Court Opinion

ID: 3431473
Source: CourtListenerOpinion
Date Created: 2016-07-05 20:00:23.530543+00
Date Added: 2024-06-11T14:03:44.021523
License: Public Domain

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's 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 doctrine *Page 120 
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 *Page 121 
defendant, 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 character, 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. He 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 Soesbe'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 *Page 122 
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 Soesbe's authority, the defendant then had the right and the opportunity 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 of the defendant is to be predicated upon notes given by Bestor, 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.
De GRAFF, C.J., and STEVENS, VERMILION, and MORLING, JJ., concur.
FAVILLE and ALBERT, JJ., dissent.