Court Opinion

ID: 4249447
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:18:40.196924+00
Date Added: 2024-06-11T07:48:10.798916
License: Public Domain

IN THE SUPREME COURT OF IOWA
                              No. 13–0102

                         Filed October 18, 2013

LIFE INVESTORS INSURANCE COMPANY OF AMERICA,

      Appellant,

vs.

ESTATE OF JOHN M. CORRADO and FEDERAL CITY REGION, INC.,

      Appellees.

      Certified questions of law from the United States District Court for

the Northern District of Iowa, Edward J. McManus, Judge.

      Certified questions from the United States District Court for the

Northern District of Iowa concerning ratification of a contract and

whether a party is estopped from denying a signature on a contract.

CERTIFIED QUESTION ANSWERED.

      David R. Levin of Drinker Biddle & Reath LLP, Washington, D.C.,

Wilford H. Stone and Amy L. Reasner of Lynch Dallas, P.C., Cedar

Rapids, for appellant.

      Robert R. Rush of Rush & Nicholson, P.L.C., Cedar Rapids, and

Louis P. Malone III of O’Donoghue & O’Donoghue LLP, Washington, D.C.,

for appellees.
                                          2

WIGGINS, Justice.

       A federal court certified two questions to this court pursuant to

Iowa Code section 684A (2013). The questions certified are as follows:

       1.         If a party receives a copy of an executed contract
              with that party’s signature thereon, even where it is
              not known who applied the party’s signature to the
              contract or whether the signature was authorized, and
              the party (a) does not challenge the signature or
              otherwise object to the contract, and (b) accepts
              benefits and obligations under the contract for at least
              six years, then has the party ratified the contract and
              is the party, therefore, bound by the terms of the
              contract?

       2.         If a party receives a copy of an executed contract
              with that party’s signature thereon, even where it is
              not known who applied the party’s signature thereto,
              and the party (a) does not challenge the signature and
              (b) accepts benefits and obligations under the contract
              for at least six years, then is the party estopped from
              challenging the signature as a basis for asserting that
              he is not bound by the contract?

We answer the first question in the affirmative. As the first question is

determinative of the outcome in the certifying court, we find it

unnecessary to answer the second question.

       I. Federal Court Proceedings.

       On June 3, 2010, the United States District Court for the Northern

District of Iowa granted summary judgment to plaintiff Life Investors

Insurance Company of America (LICA) and determined that defendants

John Corrado1 and his company Federal City Region (collectively,

Corrado) ratified a contract between Corrado and LICA.                 The contract

was a settlement agreement resolving a dispute between the parties. On

August 10, 2012, the United States Court of Appeals for the Eighth

        1John Corrado died shortly after LICA filed the complaint in this action.   His
estate is substituted for him in this action.
                                          3

Circuit reversed the grant of summary judgment and concluded the

district court erred for two reasons. Life Investors Ins. Co. of Am. v. Fed.

City Region, Inc., 687 F.3d 1117, 1122 (8th Cir. 2012). The district court

first erred in considering unauthenticated evidence, and second, in

extending the doctrine of ratification in its order based on inapplicable

Iowa caselaw and Restatement sections.             Id. at 1121–22.      The Eighth

Circuit remanded the case to the district court for consideration of these

issues. Id. at 1122–23.

       On remand, the district court directed the parties to brief the
issues of authentication and ratification, and subsequently entered an

order on November 26, finding the settlement agreement authenticated.

The district court determined that it was prudent to certify the

ratification question to the Supreme Court of Iowa.

       On November 29, Corrado filed a notice of appeal and a petition for

writ of mandamus with the Eighth Circuit, arguing the district court

violated the Eighth Circuit decision.           The Eighth Circuit denied the

motion. On January 11, 2013, the district court certified to our court

the two questions previously set out in this opinion. The district court

also provided us with a statement of facts pursuant to Iowa Code section

684A.3.

       The statement of facts provides:

             Beginning in 1977, John Corrado and his company,
       Federal City Region (FCR), collectively Corrado, marketed
       insurance products underwritten by Life Investors Insurance
       Company of America (LICA)2. Corrado received advances
       upon commissions, and in exchange therefor, executed
       promissory notes and assigned certain liens to LICA.
       Following disputes over the amount owed LICA by Corrado,

      2Corrado initially marketed for Bankers United Life Assurance Company

(BULAC), LICA’s predecessor. BULAC and LICA shall collectively be referred to as LICA.
                                     4
       they met in February, 1993, in an effort to reach agreement
       on the dispute. On June 9, 1993, LICA provided Corrado
       with a copy of the [settlement agreement], stating that
       Corrado was to sign the [settlement agreement] and return it
       to LICA. On June 22, 1993, LICA came into possession of a
       copy of the [settlement agreement] purporting to bear
       Corrado’s signature, and LICA promptly thereafter sent a
       copy of that signed [settlement agreement] to Corrado. The
       [settlement agreement] provided that its purpose was to
       resolve a financial dispute between the parties, and it
       provided for a series of advances and payments between
       LICA and Corrado.        The disputed pre-settlement debt
       exceeded $1,400,000, and was reduced to $993,010 by the
       [settlement agreement]. From 1993 to 2000, the parties
       operated    under    the    [settlement   agreement],   with
       commissions paid to Corrado and credits made as though no
       debt existed other than under the [settlement agreement].
       From 1993 to 2000, Corrado did not challenge the
       signatures on the [settlement agreement]. Beginning in
       2001, when the terms of the [settlement agreement] required
       Corrado to pay larger sums, he challenged the validity of the
       signatures on the [settlement agreement].

       II. Standard of Review.

       It is within our discretion to answer certified questions from a

United States district court. Iowa Code § 684A.1 (stating the court “may”

answer a certified question). We may answer a question certified to us

when (1) a proper court certified the question, (2) the question involves a

matter of Iowa law, (3) the question “may be determinative of the cause
. . . pending in the certifying court,” and (4) it appears to the certifying

court that there is no controlling Iowa precedent. Id.

       III. Legal Impediments to Answering the Questions.

       Corrado asserts that we should decline to answer the certified

questions because we lack specific factual findings on three issues: (1)

whether Corrado and LICA formed a contract based on additional facts

not contained in the certification order, (2) whether the doctrine of laches

applies to bar the underlying claim, and (3) whether the contract is
illegal.
                                     5

      We may decline to answer the certified questions if the court lacks

specific findings of fact or finds the factual record to be unclear.        See

Eley v. Pizza Hut of Am., Inc., 500 N.W.2d 61, 63 (Iowa 1993). We should

not answer “questions which admit of one answer under one set of

circumstances and a different answer under another, neither of which is

inconsistent with the certificate.” Atlas Life Ins. Co. v. W.I. S., Inc., 306
U.S. 563, 573, 59 S. Ct. 657, 662, 83 L. Ed. 987, 994 (1939). Finally, we

restrict our answer to the facts provided by the certifying court when

answering a certified question.    Willow Tree Invs., Inc. v. Wilhelm, 465
N.W.2d 849, 849 (Iowa 1991).

      A.    Whether Corrado and LICA Formed a Contract Based on

Additional Facts Not Contained in the Certification Order. Corrado

contends we need to consider additional facts to determine if the parties

formed a contract before we can answer the certified questions.             We

disagree.

      Additional facts are not necessary to answer the first certified

question concerning ratification of a contract.         Corrado argues the

parties never formed a contract,         based on      his experience and

communication with LICA. Corrado identifies various facts to show the

parties never formed a contract from his viewpoint.
      However, it is not necessary for us to consider additional facts to

determine    whether    Corrado   ratified   the   contract   signed   by   an

unidentified party.    As we explain later in this opinion, Corrado could

subsequently ratify the contract even without having initially known the

terms or without an initial meeting of the minds between him and LICA.

      Further, whether Corrado expressly or implicitly authorized a
person to sign on his behalf is not a necessary fact to determine whether

Corrado ratified the contract. A principal may ratify the unauthorized
                                     6

act of an agent.   See Abodeely v. Cavras, 221 N.W.2d 494, 502 (Iowa

1974) (stating a factor to determine whether a contract is ratified often is

whether a principal accepted benefits from an agent’s unauthorized act).

Even if the actor who signed the contract was not Corrado’s agent at the

time of signing, “[a] person may ratify the act of an actor who was not an

agent at the time of acting,” providing the actor purports to be the

person’s agent or assumed to be the person’s agent. Restatement (Third)

of Agency ch. 4, intro. note, at 304 (2006). Therefore, we do not need

additional facts on this issue to answer the certified questions.
      B. Whether the Doctrine of Laches Applies to Bar the

Underlying Claim. The doctrine of laches is an equitable doctrine that

is “ ‘premised on unreasonable delay in asserting a right, which causes

disadvantage or prejudice to another.’ ”       Sahu v. Iowa Bd. of Med.

Exam’rs, 537 N.W.2d 674, 676 (Iowa 1995) (quoting Comm. on Prof’l

Ethics & Conduct v. Wunschel, 461 N.W.2d 840, 846 (Iowa 1990)). Some

courts have referred to the doctrine of laches as a defense to equitable

remedies but not a defense to bar a claim of legal relief. See 1 Dan B.

Dobbs, Dobbs Law of Remedies § 2.4(4), at 105 (2d ed. 1993).

      It has long been the law in Iowa “[w]hen an unauthorized

agreement of an agent has been ratified by his [or her] principal, an

action lies thereon, as though originally made by due authority.” Lyon

Cnty. Nat’l Bank v. Carsten Winter Estate, 214 Iowa 533, 539, 242 N.W.
600, 603 (1932); accord Restatement (Third) of Agency § 4.01(1), at 304.

In other words, if ratification exists a contract exists and the action is on

the contract. We have specific statutes of limitations for actions based

on contracts. See Iowa Code § 614.1(4) (covering unwritten contracts);
id. § 614.1(5) (covering written contracts).    Ordinarily the doctrine of

laches does not apply within the statute of limitations unless there is a
                                     7

showing of a special detriment to another. Anita Valley, Inc. v. Bingley,

279 N.W.2d 37, 41 (Iowa 1979).       We will not infer prejudice from the

mere passage of time.     Cullinan v. Cullinan, 226 N.W.2d 33, 36 (Iowa

1975).      Pertaining to contract actions, we have specifically stated

“[l]aches may be a defense to a suit in equity, but not to an action at law”

and that it is “[d]oubtless laches alone is not in itself a defense to an

action on contract.” State Sav. Bank v. Miller, 146 Iowa 83, 88, 124 N.W.
873, 874 (1910).

      Corrado argues that he was prejudiced by the delay between the
date LICA learned of the challenge to the signature and the date LICA

brought action, because LICA waited to bring this action until John

Corrado was near death and unable to provide his knowledge of the

settlement agreement and his purported signature. The facts as certified

do not contain any finding of prejudice because of John Corrado’s death.

Therefore, Corrado’s claim regarding the doctrine of laches will not

prevent us from answering the first question.

      C. Whether the Contract is Illegal. The basis of this claim is

that the settlement agreement is illegal because the contract allowed

transactions categorically prohibited by the Employee Retirement Income

Security Act (ERISA), 29 U.S.C. § 1001 et seq. The statement of facts

does not mention ERISA or any facts that implicate ERISA. Accordingly,

we will not consider Corrado’s claim of ERISA when addressing the first

question.

      IV. First Certified Question: Ratification.

      The first certified question asks:

      If a party receives a copy of an executed contract with that
      party’s signature thereon, even where it is not known who
      applied the party’s signature to the contract or whether the
      signature was authorized, and the party (a) does not
                                             8
       challenge the signature or otherwise object to the contract,
       and (b) accepts benefits and obligations under the contract
       for at least six years, then has the party ratified the contract
       and is the party, therefore, bound by the terms of the
       contract?

There are two types of ratification: (1) ratification by the principal of the

signature of an agent, and (2) ratification by an individual who had the

power to avoid the contract but affirmed the contract. Only ratification

by the principal of an agent’s signature is relevant here.3

       We have said:

       “Ratification is the affirmance by a person of a prior act
       which did not bind him but which was done or professedly
       done on his account, whereby the act, as to some or all
       persons, is given effect as if originally authorized by him.”

Abodeely, 221 N.W.2d at 502 (quoting Restatement (Second) of Agency

§ 82, at 210 (1958)).

       We have found ratification by the principal of an agent’s signature

in our prior caselaw. In Ross v. Gordon, we determined that Mrs. Gordon

had ratified a contract when she witnessed the plaintiffs sign the

contract, she did not challenge her signature, and she accepted

payments and benefits under the contract.                  252 Iowa 899, 904, 109
N.W.2d 208, 211 (1961). In Ross, we did not expressly decide whether

       3The   Eighth Circuit recognized the district court applied inapplicable Iowa
caselaw regarding ratification because Corrado is not arguing that he can avoid a
contract containing his signature, but rather he argues that he never signed the
settlement agreement in the first place. Life Investors Ins. Co. of Am. v. Fed. City Region,
Inc., 687 F.3d 1117, 1122 (8th Cir. 2012).

       “A voidable contract is one where one or more parties have the power, by
       a manifestation of election to do so, to avoid the legal relations created by
       the contract, or by ratification of the contract to extinguish the power of
       avoidance.”
Nichols v. City of Evansdale, 687 N.W.2d 562, 571 (Iowa 2004) (quoting Restatement
(Second) of Contracts § 7, at 20 (1979)). A party may avoid a contract if there is a
mutual mistake in formation. Nichols, 687 N.W.2d at 571. This situation does not
apply because Corrado argues he never signed the settlement agreement.
                                          9

there was a principal–agent relationship.             However, we found the

defendant’s husband signed the contract on her behalf and impliedly

acted on her behalf. Id. at 901, 904, 109 N.W.2d at 210–11 (stating in

testimony that the defendant’s husband handed the plaintiffs a contract

and said “our name is already on it”).

       In Mayrath Co. v. Helgeson, we upheld a trial court’s finding of

ratification when a corporation had knowledge of an identified employee’s

actions of accepting a settlement check and the corporation accepted the

benefits.      258 Iowa 543, 546, 551–52, 556–57, 139 N.W.2d 303, 305,
308, 311 (1966). In In re Johnson’s Estate, we applied ratification when

the cashier of a bank signed a contract without express authorization

and the bank directors subsequently signed the contract. 210 Iowa 891,

902, 232 N.W. 282, 287–88 (1930). The lesson from these three cases is

that ratification could only occur if the agent purported to act for the

principal.        See Restatement (Second) of Agency § 85(1), at 217

(“Ratification does not result from the affirmance of a transaction with a

third person unless the one acting purported to be acting for the

ratifier.”).

       In 2006, the American Law Institute published the Restatement

(Third) of Agency.        The Restatement (Third) of Agency maintained a

similar definition for ratification. Compare Restatement (Third) of Agency

§ 4.01(1), at 304, with Restatement (Second) of Agency § 82, at 210. The

Restatement (Third) of Agency also defined the elements of ratification of

an act and when ratification does not occur.                   Specifically, the

Restatement (Third) of Agency provides:

       (2) A person ratifies an act by

               (a) manifesting assent that the act shall affect the
               person’s legal relations, or
                                     10
          (b) conduct that justifies a reasonable assumption that
          the person so consents.

      (3) Ratification does not occur unless

          (a) the act is ratifiable as stated in § 4.03,

          (b) the person ratifying has capacity as stated in § 4.04,

          (c) the ratification is timely as stated in § 4.05, and

          (d) the ratification encompasses the act in its entirety as
          stated in § 4.07.

Id. § 4.01(2)–(3), at 304.

      The issue raised by the first certified question is whether Corrado

can ratify the contract when the evidence does not show who signed it on

Corrado’s behalf. See Life Investors, 687 F.3d at 1122 (finding Iowa law

has not spoken on the issue of ratification when the signature on the

contract was disputed).      The Restatement (Second) of Agency, together

with our caselaw, requires that an actor may only ratify an act if the

actor purported to act as an agent. See Restatement (Third) of Agency

§ 4.03 cmt. b, at 321–22 (discussing the distinction between the

purported to act requirement under the Restatement (Second) of Agency

§ 85(1) and the Restatement (Third) of Agency § 4.03); see also Ross, 252

Iowa at 904, 109 N.W.2d at 211 (implying the wife ratified the deed after

finding the defendant’s husband signed the contract on the wife’s behalf).
      In contrast, under the Restatement (Third) of Agency, “[a] person

may ratify an act if the actor acted or purported to act as an agent on the

person’s behalf.” Restatement (Third) of Agency § 4.03, at 321 (emphasis

added).   The reason for the change is set forth in the comments to

section 4.03 of the Restatement (Third) of Agency. It provides:

      This [change] is consistent with the result reached in a
      number of relatively recent cases but inconsistent with the
      often-stated (but rarely directly dispositive) proposition that
                                        11
      it is a requisite for ratification that the actor have purported
      to act as an agent.

Id. § 4.03 cmt. b, at 322.

      One of the reasons for the “purported to act” requirement under

the Restatement (Second) of Agency was that a person could not ratify a

forgery. Id. § 4.03 cmt. c, at 323. As the Restatement (Third) of Agency

emphasizes, the caselaw and statutes of the various states do not

uniformly support this rule. Id. In Iowa, our legislature has taken the

position a principal may ratify an unauthorized signature, including a

forgery,   when   dealing    with     negotiable     instruments.     Iowa       Code

§ 554.3403(1).

      We conclude Iowa law should abandon the “purported to act” rule

contained in the Restatement (Second) of Agency and our prior caselaw

in favor of the rule contained in the Restatement (Third) of Agency, that

an undisclosed principal may ratify an actor’s unauthorized act.                  We

reach this conclusion for the reasons set forth in comment c of section

4.03 of the Restatement (Third) of Agency and for the fact that our

legislature has adopted this rule for negotiable instruments. We agree

with the Restatement (Third) of Agency’s position that our law should not

treat contracts and negotiable instruments differently. A person should
not be able to accept the benefits of a contract even if the signer’s acts

are unauthorized, but deny his or her obligations under the contract

because the signer’s acts are unauthorized.

      Accordingly,   we      answer    the   first   certified   question   in    the

affirmative.

      V. Second Certified Question: Estoppel.

      The second certified question asks us to decide if a party is
estopped from denying a signature while assuming the same facts exist
                                    12

as in the first certified question. Our statute provides we may answer a

certified question “which may be determinative of the cause . . . pending

in the certifying court.” Iowa Code § 684A.1. We have answered the first

question in the affirmative.   Because the questions are based on the

same facts, the answer to the first question is “determinative of the cause

. . . pending in the certifying court.” Id. Thus, we decline to answer the

second question. See Campos v. Murray, 134 P.3d 741, 745 (N.M. 2006)

(stating that there was no need for the court to answer a second certified

question because doing so was not determinative of any issue);
Bituminous Cas. Corp. v. Cowen Constr., Inc., 55 P.3d 1030, 1032 (Okla.

2002) (stating that the response to one certified question disposed of the

case, and therefore the court declined to answer a second certified

question).

      VI. Conclusion.

      Following the rule as set forth in the Restatement (Third) of Agency

section 4.03, we answer the first question in the affirmative. We decline

to answer the second question because our answer to the first question

is determinative of the outcome in the certifying court. Costs shall be

equally divided between the parties. Iowa Code § 684A.5.

      CERTIFIED QUESTION ANSWERED.