact is a matter of inference, predicated upon a letter written by Johnson on May 20th, wherein he purported to return a copy of this contract to Soesbe. Such letter was as follows:
"Waterloo,-Iowa
"May 20th, 1919.
"Mr. C. W. Soesbe,
"Greene, Iowa
. "Enclosed is my cheek for $507.50 together with one copy-of the contract which: you sent signed by me, covering the deal for the M. C. Collentine. farm of 197 acres, contracted to P. H. - Bestor and assigned by Bestor to me. I understand that the mortgage will be given by Bestor. and he will deed to me and I will not be obligated under this mortgage nor my name appear. I hope that an early sale can be made. This certainly seems to be a great year to sell land. Walter handed- me these papers on his return and I trust the delay has not inconvenienced you. "ELJ:M E. L; Johnson
"Enclosure.
"By- error eontractis locked up but here is cheek anyway."
The person referred to in the foregoing letter as "Walter" was the brother' Of Johnson, who had represented him' to some extent in "the transaction. Two days later, Johnson wrote the following- letter: "
"Waterloo-, Iowa
"May 22nd, 1919.
"Mr. C. W. Soesbe,
"Greene,-Iowa
"Enclosed is one copy of the contract in regard to the Collentine land and the Bestor contract in regard to it for which I sent you check for $507.50 the other day. I regret the matterhas been delayed and that- the contract was not earlier in its return. I notice the advance in the price of lands- in the' western part of the state. There ought to be something in this in an early turn over.
"'E. L. Johnson
"ELJ :M"
The inference which counsel .draws from the foregoing letters is that the date of the first letter must represent the .time of the signing of the contract of May 5th. . Soesbe and Bestor testified that they could,not be spre of the exact date of the signing, by Johnson. As against'this, Soesbe's evidence is undisputed that the oral -arrangement between him and Johnson was made prior- to May 10th. This of itself would have been sufficient, even though it had never been put in writing. Moi'eover, in the letters referred to, Johnson excuses his "delay." This of itself indicates that the return of the cohtract 'was due at an earlier date.- Furthermore, counsel has quite overlooked the testimony of Johnson himself. As a witness, he identified the contract as follows '
"This is the contract I made with Mr. Soesbe on the 5th day of May,- 1919, in reference to the purchase of said land,- — these three sheets."' ' ' •
He also testified:
"After this arrangement between Mr. Soesbe and'myself was entered into, and I was to pay the money to' secure it, I saw that contract that he procured from- Collentines for this land, which was shown to me to show what the deal was, and as the matter was going through that we had talked, and that the thing had been done. " • •
- He did not testify that he signed the contract on 'any other date than on May 5th. The contract of May 5th incorporated the very terms of sale in accordance with the written offer of vendors of April 30th. So, by this contract, Johnson bound himself- to the purchase, while the property was still owned by the Collentines.
It must be said, therefore, that the important premise of' fact upon which the argument of the appellant is • predicated, fails, and that appellant must be deemed to have entered fully into the transaction prior to May 10th. -
It will be noted also from the contract of May 5th that John-' son- expressly acknowledges his promise to pay for the land at $192.50 per- acre: This was the exact price to be received by the then owners. The rule of law contended for by appellant being accepted, — that, in order to hold an undisclosed principal to the terms-of contract made by his alleged agent, the authority of the agent, as such, and the scope of his agency, as well, must be proved, — such proof is complete in the contract of May 5th: Furthermore, the fact that the appellant received the full benefit of the contract pursuant to its terms; with-full knowledge of the facts pertaining to the transaction, is proof, both of the agency and of the scope of it. 1 '
Still further evidence is found in the fact that, in the assignment of the contract made by Bestor, immediately upon the execution thereof, it was stipulated that Johnson assumed all the obligations thereof. No objection was made . by Johnson to this clause at that time, though he did'object thereto one year later. This promise, however, added nothing to the obligations which he- had already acknowledged in the contract of May 5th. Some stress is laid by appellee upon this assumption clause in the assignment of the contract, to the effect that this alone created a liability. We do not hold liability upon such ground. It was open to the appellant to- contradict this provision by oral evidence. It,was. also open to- him to obtain release therefrom by the consent, of Soesbe. and Bestor, provided it was done before knowledge thereof came to. the. Collentines. He did obtain release therefrom from Soesbe and Bestor, one year later, and before, any knowledge thereof had come to the Collentines.
His liability in this case rests, not upon the. fact that, as. a subsequent vendee, he voluntarily assumed payment of the incumbrance, but upon the fact that he was the real party in. interest in the original transaction, and that, . as such, he .was liable for the purchase-money mortgage only because it was a part of such original transaction. The significance of the contract of May 5th is not that it created a cause of action, against appellant -in favor of plaintiff,-but that it was evidence of the relation which the appellant actually sustained to the original, transaction. .And-such is. the only-significance which we attach to the assumption clause contained in Bestor !s assignment of the contract. • '.This disposes of the. argument by counsel pro and con, on the subject of the liability created by such assumption clause.. On this general subject, our attitude -is indicated in Shult v. Doyle, 200 Iowa 1.
.It may be noted further that -we are not concerned in this case with the question of mutual obligations assumed, as between Johnson , and Soesbe. It being proved that Johnson was the undisclosed, principal in the transaction, no agreement between-him and his agent or agents which was-calculated to protect, him-as against, liability, and-which does not negative his character-as principal-, can avail him as against-the plaintiff. For the performance of such agreements, if -any, he must, look to the parties who made them.-.
II. It appears that the plaintiff, as holder of the'second mortgage, was- compelled to pay certain installments of interest upon the $15,000, mortgage, and was likewise compelled to pay -certain installments of taxes, to a total amount of more than $1,000. She prayed recovery of
such amount from the -defendant. The trial court,-apparently out of an abundance of caution, refused to enter personal judgment against Johnson for such amount, but did-enter judgment in. rent, -against the property; and ordered that it.be first paid out' of the proceeds of execution'sale. The necessary' effect of this would be to increase by that much the deficiency judgment, if any; and the appellant complains of this feature of the judgment. The argument is that, at most, the plaintiff was entitled only to prorate' the amount thus paid, with the amount of her mortgage; in the application .of proceeds of sale. '
We are unable to see any reason why personal judgment should not have been entered against the appellant for such amount.' He was as' much liable for the first mortgage as for the second. And this is likewise'true as to the taxes. The contract of sale''and the contract of May 5th' expressly provided that he should'pay the taxes. ' If the plaintiff had not paid them, they would be a prior charge upon the property. If she was compelled to pay them; to protect the property against a sale for taxes or against a foreclosure of the first mortgage, such payment operated pro tanto to the benefit of the appellant, and to his protection against* further damage and loss. The order of the court worked no wrong to the appellant. It simply preserved — perhaps restored — a status quo. '
Upon the record before us, we see'no ground for disturbing the decree of the trial court in any respect. It is,' accordingly, affirmed. — Affirmed.
- Favtlle, C-. J., and Arthur and Albert, JJ., concur. •
Supplemental Opinion.
Evans, J.
I. Appellant filed petition for rehearing. He also filed an application for a hearing thereon by the full bench, and this application was granted. The argument on petition for rehearing has been directed broadly to the proposition that our former opinion was a" clear departure from the former state of the law, and was therefore revolutionary; and more particularly to the proposition that the liability adjudged'against the appellant goes beyond the scope of the authority of the agent, Soesbe. That question was discussed in detail in our opinion filed, and the written evidence of the scope of Soesbe is authority 'was incorporated in such opinion. ' We adhere to'the pronouncement there made, and are not disposed to repeat the discussion.
We deem it proper, however, to respond to the petition and argument thereon with a few general observations on the doc trine of liability of an undisclosed principal. This doctrine, though unequivocally established by authority, is in its nature somewhat anomalous, in that it carries a seeming contradiction to other well established principles. That a person undisclosed and unknown at the time the contract was made should later be deemed a party to such contract, and be bound thereby, seems to run counter to the elementary rule that a contract is binding only upon the parties who entered into it, and only in accordance with its actual terms; and that such terms, ordinarily and almost of necessity, disclose the parties thereto. The doctrine, however, though anomalous, is well founded, and has its appropriate function. From its very nature it is one which does not find frequent application. Men do not ordinarily contract with undisclosed contracting parties. If the agent of an undisclosed principal purports to enter into the contract in his own behalf, and thereafter performs the contract, then the disclosure of his principal becomes immaterial and of nO interest to the other contracting party. The doctrine usually comes into its function only when necessary for the protection of the other contracting party against a wrong which he would otherwise suffer. The doctrine is a product of judicial invention, and its function is both to prevent a fraud, on the one hand, and on the other hand to enable the enforcement of liability against the undisclosed principal, without imputing fraud to him. The case at bar furnishes a good illustration of its operation, its limitation, and its peculiar relation to the subject of fraud. The petition charged liability against the appellant on two alternative grounds:
(1) That he was an undisclosed principal.
(2) That he entered into fraudulent collusion with the plaintiff's then agent, Soesbe, whereby the plaintiff was betrayed and deceived by Soesbe, and was induced thereby to convey a farm to a "straw man," who was wholly without interest in the transaction, and who was financially irresponsible. These alternatives tend to negative each other. If, by entering into the contract of May 5, 1919, with Soesbe, agent of the plaintiff, the defendant intended to assume the relation and legal obligation of an undisclosed principal in the transaction, then his conduct was not inconsistent with honesty of purpose. The very obligation implied by law, and necessarily assumed by the defend ant, as an undisclosed' principal, operated to protect the plaintiff, as. vendor, against any injury, and therefore to repel the-inference of fraud which might otherwise arise, upon the face of the transaction. In other words, the concealment of his identity by the defendant as a proposed purchaser could be consistent with honesty, unless it operated to the injury of the plaintiff, and was intended so to do. On the other hand, if the purpose of the concealment was to avoid payment of the purchase price, except' so far as it could be realized out of the property itself, and to enable the defendant to acquire the property through the medium of an irresponsible "straw man" (Bestor), then the transaction would take on a sinister char-' aeter, and would become an actionable fraud, if injury' resulted therefrom to the plaintiff. Soesbe was the agent of plaintiff. He had contracted for, and afterwards collected, his commission of $2.50 an acre, fie represented to her that he had a good and responsible buyer. This was literally true.- The buyer was the defendant.. All these things the defendant knew at the .time he entered into the contract of May 5th. The purpose to use Bestor as a "mask" was mutual, as between the defendant and Soesbe, and was consented to by Bestor, who was a mere employee of - So.esbe's. If we say-that the defendant was not assuming the relation of an undisclosed principal to the transaction, then we should have to say, also, that both he and: Soesbe had committed a flagrant fraud upon the plaintiff. In such event, the contract of May 5th became one of purchase .and sale, of the plaintiff's agent, and was necessarily corrupt. .
We have exonerated the defendant from fraudulent purpose. There is no ground in this record upon which such exoneration may be consistently, based, except that .he stood, in the relation of an undisclosed principal, and, since he was thereby., liable for the full purchase price, the contract of May 5th, worked no injury to the plaintiff. We may well assume .that the adjudication of liability of the defendant on this .ground is, more favorable to him than the adoption of the other, alternative. His defense that the agent acted beyond the scope of his authority has been discussed in the original opinion..- The contract procured by Soesbe from the plaintiff was .anticipated and recited in the, contract of May 5th-with .the defendant. After the execution of the contract by plaintiff, it was assigned and delivered, to the.defendant. He therefore knew all its terms before he had accepted its benefits, and before he had paid a dollar thereon. If the contract went beyond the scope of. Soes-. be.'s authority, the defendant then had the right and the oppor-. tunity to repudiate it, and thereby to refuse both its obligations, and its benefits. . He - did not do so. He took the full benefit thereof, and, .pursuant, thereto', accepted a conveyance of the property on March. 1st; Having, accepted the benefit of. the contract, with full knowledge of all its terms, he cannot thereafter, as against the plaintiff, repudiate, the authority of his agent, by a mere ;showing of subsequent communications.- that passed between.him and the .agent. The.question of whether the .liability, uf the defendant is to' be predicated upon notes given by B.estor, or only upon the contract of purchase, is not in the'case.
The former opinion is adhered to', and the petition for rehearing must be overruled.
" Db Graff, C; J., and Stevens, Vermilion, and Morling, JJ., concur. • •
Faville and Albert, JJ" dissent.