Raymond Day v. Case Credit Corp. ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-3090
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Raymond Day; Boren Holtoff; *
Mike Moreland; Junior Burdan; *
Pat Roberts; Steve Ross, *
*
Plaintiffs/Appellants, * Appeal from the United States
* District Court for the Eastern
v. * District of Arkansas.
*
Case Credit Corporation, *
*
Defendant/Appellee. *
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Submitted: June 23, 2005
Filed: November 7, 2005
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Before MURPHY, BYE, and SMITH, Circuit Judges.
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BYE, Circuit Judge.
Raymond Day, Boren Holthoff, Mike Moreland, and Steve Ross (farmers)1
appeal the district court's grant of summary judgment dismissing their claims against
Case Credit Corporation (Case) and granting judgment in favor of Case. We affirm
in part and reverse in part.
1
Appellants offer no arguments on behalf of Junior Burdan and Pat Roberts.
Therefore, the district court's orders with respect to them are summarily affirmed.
I
The facts, viewed in the light most favorable to the farmers, Dush v. Appleton
Elec. Co., 124 F.3d 957, 962-63 (8th Cir. 1997) (summary judgment standard), show
the following. The farmers are former customers of Ron Kaufman, the owner and
operator of Southeast Implements, Inc. (Southeast), a Case International Harvester
equipment dealership. Between 1996 and 1998, they agreed to purchase or lease
various items of farm equipment from Southeast. In each instance, the farmers and
Kaufman orally negotiated the terms of the purchases/leases, and Kaufman then
prepared written purchase agreements for each transaction, assigning his rights
thereunder to Case. Case, in turn, after approving the assignments and agreeing to
finance the purchases/leases, paid Kaufman for the equipment and looked to the
farmers, as putative debtors, for payment. The written purchase agreements, however,
were prepared and assigned without the farmers' knowledge and did not reflect the
terms of the oral contracts. For example, most of the oral contracts involved leases
of farm equipment, while the written contracts represented them as outright sales.
Additionally, Kaufman inflated the purchase/lease prices and forged the farmers'
signatures, thereby obtaining thousands of dollars in overpayments from Case. In
several instances, Kaufman assigned Case forged purchase agreements purporting to
cover equipment the farmers never possessed or agreed to purchase.
In addition to forging purchase contracts, Kaufman forged customer signatures
on applications for Case credit cards and shop expense financing accounts. This
deception facilitated Kaufman's original fraud by providing a source of funding for
repairs and warranty work he agreed to provide as part of the oral contracts. When
the farmers brought equipment in for covered repairs or warranty work, Kaufman
charged the cost to one of the fraudulent credit cards or shop expense accounts and
obtained reimbursement from Case.
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Kaufman hid his fraudulent activities by giving Case a dummy mailbox address
for the farmers. Monthly statements and other correspondence from Case to the
farmers was delivered to the bogus post office box and retrieved by Kaufman.
Occasionally, dunning correspondence from Case made it to the farmers, who turned
it over to Southeast. In each instance, Kaufman assured them he would look into the
matter and the problem appeared to resolve.
Eventually, the scheme foundered. When Case became aware of Kaufman's
fraud it sent representatives to meet with the individual farmers. After verifying the
farmers were in possession of equipment covered by the forged purchased agreements,
the representatives demanded they sign "Account Verification" forms. Each
verification form contained a description of the equipment, an account number, and
a purchase/lease price based on information lifted from the forged contracts. When
the farmers refused to sign because the purchase/lease prices were overstated, they
were assured the forms would only be used to confirm possession of the equipment.
Later, however, Case attempted to enforce the terms of the forged contracts, relying
in part on the Account Verifications. According to the farmers, they offered to meet
the terms of their oral agreements with Kaufman, but Case refused, insisting they
comply with the fraudulent terms reflected in the forged contracts. The farmers allege
Case was fully aware Kaufman had falsified the written purchase agreements and
compounded his fraud by using the Account Verifications in an attempt to force their
acceptance of the fraudulent terms.
Attempts to resolve the disputes proved fruitless and the farmers filed suit
against Case and Southeast in Arkansas state court. The farmers failed to effect
service of process on Southeast and the action against Case was later removed to
federal district court. In their complaint, the farmers sought declaratory relief, asking
the district court to determine the rights and obligations of the parties with respect to
the purchases/leases of farm equipment. The farmers also alleged, based on an agency
relationship with Kaufman, Case breached the purchase/lease agreements and was
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liable for invasion of privacy, fraud, and misrepresentation. Case denied the
allegations and counter claimed demanding payment for the amounts due or
alternatively for possession of the equipment and any deficiency owing after its sale.
Case moved for partial summary judgment on the issue of agency, arguing
Kaufman's wrongful acts could not be imputed because Case's only relationship with
him was as an independent financing entity. The district court agreed and granted
summary judgment. It further concluded all of the farmers' claims were dependent
upon a finding of agency and dismissed their entire complaint with prejudice. Case
next moved for summary judgment on its counter claim, arguing the farmers were
contractually bound to pay for the equipment. The district court granted summary
judgment, finding the farmers orally agreed to purchase/lease equipment from
Kaufman and admitted they possessed the equipment which had been financed by
Case. Accordingly, the district court reformed the forged purchase agreements to
reflect the payment terms agreed to in the oral contracts and enforced them against the
farmers. Alternatively, the district court held the farmers were liable under a theory
of unjust enrichment for the value of the benefits they had received from using the
equipment. Finally, Case moved for summary judgment on damages, arguing the
farmers were obligated to pay damages according to the payment terms set forth in the
oral agreements with Kaufman. The district court found the payment terms under the
oral agreements undisputed and awarded damages equal to the farmers' contractual
obligations thereunder.
On appeal, the farmers argue the district court erred by 1) finding there was no
agency relationship between Kaufman and Case, 2) dismissing their contract claims,
and 3) granting summary judgment to Case based on its contract claims.
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II
This diversity action is governed by Arkansas state substantive law. Erie R.R.
v. Tompkins, 304 U.S. 64, 78 (1938). We review the district court's grant of summary
judgment and its application of state law de novo. Lerohl v. Friends of Minn.
Sinfonia, 322 F.3d F.3d 486, 488 (8th Cir. 2003); Reimer v. City of Crookston, 326
F.3d 957, 961 (8th Cir. 2003).
A
The farmers first argue the district court erred when it concluded Kaufman was
not acting as Case's agent. We disagree.
In Arkansas, the burden of proving an agency relationship rests with the party
asserting its existence. B.J. McAdams, Inc. v. Best Refrigerated Express, Inc., 579
S.W.2d 608, 610 (Ark. 1979). In Evans v. White, 682 S.W.2d 733, 734 (Ark. 1985),
the Arkansas Supreme Court held the two essential elements of an agency relationship
are 1) an agent must have the authority to act for the principal, and 2) the agent must
act on the principal's behalf and be subject to the principal's control. See also Taylor
v. Gill, 934 S.W.2d 919, 921 (Ark. 1996) (holding the essential elements of an agency
relationship are authorization and control).
The farmers argue Kaufman's wrongful acts should be imputed to Case because
he was acting as its agent when he negotiated the oral agreements and when he drafted
the forged contracts. To support their argument, the farmers seize upon language in
the Retail Financing Agreement between Case and Kaufman authorizing him to
collect payments from customers on behalf of Case for equipment it financed.
According to the farmers, this limited grant of authority implies Kaufman was
authorized to act on Case's behalf generally. We decline the invitation to expand this
limited grant of authority beyond its express terms. We note, as did the district court,
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the Wholesale Financing Agreement between Case and Kaufman expressly disavows
any intent to grant Kaufman such broad authority or to create an agency relationship.
Because there is no evidence Kaufman was authorized by Case to enter into contracts
on its behalf or that Kaufman's activities were controlled by Case, we affirm the
district court's holding.2
B
The farmers next argue the district court erred by granting Case summary
judgment on its contract claims. We agree.
Defining the precise contours of Case's contract theory has proven an elusive
task, made all the more difficult by its indecision about which contracts it hopes to
enforce. Case concedes it was not a party to the oral agreements between the farmers
and Kaufman, but argues it is an assignee or third party beneficiary "of the
purchase/lease agreements . . . made orally with Southeast which arose from the
written retail installment contracts." This argument suggests Case hopes to enforce
the oral agreements. Conversely, however, Case argues the district court properly
enforced the forged contracts after reforming them to reflect the terms of the oral
agreements. We need not resolve this apparent inconsistency. Because Case cannot
enforce the forged purchase agreements or oral agreements – or some amalgam of the
two – we reject its contract theory of recovery.
First, the forged purchase agreements were void from their inception. See
Milum v. House, 91 S.W.2d 611, 611 (Ark. 1936) (holding a forged promissory note
"is void; and no rights can be predicated upon it . . . ."); see also Orlosky v. Empire
Fin. Sys. Inc., 657 N.Y.S.2d 840, 842 (N.Y. App. Div. 1997) (holding there is no
2
The farmers also argue Kaufman must have been Case's agent because the
district court held Case could enforce the oral contracts between Kaufman and the
farmers. We address this issue below.
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meeting of the minds when a contract has been forged, rendering it void ab initio);
Laborers' Pension Fund v. A & C Environ., Inc., 301 F.3d 768, 779-80 (7th Cir. 2002)
("A promisor's signature procured by fraud . . . gives no more effect to a contract than
a promisor's signature that has been forged. In either case the contract is void; it has
never had any legal effect."). Thus, the district court could no more reform the
nonexistent written contracts than Case could seek to enforce them.
Second, Case is not an assignee of any contracts. "[U]nder Arkansas law the
elements of an effective assignment are delivery of the subject matter with intent to
make an immediate and complete transfer of all right, title, and interest from the
assignor to the assignee." Keller v. Bass Pro Shops, Inc., 15 F.3d 122, 125 (8th Cir.
1994) (citing Turner v. Rust, 309 S.W.2d 731, 735 (Ark. 1958); Robinson v. City of
Pine Bluff, 276 S.W.2d 419, 421 (Ark. 1955); Jones v. Innkeepers, Inc., 676 S.W.2d
761, 766 (Ark. 1984)). The record is devoid of any evidence demonstrating an intent
to assign the oral agreements. Rather, the parties anticipated the orally negotiated
terms would be memorialized in written purchase agreements which, following the
farmers' approval, would then be assigned to Case. That, however, never happened
because Kaufman's attempt to complete the assignments via the forged contracts had
no legal effect.
Even assuming Case somehow acceded to Kaufman's rights, "an assignor can
assign 'only what he has,' and the assignee's right 'is subject to limitations imposed by
the terms of that contract [creating the right] and to defenses which would have been
available against the obligee had there been no assignment.'" Am. Trans. Corp. v.
Exch. Capital Corp., 129 S.W.3d 312, 316 (Ark. 2003) (quoting Restatement (Second)
of Contracts, § 336, Cmt. b (1981)). Here, Kaufman was contractually obligated to
prepare written purchase agreements reflecting the terms of the oral agreements.
Kaufman breached that obligation when he falsified the written contracts and
attempted to defraud the farmers. His breach released the farmers from their
obligations. See id. at 316-17 ("As a general rule, the failure of one party to perform
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his contractual obligations releases the other party from his obligations."). As
Kaufman's purported assignee, Case would have taken the contracts subject to the
same breach.
Finally, Case argues it can enforce the agreements as a third party beneficiary.
We disagree. "Arkansas work[s] on the theory that 'where a contract clearly intends
a benefit to the third party, privity is not required, and the third party acquires an
enforceable right." Anthes v. Thompson, 773 S.W.2d 846, 851 (Ark. Ct. App. 1989)
(quoting So. Farm Bureau Cas. Ins. Co. v. United States, 395 F.2d 176, 179 (8th Cir.
1968) (analyzing Arkansas law)).
A key which unlocks many of the [third party beneficiary] cases is the
determination of to whom the performance is to be rendered. If the
performance is to run directly to the promisee, the third party is
ordinarily an unprotected incidental beneficiary, but if it is to run to the
third party, he is ordinarily an intended beneficiary with enforceable
rights.
Id. (quoting Calamari & Perillo, The Law of Contracts § 17-2, at 608-09 (2d ed.
1977)). "[T]he presumption is that parties contract only for themselves and a contract
will not be construed as having been made for the benefit of a third party unless it
clearly appears that such was the intention of the parties." Id. (quoting Howell v.
Worth James Const. Co., 535 S.W.2d 826, 828 (Ark. 1976)). We divine no intent on
behalf of Kaufman or the farmers to negotiate the lease/purchase agreements for the
benefit of Case and conclude it is an unprotected incidental beneficiary with no
enforceable rights.
For these reasons, the district court's grant of summary judgment holding the
farmers liable under a contract theory of recovery is reversed.
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C
Having concluded Case may not recover under its contract theory, we turn to
its claim of unjust enrichment. "The phrase 'unjust enrichment' does not describe a
theory of recovery, but an effect: the result of a failure to make restitution under
circumstances where it is equitable to do so." Sparks Reg'l Med. Ctr. v. Blatt, 935
S.W.2d 304, 317 (Ark. Ct. App. 1996) (citations omitted). The party claiming unjust
enrichment must prove another's receipt of "something of value to which he is not
entitled and which he should restore. There must be some operative act, intent, or
situation to make the enrichment unjust and compensable." Smith v. Whitener, 856
S.W.2d 328, 329 (Ark. Ct. App. 1993). It is not necessary to show the party unjustly
enriched committed any wrongdoing – even an innocent party "may be compelled to
surrender the fruits to another more deserving party." Id. at 330. Rather, "[i]f one has
money belonging to another, which, in equity and good conscience, he ought not to
retain, it can be recovered although there is no privity between the parties." Id.
Parties seeking to invoke the court's equitable powers, however, must be themselves
deserving of equity. "The clean hands maxim bars relief to those guilty of improper
conduct in the matter as to which they seek relief." Merchants & Planters Bank &
Trust Co. of Arkadelphia v. Massey, 790 S.W.2d 889, 891 (Ark. 1990).
The farmers allege Case intentionally compounded Kaufman's fraud by duping
them into signing the Account Verifications and using them in an attempt to enforce
the fraudulent contract terms. The district court did not analyze whether these
allegations, if proven, should bar equitable relief. See id. ("Equity will not intervene
on behalf of [a party] whose conduct . . . has been unconscientious or unjust.").
Because the farmers' allegations of misconduct against Case create a genuine issue of
material fact as to whether equity should intervene, we reverse and remand.
Additionally, we note the farmers' motion to amend their complaint to include these
allegations was denied. In light of our remand, we see no reason the district court
cannot, upon proper motion, revisit the issue.
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III
The order of the district court granting summary judgment on the issue of
agency is affirmed. The orders of the district court granting summary judgment on
the issues of liability and damages are reversed and the case is remanded for further
proceedings consistent with this opinion.
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