Phelps v. Union Central Life Insurance , 105 Mont. 195 ( 1937 )

The plaintiff commenced this action to collect $1,520, with interest, for plowing alleged to have been done on lands of the defendant and at the instance of H.P. Sowter, an agent of the defendant. The defendant is the owner of some 200 farms in Montana and northern Wyoming, which were under the local supervision of H.B. Smith Son, of Billings, Montana.

The complaint alleges the formation of a partnership between the plaintiff and his father, David V. Phelps, in the spring of 1930, for the purpose of "farming a certain tract of land, the property of the defendant, lying and being in Fergus County, Montana, known as the Triepke Tract"; that the co-partnership furnished labor, materials and machinery, and broke and rebroke lands of the defendant, at its special instance and request and at the agreed price of $4 per acre for fresh broke ground, and $2 per acre for rebreaking; that 300 acres of new ground were broken and 160 acres of rebreaking done under such arrangement; that the services alleged were of the reasonable value of $1,520; that subsequent to July 1, 1932, the co-partnership sold and assigned the claim for such plowing to the plaintiff; and that frequent demand had been made upon the defendant for payment of the amount claimed to be due, which payment was refused. Judgment was prayed for in the amount stated, with interest from July 1, 1932, at 8 per cent. per annum.

Defendant's general demurrer was overruled. The answer is a general denial of all the material allegations of the complaint. The matter was heard by Honorable Stewart McConochie, Judge of the Tenth Judicial District, sitting with a jury. Judgment was entered July 8, 1935, in favor of the plaintiff, and on August 30 thereafter defendant's motion for a new trial was granted. December 11, 1936, the cause came on for retrial with Honorable William L. Ford, of the Fourteenth Judicial District, sitting with a jury. A verdict was again returned in favor of the plaintiff, and judgment was duly entered thereon. When the matter came on for trial defendant objected to the introduction of any evidence, which objection was overruled. When plaintiff presented his case in chief and rested, defendant moved for a nonsuit, which was denied; at the close of defendant's case it moved for a directed verdict, which was denied. Defendant then moved that David V. Phelps' testimony, wherein he stated that Sowter told him that he had authority to contract with him to do the plowing, be stricken from the record. The motion was denied. The matter is here on appeal from the judgment.

A number of errors are assigned, but we are of the opinion that the determination of the controversy depends upon whether Sowter, as the agent of the defendant, had the power to make the alleged contract for the plowing. Sowter died before this action was commenced, and the testimony of David V. Phelps as to the contract he made with Sowter is the only evidence in the record to support plaintiff's contention that such a contract was made.

The plaintiff testified that all business arrangements made and obligations incurred by the partnership were arranged by his father, and that plaintiff knew about the plowing contract only in a general way through information coming to him from his father. Irrespective of whether Sowter ever agreed upon any such contract as David V. Phelps testified was agreed upon, the plaintiff here must show that Sowter was acting within the scope of his powers as the defendant's agent, or that the defendant is estopped to deny Sowter's authority by reason of some act of the defendant which tended to confirm by implication such authority in Sowter as Phelps alleges Sowter claimed to possess, and which was sufficient to justify Phelps in believing Sowter had the power to contract to have the plowing done.

Two very recent works of outstanding character treating at[1] length the subject of agency we think are sufficient authority here without citing the multitude of cases found in the reports. The texts of the works referred to are supported by many authorities.

Corpus Juris Secundum, vol. 3, at page 285, subdivision 3 of section 324, lays down the following rules: "Notwithstanding broad statements in a few cases that the declarations of an agent are admissible against the principal to show the extent of the authority of the agent, it is elementary that the acts, declarations, admissions, statements, or representations of an agent are not admissible against the principal to prove the power or authority of the agent or the scope or extent thereof, unless such acts or declarations were done or made in the presence of the principal, or were within his knowledge, or were authorized or ratified by him, or there is other evidence of authority. The rule refers to declarations made by the agent out of court, off the witness-stand, or otherwise than in his sworn testimony, and it means that such declarations cannot be testified to by a third person for the purpose of proving the scope or extent of the authority of the agent. The direct testimony of an agent on the witness-stand is admissible to prove his authority and the extent thereof where his powers and duties have not been reduced to writing." Sowter's power to contract for the plowing was not shown in any one of the modes here mentioned.

To the same general effect are sections 95 and 96 of 2 American Jurisprudence, pages 76 and 77. Section 95 is in part as follows: "A person dealing with a known agent is not authorized under any circumstances blindly to trust the agent's statements as to the extent of his powers; such person must not act negligently, but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his powers. In other words, a person dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon the agent's assumption of authority which proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency * * *"

Section 96 provides: "When one deals with a special agent or[2, 3] an agent who has only special authority to act for his principal, he acts at his peril, for he must acquaint himself with the strict extent of the agent's authority and deal with the agent accordingly. Such third person must inquire into the extent of the agent's authority; he is not justified in relying upon any appearance of authority except that which is directly deducible from the nature of the authority actually conferred. The reason for this is that if the power of an agent is special and limited, it must be strictly pursued and construed, with the result that neither the agent nor a third person dealing with him as such can claim that the agent had a power which they had not a right to understand was actually conferred."

The foregoing rules are firmly established in this jurisdiction. (Barrett v. McHattie, 102 Mont. 473, 59 P.2d 794; Benema v. Union Central Life Ins. Co., 94 Mont. 138,21 P.2d 69; Moore v. Skyles, 33 Mont. 135,82 P. 799, 114 Am. St. Rep. 801, 3 L.R.A. (n.s.) 136.) In Benema v.Union Central Life Ins. Co., supra, this court said: "A person dealing with a special agent must at his peril ascertain the extent of the authority of the agent." Sowter was a special agent of the defendant. (Barrett v. McHattie, supra.)

Phelps knew Sowter's power to act for the defendant was limited. Phelps testified that when he discussed the Triepke deal with Sowter, the latter told him that he, Sowter, could not sell the Triepke land nor lease it; that he would have to take such matters up with the company, but he did have the authority to hire Phelps to do the plowing. This was sufficient to put Phelps on inquiry to determine the extent of Sowter's authority.

Having determined that the declarations of the deceased agent[4] Sowter as testified to by Phelps were inadmissible, this leaves the record without any competent evidence upon which the jury might find that the alleged contract was entered into by the authorized agent of the defendant. Ordinarily this would leave the record in such condition whereby we would be compelled to hold that the trial court was in error in denying the motions for nonsuit and directed verdict. However, on the trial of this case plaintiff offered to prove by the witness Stedman that the witness had dealings and negotiations with reference to plowing contracts with the agent Sowter, which he proceeded to perform and thereafter communicated with the defendant company, stating the fact that he had made such an agreement, and that on July 30, 1928, the company forwarded to him a check in partial settlement for the services, and that, upon investigation of the work done, full settlement would be made. Plaintiff further offered to show by the same witness that similar transactions to this one were consummated with the defendant life insurance company through its agent Sowter during the years 1928, 1929, 1930 and 1931. The offer was by the trial court denied, for the reason that it was not shown that either of the members of the copartnership of Phelps Son had any knowledge of these transactions. This ruling was error.

Apparently the trial court failed to recognize the distinction[5] between an ostensible and an implied agency. If the testimony was offered for the purpose of proving an ostensible agency, then knowledge of these transactions on the part of the plaintiff or his assignor would have been necessary. But in the case of an implied agency the fact that the offered evidence failed to disclose that plaintiff, at the time he dealt with the agent, knew of the acts of the principal creating the agency, or the circumstances showing the extent of the agent's authority, is immaterial. (Commercial Credit Co. v. Blair, 84 Mont. 314,275 P. 748.)

Plaintiff has made no cross-assignments of error, nor has he[6, 7] perfected a cross-appeal. The right to make cross-assignments of error is regulated by statute (sec. 9751, Rev. Codes); the scope and effect of this statute have been frequently considered by this court. It applies only to cases in which the respondent makes cross-assignments upon error or rulings adverse to him and preserved in the bill of exceptions, in order to enable this court to determine whether those complained of by appellant were compensated for or rendered harmless by reason of them. (Hamilton Co. v. Battson,99 Mont. 583, 44 P.2d 1064, 101 A.L.R. 520, and cases cited.) If the offered evidence had been received and fully sustained the offer as made, we then might be able to say that the error in the admission of the testimony of Phelps might have been rendered harmless by the admission of other testimony. But, as the record stands, we have only the mere offer to prove, and cross-assignments of error would not have enabled us to say in this case that the errors in favor of plaintiff were compensated by the errors against him.

We recognize the rule that errors respecting matters not before the supreme court on appeal may only be presented on cross-appeal. (In re Silver's Estate, 98 Mont. 141, 38 P.2d 277; Best v. London Guarantee Accident Co., 100 Mont. 332,47 P.2d 656.) However, the foregoing rule does not supersede one which we are about to mention where the record is in the condition as the one before us. Under section 8805, Revised Codes, this court may affirm, reverse or modify any judgment or order appealed from, and may direct the proper judgment or order to be entered, or direct a new trial or further proceedings to be had. We will ordinarily, when a judgment for plaintiff is reversed for error in refusing to direct a verdict for the defendant after the former has had a full opportunity to introduce all of his evidence, and it appears that the case is not supplemented by the defendant, order a judgment of dismissal. (State ex rel. La France Copper Co. v. District Court,40 Mont. 206, 105 P. 721; Doyle v. Union Bank Trust Co.,102 Mont. 563, 588, 59 P.2d 1171.) But where, as here, the plaintiff had some additional testimony which the trial court erroneously declined to hear and which he was entitled to have received and considered, appropriate offer of proof being made, we will not order the case dismissed but will remand it for a new trial.

Since the judgment in this case must be reversed and the cause[8] remanded for a new trial, the question as to the admissibility of statements alleged to have been made by the deceased agent Sowter to David V. Phelps is likely to arise again as it did on the first trial. The language contained in the exception under subdivision 4 of section 10535, Revised Codes, is identical with that found in subdivision 3 of the same section. This court has many times construed the meaning of this exception in subdivision 3. Since the language is the same, the rule should be the same. What we said in the case of Pincus v. Davis,95 Mont. 375, 26 P.2d 986, with reference to the admissibility of evidence under subdivision 3 is likewise applicable here. It is as follows: "The trial court should not admit the testimony of such a witness until sufficient other testimony has been admitted to warrant the court, in the exercise of its discretion, to render a ruling in favor of the questionable testimony. The court must exercise this discretion with caution and reasonable strictness, and not so loosely as to infringe on the general rule, unless it reasonably appears that otherwise injustice will result, and therefore the exception rather than the rule should apply. (Wunderlich v. Holt, 86 Mont. 260, 283 P. 423;Langston v. Currie, ante, p. 57 [95 Mont.],26 P.2d 160.)" The last cited case illustrates the application of the rule as to what constitutes a necessary foundation for the admission of this class of testimony.

It has been suggested that there was sufficient proof of other[9] contracts of a similar nature entered into by the agent Sowter with third parties which the company recognized, to send the case to the jury on the question of implied agency. The witness Phelps testified, over objection, that he had knowledge of other contracts being entered into between Sowter and third parties of a similar nature. Such testimony, if offered for the purpose of showing knowledge and as preliminary to further inquiry, might be permissible, but it has no probative force to establish the existence of such contracts. (McKee Livestock Co. v. Menzel, 70 Colo. 308, 201 P. 52; see, also, FirstNational Bank of Miles City v. Bullard, 20 Mont. 118,49 P. 658; Baker v. Citizens' State Bank of St. Peter, 81 Mont. 543,264 P. 675.) The offer of such testimony as proof of a contract is obnoxious to the opinion rule. (Subd. 4, sec. 658, Wigmore on Evidence, 2d ed.; Callahan v. Marshall, 163 Cal. 552,126 P. 358; Gile Co. v. Lasselle, 89 Or. 107,171 P. 741.)

For the reasons stated, the judgment is reversed and the cause remanded to the district court of Fergus county with instruction to grant the defendant a new trial.

ASSOCIATE JUSTICES STEWART, ANDERSON and MORRIS concurring.

MR. CHIEF JUSTICE SANDS, being absent on account of illness, takes no part in the foregoing opinion.