Johnson v. Shenandoah Life Ins. Co.

• Decision Date: 19 July 1973
• Citation: 281 So.2d 636,291 Ala. 389
• Parties: Walter E. JOHNSON et al. v. SHENANDOAH LIFE INSURANCE COMPANY, a corporation, et al. INDUSTRIAL FINANCE AND THRIFT, INC., a corporation, et al. v. SHENANDOAH LIFE INSURANCE COMPANY, a corporation, et al. SC 135, 138.
• Court: Alabama Supreme Court

Page 636

281 So.2d 636

291 Ala. 389

Walter E. JOHNSON et al. v. SHENANDOAH LIFE INSURANCE COMPANY, a corporation, et al.

INDUSTRIAL FINANCE AND THRIFT, INC., a corporation, et al. v. SHENANDOAH LIFE INSURANCE COMPANY, a corporation, et al.

SC 135, 138.

Supreme Court of Alabama.

July 19, 1973.

Rehearing Denied Aug. 30, 1973.

McDermott & Slepian and Braxton L. Kittrell, Jr., Mobile, for appellants.

Louis E. Braswell, Mobile, for appellee Shenandoah Life Ins. Co.

MERRILL, Justice.

This is an appeal from two judgments in cases tried together--one in which Walter E. Johnson and Glenn Merrill, individuals, were plaintiffs, and the other, Industrial Finance and Thrift, Inc. and Industrial Finance Co., Inc., corporations, were plaintiffs. The defendants in both suits were Shenandoah Life Insurance Co., a corporation, and Hightower and Thompson, individuals. The suits are for fraud (Counts One and Two), breach of contract (Counts Three and Seven) and the recovery of money paid (Counts Four, Five and Six).

The complaints were filed on August 3 and 4, 1970. In addition to the three defendants already listed, other defendants were Transtate Mortgage Service, Inc., Gulf National Mortgage Service Co., Inc., Sid C. Pruett and John Doe. These 'other' defendants were stricken by plaintiffs on April 3, 1972, the first day of the trial, because they had never been served. Also, plaintiffs added Count Seven for breach of contract. Defendants Hightower and Thompson had earlier filed appearances but did not appear at the trial. Shenandoah was the only contesting defendant.

Defendant Shenandoah entered a plea of the statute of limitations as to Counts One and Two of both suits. Plaintiff's replication to this plea attempted to invoke the saving provisions of Tit. 7, § 42, Code 1940. Defendant Shenandoah's demurrer to this replication was sustained. The affirmative charge was given in favor of defendant Shenandoah as to all counts of both suits. The jury returned a verdict against defendants Hightower and Thompson in favor of the plaintiff corporations for $34,913.20; the jury returned a verdict in favor of plaintiffs Johnson and Merrill for $24,000.00. This appeal was taken by the plaintiffs and the main argument is that the court erred in giving the affirmative charge in favor of Shenandoah.

In order to capitalize the two corporations, Industrial Finance and Thrift and Industrial Finance Co., that they had organized to carry on the business of consumer finance, the plaintiffs, Johnson and Merrill, contacted defendants, Hightower and Thompson, who were life insurance agents of Shenandoah Life Ins. Co. The four met in the office of Shenandoah, at Huntsville, which was identified by a large sign on top of the building. Johnson and Merrill brought with them a check for $3,000.00, which represented 2% Of $150,000.00, the amount they originally intended to borrow. While at this meeting, Hightower introduced Johnson to Pruett, of Transtate Mortgage Service, by telephone and they discussed the loan. This check was made payable to Transtate. Johnson testified that he was told by Hightower that Transtate was a subsidiary of Shenandoah. In fact, Shenandoah had no such relationship with Transtate. Johnson and Merrill were persuaded to seek a loan of $400,000.00 instead of $150,000.00 at this meeting. An additional check for $5,000.00, which represented the balance of 2% Of $400,000.00, was mailed to Hightower and Thompson and was also made payable to Transtate.

Johnson testified that he was told that Shenandoah 'was going to handle the funding of the money,' but Hightower and Thompson did not recall any mention of Shenandoah as the lending agent. Neither Johnson nor Merrill inquired, or were told, whether Hightower and Thompson had the authority to make the loan. There was no authorization from Shenandoah for Hightower and Thompson to make loans. Only the Investment Committee of Shenandoah had the authority to make loans. Moreover, Shenandoah was forbidden by the law of the state of its incorporation (Virginia) to make a loan of the type sought by the plaintiffs.

Hightower and Thompson were interested in placing the loan so they could get the commission on the life insurance policies on the lives of Johnson and Merrill necessary to secure the loan. A check for $939.50 was paid to Shenandoah for such life insurance. This check was later refunded because Johnson and Merrill never accepted the policies.

Johnson and Merrill were required by Hightower and Pruett to put up an additional $20,000.00 as earnest money. Hightower and Thompson each wrote a letter to Johnson saying that upon payment of the additional money he would 'personally guarantee a fundable commitment.' The check for $20,000.00 was turned over to Pruett by Johnson and was likewise made payable to Transtate.

The mortgage commitment application was between Transtate Mortgage Service and Industrial Finance and Thrift; the name 'Shenandoah' did not appear on the document, nor did it appear on the escrow agreement signed by Pruett and Johnson. The loan commitment delivered by Pruett in exchange for the additional money was made by Gulf National Mortgage Co. The standard contract bond, also delivered in exchange for the $20,000.00, was between Gulf National Mortgage and Industrial Finance and Thrift and Industrial Finance Co.

When it was discovered that the commitment was no good, Johnson and Merrill contacted Hightower and Pruett and were told there was some misunderstanding and that a fundable commitment would be issued in a few days. Johnson and Merrill later tried to get their money back after learning the commitment was not good. Johnson testified, 'They kept reassuring us all was well.' Near the end of June in 1969, Pruett gave Johnson and Merrill a $25,000.00 silver certificate which was found to be worthless. Pruett wrote two checks to the plaintiffs for $20,000.00 and $9,200.00 as a refund of money paid to him; these checks bounced on August 11, 1969.

Those assignments of error dealing with the affirmative charge in favor of Shenandoah as to Counts Four, Five and Six (recovery of money paid) are without merit. There was no proof of money paid to Shenandoah except for insurance premiums which Shenandoah refunded. All other money paid by the plaintiffs was paid to Transtate and there was no evidence to support those counts against the defendant, Shenandoah.

Another group of assignments charge error in the giving of the affirmative charges for Shenandoah as to Counts Three and Seven (the contract counts).

The correctness in giving these charges depends upon the authority of Hightower and Thompson to bind Shenandoah to make the type of loan sought by plaintiffs.

Appellants concede in brief that 'there is no evidence in the record that the Defendants Hightower and Thompson had any express or implied authority to bind the Defendant Shenandoah to a contract to secure for the Plaintiffs a fundable loan commitment in the amount of $400,000.00. It is submitted, however, that there was ample evidence to submit to the jury that the Defendants Hightower and Thompson were acting within the scope of their 'apparent' or 'ostensible' authority at the time they entered into the contract with the Plaintiffs.'

In Roberts & Sons v. Williams, 198 Ala. 290, 73 So. 502, this court said:

'Where the evidence shows that the actor has been held out by the alleged principal, as being his agent or as possessing the authority assumed by such agent within the scope of the principal's business, the doctrine of apparent authority can be invoked by one who has been misled to his detriment. * * *'

The following was written in Automotive Acceptance Corporation v. Powell, 45 Ala.App. 596, 234 So.2d 593:

'The doctrine of apparent authority does not rest upon what one thinks an agent's authority may be, or what the agent holds out his authority to be; rather, the doctrine of apparent authority is based on the principal's holding the agent out to a third person as having the authority under which he acts. The following statement on the doctrine of apparent authority is found in Am.Jur.2d, Agency, Sec. 74, p. 476:

"The apparent power of an agent is to be determined by the acts of the principal, and not by the acts of the agent; a principal is responsible for the acts of an agent within his apparent authority only where the principal by his acts or conduct has clothed the agent with the appearance of authority, and not where the agent's own conduct and statements have created the apparent authority.'

'We would point out that Owens v. Wood, 43 Ala.App. 366, 190 So.2d 734, is to the same effect, and the Court of Appeals had this to say:

"In order to charge the principal because of apparent authority, a third party must prove that the principal manifested indicia of having cloaked the agent with the authority.' Restatement, 2d Agency, § 49.'

'Apparent authority' is such as a principal knowingly permits an agent to assume or holds him out as possessing. First Trust Joint Stock Land Bank v. Diercks, 222 Iowa 534, 267 N.W. 708. It seems to be generally held that an agent's apparent authority must be based upon the conduct of the principal and not of the agent. 2A C.J.S. Agency § 161; 3 Am.Jur.2d, Agency, § 75.

A general agent has no implied authority to bind his principal by contracts unusual to agencies of like character, or beyond the usual scope of such agencies; and when he attempts to bind his principal by his extraordinary acts, the one dealing with him is put upon notice, and required to ascertain from some authoritative source whether such agent had the power to bind his principal thereby. Johnson v. Shook & Fletcher Supply Co., 245 Ala. 123, 16 So.2d 406.

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. Johnson v. Shook & Fletcher Supply Co., supra.

The burden of proving an agency...