Land-Air, Inc. v. Parker , 103 Ariz. 1 ( 1967 )

BERNSTEIN, Chief Justice

(dissenting).

I regret that I cannot concur with the decision of the majority, for I believe their decision in this case is wholly unsound as a matter of agency law, and sadly unwise as a matter of judicial policy.

The majority lays great emphasis on the following statement:

“Under established principles of appellate procedure, we must affirm the trial court if 'we can on any reasonable view of the evidence deduce therefrom facts which, on any theory of the law, would sustain the judgment.’ ” (Emphasis added.)

With this statement I wholeheartedly agree. However, I depart from the majority in what they conclude is a reasonable interpretation of the evidence.

The majority holds that the transaction between Allied, Parker, and Nationwide constitutes a novation thereby extinguishing Parker’s obligation to Land-Air. In order for this result to attach, however, it is first necessary to show that Allied had the power to enter into a novation binding on Land-Air. The majority concludes that Allied had this power by virtue of its agency relationship with Land-Air.

An agent is one who has the power to act on behalf of another. Valley National Bank v. Milmoe, 74 Ariz. 290, 248 P.2d 740 (1952). His authority may be express or implied on the one hand, or apparent on the other. Aetna Loan Co. v. Apache Trailer Sales, 1 Ariz.App. 322, 402 P.2d 580 (1965). It is evident that the majority relies on implied authority as a basis for concluding that Allied had the power to effect a novation.¹

Testimony of Land-Air’s credit manager supports, perhaps, a conclusion that Allied was given express authority to “collect” the money owing from Parker. It must be stressed, however, that authority to “collect” neither expressly nor impliedly grants to an agent the authority to novate.

“ * * * Authority to collect does not include authority to compromise, to release any part of the debt * * * ” Restatement, Second Agency § 72, Comments Clause (a).

Rather, the authority of an agent for collection is limited to the acceptance of money of legal tender that is due. Haynes Petroleum v. Turlington, 261 N.C. 475, 135 S.E.2d 43 (1964).

, Let. us examine the evidence that the ■majority relies upon in reaching their conclusion that Allied had the authority to enter into a novation.

.' First the majority points to the fact that Allied was given the power to “settle”, and that this indicates the power to effectuate a novation. I do not argue with the contention that the legal power to settle implies the power to novate, but I cannot agree that Allied was given the power to settle in any legal sense of the word. The word “settle”, appears only on cross examination of Land-Air’s credit manager and the context in which it is used makes clear its intended meaning.

Direct examination:

“Q Did you ever request Allied Medical to make collections for the Plaintiff from Dr. Parker on these contracts ?

“A * * * It’s not a simple thing to answer because you do not tell somebody to go and effect a collection. You put [it] in a different way. And that’s not what you say. You see, they were indebted to us by recourse through the contract. We could have charged their account and it was in this way that I explained to them that unless we received payment from Dr. Parker it would be necessary to charge this account or take whatever legal action would be necessary to protect our interests.

Hí * * * *

Cross examination:

“Q Now, as the credit manager I suppose your chief function is to see, or one of your chief functions, I should say, is to see that receivables are paid, is it not ?

“A That’s correct.

“Q And in doing this is not customary to periodically review accounts and especially those accounts on which • payments have not been made?

“A It is.

“Q And is it not also customary when payments have not been made to make follow up contacts with the debtors ?

“A There is a differentiation between a follow up of an accounts receivable and a follow up of an assigned contract. After a certain period of time on an assigned contract where a letter or two has not brought any results it is then referred back to the dealer.

“Q And you expect the dealer to make the collection for you?

“A Not for me, he either collects it or settles the account in order to avoid his having to repurchase the equipment or contract.

“Q He collects the account or settles it so that he’s not going to have to rebuy it back from you?

“A That’s right.

“Q But he did these things while you were the owner of the account? Let me be specific; in this case you did not reassign this contract to Allied Medical, did you?

“A No, it’s not the practice as a rule to immediately reassign it, then you’d be going back and forth.

“Q You went back to the dealer who was Allied Medical and told them that (sic) either collect the account or settle the account or you were going to go back on them on this recourse, is that right ?

“A That’s correct.

******

Re-direct examination:

“Q Is there any record kept by which you told Allied to settle the account ?

“A I don’t recall that the word ‘settle’ was used because ‘settle’ usually means to lower or come to some kind of agreement at a lower figure. This I can’t recall. I do recall they were asked to contact the doctor and get him back on his paying schedule to get him to pay something on his account.” (Emphasis added.)

It is evident from this testimony that the word “settle” was not used in its legal sense. It was not meant either as a power to compromise or to adjust a dispute. See Goldbard v. Empire State Mut. Life Ins. Co., 5 A.D.2d 230, 171 N.Y.S.2d 194 (1958); Toombs v. Stockwell, 131 Mich. 633, 92 N.W. 288 (1902). Obviously this testimony indicates that Allied had been told that they had best get the delinquent payments straightened out or else Land-Air would be impelled to exercise its right of recourse. It appeared at only one point on cross examination and was used at no other time.

But more important, it is the height of folly to believe that Land-Air would give Allied the authority to compromise the Parker account when Land-Air had a perfectly good right of recourse against Allied. Under these circumstances, it cannot be reasonably concluded that there was proof that Land-Air gave Allied a power to settle in the legal sense, and as a consequence, this testimony cannot properly be the basis for a finding that Allied was given a novation authority.

The majority of this court also relies heavily on the fact that Land-Air made no contact with Parker for more than fourteen months after the account had been “referred back” to Allied, and that this represents a decision on the part of Land-Air to look only to Allied for payment on the Parker account. Furthermore, the court presumes that Land-Air, by this action, abandoned any further attempts to collect from Parker, and consequently had no interest in whatever negotiations Allied made with him.

These conclusions, in my opinion, are totally unwarranted by the evidence. Land-Air never swayed from their attempts to get Parker to make payment on his conditional sales contract obligation. Indeed, they had corresponded with Parker on numerous occasions demanding that he resume payments. It was only after it became clear to Land-Air that they were getting nowhere with Parker that they contacted Allied and informed them that they had better collect the amount due from Parker or face the responsibility of being liable themselves on their recourse obligation. It is obvious that the reason Land-Air did not contact Parker during the fourteen months in question was because they had failed to obtain any results from their previous contact with him. But to say that this indicates “seeming unconcern” is absurd. Land-Air had no intention of releasing Parker from his obligation. Clearly this was not yet a “lost cause”, as the majority describes it, for Land-Air still had a right of recourse against Allied. It can hardly be presumed to be reasonable business practice to grant authority to one’s agent to compromise a debt for less than what is due when the agent himself is liable for the entire debt.

In addition, the majority lists a number of other factors which, they conclude, could have been used by the trial court to support its finding a novation.

The majority indicates that since Parker had previous dealings with Allied when it was not yet the agent of Land-Air, that this would have been a good reason for Parker to rely on Allied’s subsequent representations. But of course Parker had dealt with Allied when it was not the agent of Land-Air, for Allied had been the original seller of the x-ray equipment. Moreover, Parker had knowledge that the original conditional sales contract had been assigned to Land-Air. He was not blind, as the majority would have us believe. Indefed, how could he rely on Allied’s representations when Land-Air had consistently attempted to make him pay his debt? As we said in Brutinel v. Nygren, 17 Ariz. 491, 500, 154 P. 1042, 1045-1046, L.R.A. 1918F, 713 (1916):

“The mere fact that one is dealing with an agent, whether the agency be general or special, should be a danger signal, and like a railroad crossing suggests the duty to ‘stop, look, and listen,’ and if he would bind the principal is bound to ascertain, not only the fact of agency, but the nature and extent of the authority, and in case either is controverted the burden of proof is upon him to establish it. In fine, he must exercise due care and caution in the premisés.” (Emphasis added.)

The majority also emphasizes that Allied was not an ordinary collection agency, but was a dealer in x-ray equipment. Consequently, Allied had familiarity with various types of agreements other than mere collection contracts. I simply fail to see what relevance this factor has in determining the existence of implied agency. This factor cannot be a basis for concluding that implied authority exists. For one of the most basic precepts of agency law is that an agent cannot create power in himself to bind his principal.

“ ‘The agent’s authority, moreover, may not be shown merely by proving that he acted as agent. A person can no more make himself agent by his own acts * * * than he can by his own declarations or statements.’ ” Litchfield v. Green, 43 Ariz. 509, 511, 33 P.2d 290, 291 (1934).

On the other hand, if the majority is utilizing this factor to conclude that Parker could reasonably rely on Allied’s representations because of its status as a dealer, the rationale is equally unsound. First, as noted above, Parker had notice of the assignment. Second, and more important, the burden is on the person dealing with an agent to ascertain the nature and extent of his authority.

Finally, the majority restates its argument that Land-Air failed to supervise Allied in its dealings with Parker. I have already stated that the reason Land-Air did not contact Parker was because its prior communications with him had been fruitless. Indeed, the majority imposes a duty on the principal to investigate everything its agent does. Unfortunately, this would create chaos in the business world. Agency is useless if the principal must guard himself at every moment against the misdeeds of his agent.

I am convinced that the evidence cannot reasonably support the trial court’s finding that Allied had authority to enter into a novation.

I would vacate the Court of Appeals decision, 4 Ariz.App. 395, 420 P.2d 967 (1966) and reverse the judgment of the trial court.