Nichols v. Bruns

Teipp, C. J. This is an appeal from Cass county. The action is one of tort in the nature of deceit. The complaint charges a conspiracy on the part of the defendants. Bruns, Moore, and — 30 — Howard, carried into effect through the agency of defendant Howard, acting for and on behalf of all the defendants, whereby the plaintiff was induced, through the fraudulent representations of said Howard, made with the knowledge of the other defendants, to convey to them certain lots in the town of Moor-head for a sum much less than the real value, and by reason thereof he suffered damages, etc. The defendant Howard answers- separately, and the defendants Moore and Bruns jointly. The answers of all the defendants, in effect, deny generally the allegations of the complaint, and specifically the allegations of conspiracy, fraud, and deceit. The answer of Moore and Bruns specifically pleads ignorance of the fraudulent representations alleged in the complaint, and the defendant Bruns specifically pleads a want of authority on the part of defendant Howard to make the purchase for him or on his behalf. No objection is raised by either party to the form or sufficiency of the pleadings, and the case seems to have been tried upon the theory that they were sufficiently expansive to cover any case made by the evidence. The entire evidence and the charge of the court is set out at length in the record, and the exceptions taken are numerous; the assignment of errors alone covering fourteen printed pages. A motion for a new trial was made and filed more than one year after the verdict was rendered; but, as the order denying it does not state the grounds upon which it was denied, it must be presumed to have been upon the ground that the motion was not made within the time nor in the manner prescribed by statute. It cannot, therefore, be considered, and the court will be confined to errors contained in the bill of exceptions and apparent of record. At the close of the evidence the plaintiff seems to have practically abandoned the theory of active conspiracy, and to have based his right of recovery against the defendant Moore upon the theory that he, having authorized the purchase, was bound by the fraudulent representations of Howard made in his (Moore’s) — 31 — interest, though made without his knowledge or consent; and that, as to defendant Bruns, he, having accepted the deed, and paid therefor, thereby made Howard his agent, and ratified his acts, including all fraudulent representations made to the plaintiff; and plaintiff accordingly asked and obtained from the •court the following instructions, among others, to the jury: “That it appears from the evidence, and »is not controverted by either party, that the defendant Howard acted, in making the purchase, not only for himself, but for the defendant Moore, .and had express authority from said Moore to insert his name in the deed as one of the purchasers. “That when defendant Bruns adopted the purchase, and consented that the same should stand in his name as one of the grantees in the deed of conveyance, he confirmed Howard’s agency in acting for him (Bruns) in making the purchase, even though Howard’s action in Bruns’ behalf had before this been entirely voluntary on his part, and unauthorized by others. “That if the jury find from the evidence that the defendant Howard acted, in making the purchase, as the agent of the other two defendants by their authority, or that they thereafter adopted the purchase made by Howard, and have adopted the fruits and profits of and arising from the conveyance, then they are, and ■each of them is, responsible for all the means employed by their •.said agent to effect the sale, and damage to be ascertained and ■computed as above directed.” This instruction was duly excepted to, and assigned as error. In giving this instruction, in our judgment, the court erred. It is safe to say it. has never been sought before to extend the liability of the principal for the torts of his agent to this extent., .It is a much-mooted question whether the principal is ever liable, in an action of tort, for the fraudulent misrepresentations ■of his agent, made without the knowledge or authority of the principal. In England, in 1867, within two days of each other, two decisions of appellate courts were handed down, in which those learned courts came to exactly opposite conclusions; the one, Barwick v. Bank, L. R. 2 Exch. 259, holding that the prin32 eipal is liable in tort for the fraud of his agent committed in. the course of his business, though without the knowledge of the-principal; and the other, Bank v. Addie, L. R. 1 H. L. Sc. 146,. holding that such an action cannot be maintained, that fraud, is in its nature willful, and that the principal or master is not,, as a rule, liable for the willful wrongs of the agent or servant. The doctrine of Ban!4 V. Addle, supra, has been adopted in America by the New Jersey court, in Kennedy v. McKay, 43 N. J. Law, 288; and the doctrine of that case seems to have been adopted in Page v. Parker, 40 N. H. 47, which is cited in 1 Suth.. Dam. 212, as holding that “an action for deceit, in the nature-of a conspiracy, cannot be sustained against a principal for the-unauthorized fraudulent acts and representations of the agent, alone.” The doctrine of Bank v. Addie, supra, has, however, been somewhat modified in England by later decisions, (Swift v. Winterbotham, L. R. 8 Q. B. 244; Mackay v. Bank, L. R. 5 P. C. 394; Houldsworth v. Bank, 5 App. Cas. 317;) but it may be safely stated that the rule has never been extended further than to hold the principal liable in tort for the fraud of his agent committed within the scope of his authority. This instruction goes to the full extent of telling the jury that,, if the defendant Bruns accepted the deed, he thereby ratified the fraudulent representations of Howard, though ignorant that any such representations were ever made; for the instruction is. that, “if he adopted the purchase made by Howard,” then he “is responsible for all the means employed by the agent to effect the sale.” There can be no other meaning, and the jury could have understood the instruction in no other way than that, if he accepted the deed, he was equally liable with Howard for-the false representations. There was little left for the jury on. this branch of the case. The accepting the deed was admitted, and the defendants Bruns and Moore stood before the jury in. the same shoes with Howard. There is no modification of this-instruction in the general charge of the court or elsewhere.. The court nowhere tells the jury that knowledge of the material/. — 33 — facts is an essential ingredient of ratification. It is elementary that ratification is based upon knowledge of the acts adopted or ratified. Says Judge Story, in the case of Owings v. Hull, 9 Pet. 629: “No doctrine is better settled, both upon principle and authority, than this: that the ratification of an act of an agent previously authorized, must, in order to bind the principal, be with a full knowledge, of all the material facts. ” The court and counsel in this case, no doubt, had in mind the class of cases which hold that, where an authorized agent, acting within the scope of his authority, perpetrates a fraud for the benefit of his principal, and the latter receives the fruits of it, he is liable as for his own wrong, (Bennett v. Jodson, 21 N. Y. 238; Elwell v. Chamberlin, 31 N. Y. 611, etc.;) and failed to discriminate between the defense of defendants Moore and Bruns. Howard was not acting within the scope of his authority as to defendant Bruns when he obtained this conveyance ancl made these representations, if the jury should believe the testimony of Bruns himself, but he was acting outside of and beyond the scope of his authority; and the agency itself of Howard to make the purchase would have to be established by ratification. In such case it is safe to say no court has ever held that the receipt of “the fruits and profits”-of a transaction, without knowledge, has ever been held a ratification of the agent’s fraud. In Smith v. Tracy, 36 N. Y. 79, where the agent had gone outside of his authority, and warranted the sale of bank-stock, when no authority to warrant was implied, and it was claimed that the receipt of the proceeds of the sale ratified the unauthorized acts of the agent, the court, denying this doctrine, says: “In the case before us, it is claimed that the receipt by the testator of the proceeds of the authorized sale is to be deemed an adoption of the contract, made without his authority, and to which he never knowingly assented. Such a ruling would be subversive of well-settled principles, and would open the door to illimitable frauds by brokers, factors, attorneys, and others, clothed with limited powers, and occupying strictly fiduciary relations. ” See, also, Bohart v. Oberne, 13 Pac. Rep. 388; Baldwin v. Burrows, — 34 — 47 N. Y. 199; Navigation Co. v. Dandridge, 8 Gill & J. 323; Roberts v. Rumley, 58 Iowa, 301, 12 N. W. Rep. 323; Reynolds v. Ferree, 86 Ill. 576; Adams v. Freeman, 9 Johns. 118; Lewis v. Read, 13 Mees. & W. 834; Hyde v. Cooper, 26 Vt. 552; Bell v. Cunningham, 3 Pet. 69; Brady v. Todd, 99 E. C. L. 591; Seymour y. Wyckoff, 10 N. Y. 213. Our own statute is an embodiment of the principles of the common law. Civil Code, § 1349. “A ratification can be made only in the manner that would have been necessary to confer an original authority for the act ratified, or, where an oral authorization would suffice, by accepting or retaining the benefit of the act, with notice thereof.” The cases that hold a principal liable for the torts of the agent committed in the course of his employment do not base the right of recovery upon the ground of ratification, but rather upon the ground of public policy, — that of two innocent parties the one must suffer who has been the indirect cause of the injury by placing the agent in such position as to be the primary cause. Lord Holt, in the early case of Hern v. Nichols, 1 Salk. 289, states the reason of the rule thus : “For, seeing somebody must be a loser by this deceit, it is more reason that he that employs and puts a trust and confidence in the deceiver should be a loser than a stranger.” Judge Story puts it in this way: “The whole doctrine proceeds upon the intelligible ground that, whenever one of two innocent parties must suffer by the act of a third person, he shall suffer who has been the cause or occasion of the confidence or credit reposed in such third person.” Story, Partn. § 108. Chief Justice Shaw says: “The rule [that the principal is liable for the fraud of his agent] proceeds- upon the ground that the servant is acting within the scope of his authority, actual or constructive.” Locke v. Stearns, 1 Metc. 563. It is a species of estoppel upon the principal, whereby he is not permitted to show that the acts were committed without his knowledge or consent. No case bases the right of recovery upon ratification in accepting the fruits of the transaction. The principal would be equally liable for the torts of his agent or servant, committed in the course of his employment, whether he accepted — 35 — or rejected the fruits. The law requires him to so far accept the fruits of his servant’s misconduct as to be responsible therefor. Our own statute is here an embodiment again of these principles of the common law. Section 1374: “Unless required by or under the authority of law to employ that particular agent, a principal is responsible to third persons for the negligence of his agent in the transaction of the business of the agency, including wrongful acts committed by such agent in and as a part ■of the transaction of such business, and for his willful omission to fulfill the obligations of the principal.” Section 1375 : “A principal is responsible for no other wrongs committed by his agent than those mentioned in the last section, unless he has authorized or ratified them, even though they are committed while the agent is engaged in his service.” By the last section the principal is never liable for wrongful acts not committed by the agent as a part of the transaction, unless he authorized or has ratified them. If the jury believed Bruns, he never authorized the purchase, and he never ratified it “by accepting the benefit, with the notice thereof.” Section 1349, supra. And this is the more especially the proper rule in an action of deceit, as applied to the facts of this ease, where the defendant Howard was at most a special agent, of whose power and authority the plaintiff was charged with notice. Nixon v. Palmer, 8 N. Y. 398; Beals v. Allen, 18 Johns. 363. It was therefore error to give this instruction to the jury without in some manner informing them that such adoption of the purchase must be accompanied with knowledge or notice of the material facts of the transaction; and as the action is joint, and all the defendants have appealed, a new trial must be granted as to all. The tide seems to have been strongly with the plaintiff in the trial of this case, and the defendants seem to have been surprised at the final turn taken by plaintiff’s attorneys in its submission to the jury, and the defense was not fully developed. The case is one bristling with closé and difficult questions of law, which we have not seen fit to determine, if proper to do — 36 — so in this premature presentation to the court; and, as the case must go back for a new trial, we have thought best to send it down unhampered by “the law of the case,” with the remark that all other errors in the case assigned and presented in argument are left open and undetermined, subject to future examination and determination, should the ease ever find its way here again. The judgment is reversed, and a new trial ordered. All the justices concurring.