Court Opinion

ID: 9844514
Source: CourtListenerOpinion
Date Created: 2023-09-24 03:03:58.619993+00
Date Added: 2024-06-11T09:15:36.603081
License: Public Domain

UDALL, Justice
(dissenting):
The majority of the Court has concluded that Land-Air should be bound by the contract which Allied Medical purportedly negotiated in behalf of Land-Air. With this result I cannot concur; thus with regret I have elected to dissent from that determination.
In this matter Parker maintains that Allied Medical was acting as an agent for Land-Air and that through the exercise of this incident authority Allied had effected a novation which released him from the obligation to pay Land-Air under the original conditional sales contracts. In order for this result to have attached, however, it is first necessary that Allied Medical have had the authority to enter into a novation binding on the plaintiff.
First I will turn to the possible sources of authority necessary to validate the act of an agent. Authority may be of an actual or real nature as when it is manifested by oral or written statements (express) or by conduct (implied). Restatement, Second, Agency § 7. Also, apparent authority may empower an agent to affect the legal relations of a principal with respect to a third *9person by acts done in accordance with such principal’s manifestations of consent to such third person that such agent shall act as his agent. Restatement, Second, Agency § 8. Finally the liability of a principal to a third person may be based upon the fact that the agent had a power arising from the agency relationship — that policy requires that the agent should have the power to bind the principal. Restatement, Second, Agency § 140.
In addition the principal becomes responsible for contracts made for him by one purporting to act on his account as if the transaction had been authorized if with knowledge of the material facts the principal ratifies such action. Restatement, Second, Agency § 143. Also, though an agent or apparent agent does not have power to bind his principal in a particular transaction, the transaction may nevertheless subject the principal to liability or to the loss of his interests where the principal misleads or fails to undeceive a third person; the principal benefits from the transaction; or the subject matter is a negotiable instrument which has been negotiated. Restatement, Second, Agency § 141.
The defense contends that in submitting this collection problem to Allied Medical, Land-Air expressly authorized Allied Medical to “settle”. Thusly it is argued that Allied Medical was empowered to cancel the original contracts by a sale and leaseback agreement between Parker and Nationwide Leasing. Further we are directed to the testimony of an officer of Land-Air wherein the term “settle” was used and this it is alleged determines that Allied Medical was a fully authorized agent empowered to effect a novation. I do not agree with the defense contention. Even the testimony to which the Court is referred does not bear out the defendant’s contention that express authority was involved here. I feel the record shows that no actual authority of an express nature can be found to have existed in this case. For it is evident from the testimony that the word “settle” was not used in its legal sense. The use of this word by the credit manager was not intended as a power to compromise a debt or novate a contract.
The intent of the instruction given by Land-Air’s credit manager was that Allied Medical was thereby informed that if the delinquent payments were not straightened out Land-Air would exercise its right of recourse against Allied Medical. Under these circumstances, it cannot be reasonably concluded that there was sufficient proof that the plaintiff gave Allied Medical a power to settle in the legal sense argued by the defendant, and as a consequence, this testimony cannot properly serve as a basis for finding that Allied Medical was given novation authority. Thus I am compelled to conclude that there was no express authority to validate the action of Allied Medical in purporting to represent Land-Air.
Further there was no evidence offered which allows actual authority to arise by implication. To the contrary the evidence did not show any prior dealings of this nature whereby Allied Medical or any other party had been given authority to novate a contract. In addition Land-Air was unaware of these negotiations and hence could not have consented by its inaction in failing to warn Parker of Allied Medical’s limited authority. Finally there was nothing about the relationship of Allied Medical or Mr. Hare to Land-Air which justifies the inference of authority. In fact, as was obvious to Parker who had acknowledged notice of the assignment of the conditional sales contracts to Land-Air with the reservation of recourse against Allied Medical, the position of Allied Medical was that of a party attempting to itself avoid liability to Land-Air. Thus while I am mindful of the rule that actual authority may arise and be proven by implication, I do not feel that proof of such authority was given in this case. Canyon State Canners v. Hooks, 74 Ariz. 70, 243 P.2d 1023; Arizona Storage & Distributing Co. v. Rynning, 37 Ariz. 232, 293 P. *1016; 3 Am.Jur.2d, Agency, § 73, p. 475; 2 C.J.S. Agency § 99, p. 1227.
. There is of course inherent agency au(thority which arises from the relationship because policy considerations require that , an agent under such circumstances should . have the power to bind the principal. Restatement, Agency, § 140. However this policy shpuld only be invoked when to not recognize authority in such a case would be to mislead third persons. Further this . Court has recognized that a third person knowingly dealing with an agent has a duty to ascertain the source and scope of that agency authority and that should either such issue be controverted the burden of establishing same will fall on the third person. Bank of America v. Barnett, 87 Ariz. 96, 348 P.2d 296; Lois Grunow Memorial (Clinic v. Davis, 49 Ariz. 277, 66 P.2d 238; Brutinel v. Nygren, 17 Ariz. 491, 154 P. 1042, L.R.A.1918F, 713. Therefore in order to find that the term “settle” and the conduct involved here justify a determination that Allied Medical had inherent authority we must find that Parker acted as a reasonable and prudent man aware that he is dealing with an agent, Lois Grunow Memorial Clinic v. Davis, supra. Here Parker dealt with a new person — with whom he had never dealt, said person purporting to represent a third party — with which party Parker had never dealt. Yet Parker without ascertaining the validity of the alleged agent’s authority or the scope thereof negotiated a contract with such agent which purported to relieve Parker of ■ all but a responsibility to rent the involved . equipment while reducing the amount due Land-Air by some seventy percent. From the facts in this case I conclude that Parker did not meet the requisite standard of conduct and that he was imprudent in failing to ascertain the scope of Allied Medical’s authority and that therefore Parker acted at his own peril in dealing with Allied Medical’s Mr. Hare.
As to the issues of apparent authority, ratification and liability based on estoppel I will merely state that there was no evidence to support a finding against Land-Air on any of these bases and since the majority has chosen not to discuss them I also limit my attention to the remaining issues.
Having considered the issue of authority to novate as an independent power and concluding, that such power was not authorized expressly, impliedly, apparently, inherently nor by ratification or estoppel I next turn to the question of the scope of the authority granted.
The testimony of plaintiff’s credit manager supports a conclusion that Allied Medical was given express authority to “collect” the money owing from the defendant. Authority to “collect”, however, does not expressly or impliedly give an agent authority to novate. Restatement, Second, Agency § 72. Rather, the authority of an agent for collection is limited to the acceptance of money or legal tender that is due.
An agent’s powers are to be strictly construed, to allow the authorized exercise of only such powers as are expressly given or are reasonably required to perform those given. Thus a third .party who deals with an agent and knows of the agency is under a duty to ascertain the scope of the agency. Hence if the agent acts beyond his actual authority the third party cannot look to the principal absent a showing that the principal’s conduct was such as to mislead the third party or to confer apparent authority. Having previously dismissed the issues of apparent authority or estoppel as inapplicable I would hold that Parker acted at his own risk in dealing with an agent who exceeded his authority and thus must personally bear the loss incurred.
The majority states and I agree that, “agency may be proved to exist by a showing of facts which raise the implication of such a contract.” That agency may be so proven is basic evidence law. But the recitation of such rule does not ipso facto make that rule determinative of the issue at hand. To the contrary because of the adverse position to Land-Air which Allied occupied, it seems an unwarranted conclusion to find *11that authority to novate could arise by implication.
The opinion of the majority cites facts allegedly supporting the trial court’s determination. Thus the majority states that Land-Air by choosing Allied “to act in its behalf, chose the very party with whom Parker had previously dealt, and who — ■ during its previous dealings with Parker — ■ had been unfettered by any bonds of agency, and in whose judgment Parker might be expected to rely.” To this I must reply that Mr. Hare had only recently succeeded to his position with Allied; that prior to the time of the alleged novation he had had no dealings with Parker; that obviously Allied had been unfettered by bonds of agency in its initial dealings, for at such time Allied was contracting only for itself; and finally, that a person knowingly dealing with an agent, as Parker was, has the duty of ascertaining the scope of that agent’s authority. The majority further states that Allied was not an ordinary collection agency but as a dealer was familiar with agreements ranging beyond mere collection. However, I cannot see that an agent’s knowledge of types of contractual agreements in any way justifies an inference that thereby the principal intended that the agent should have authority to enter into such agreements. The majority conclusion is based on the testimony of Land-Air’s credit manager in employing the word “settle” in describing his instructions to Allied Medical. I feel that the result of the majority opinion compels the application of a lawyer’s definition for a commonly-used word in the face of an obviously contrary intent.
I am compelled to take note that much weight seems to be given by the majority to the fact that after its unsuccessful collection attempts by letter, Land-Air referred his matter to Allied and made no further contact with Parker for a period of fourteen months. That no contact with Parker was made by Land-Air for this period does not to me seem determinative of any involved issue. It should be considered that Land-Air is an out-of-state corporation, that it needed time to contact Allied, that Allied had to contact Parker, that during this period Allied began to have internal problems that resulted in its dissolution and that it was necessary for Land-Air to wait out Allied’s internal upheaval in order to ascertain its own status with Parker. This delay is apparently what is employed to justify the majority in concluding that,
“ * * * the lower court could well have found that Land-Air had abandoned any further attempts to collect from Parker and that whatever negotiations Allied chose to make with Parker would be of little concern to Land-Air, as it could not jeopardize what was already considered a lost cause.”
But this interpretation of the case seems altogether unjustified. For Parker’s debt was far from being a lost cause. Land-Air could have immediately sued Parker, which action it later resorted to or it could have reassigned the involved contracts to Allied Medical and received the amounts thus due from Allied Medical. Thus too it seems an extreme position to find that Land-Air would have empowered Allied Medical to receive in its behalf less than a third of what was due by renegotiating, when it would have been a simple matter for Land-Air to have avoided the difficulty with Parker by the use of its recourse against Allied.
A final issue with which I choose to deal is the assertion by Parker that the Court of Appeals in determining this matter disregarded a prior decision of this Court which was directly in point and directly contrary to the Court’s opinion on which this petition for review is considered. Parker cites as authority for his position the case of Little v. Brown, 40 Ariz. 206, 11 P.2d 610, which was relied on and cited in the majority opinion. With the defense contention that this case substantiates its position I beg to differ. In that case the assignor made an assignment, for collec*12tion purposes, to his son. Subsequent to that assignment the assignor, as the real party in interest compromised the dispute and received compensation therefor. Further the aspect of knowledge, discussion and close ties between the assignor and assignee were such as to justify the Court in finding that the assignee had tacitly consented to the assignor’s compromise.
In the instant case the parties are, in effect, reversed from the positions of the parties in the Little v. Brown case, for here the assignee is the real party in interest. Here the assignor acted without the knowledge of, or authority from, the assignee. Further, no facts were herein presented from which Land-Air can be implied to have consented to a novation. The circumstance of knowledge, discussion of settlement and inaction are not present here to bind Land-Air the real and acknowledged owner of the claim.
For these reasons I would affirm the judgment of the Court of Appeals which reversed the trial court judgment for the defense.