KANSAS EDUCATIONAL ASS'N, ETC. v. McMahan

• Decision Date: 10 April 1935
• Docket Number: No. 1149.,1149.
• Parties: KANSAS EDUCATIONAL ASS'N OF THE METHODIST EPISCOPAL CHURCH FOR THE STATE OF KANSAS v. McMAHAN et al.
• Court: U.S. Court of Appeals — Tenth Circuit

100 ALR 384, 76 F.2d 957 (1935)

KANSAS EDUCATIONAL ASS'N OF THE METHODIST EPISCOPAL CHURCH FOR THE STATE OF KANSAS v. McMAHAN et al.

No. 1149.

Circuit Court of Appeals, Tenth Circuit.

April 10, 1935.

Leslie J. Lyons, of Kansas City, Mo., and W. C. Austin, of Altus, Okl. (Donald E. Lyons, of Kansas City, Mo., on the brief), for appellant.

T. M. Robinson and Stansell Whiteside, both of Altus, Okl. (Robinson & Oden, of Altus, Okl., on the brief) for appellees.

Before PHILLIPS, McDERMOTT, and BRATTON, Circuit Judges.

McDERMOTT, Circuit Judge.

Suit to foreclose a mortgage on real estate given to secure two negotiable notes dated January 12, 1921, one for $500 due February 1, 1923, one for $5,000 due February 1, 1928. Both notes contain clauses granting the maker the privilege to pay $100 or multiple thereof, or the whole amount, on any interest-paying date after February 1, 1922, by giving sixty days' notice. Both notes and mortgage ran to the Pittsburg Mortgage Investment Company (hereafter called the Investment Company), which company assigned them to plaintiff below — appellant here — on February 5, 1921, the assignment being recorded on October 17, 1921. Defendants below acquired the land, subject to the mortgage, on April 26, 1921.

The defense is payment. Some time prior to November 5, 1923, McMahan communicated with the Investment Company as to the amount necessary to pay off the mortgage on the next interest-paying date; the record is not clear, however, as to whether this was but an inquiry or a notice as required by the notes. On November 5, 1923, the Investment Company advised of the amount necessary to be paid on February 1, 1924, the next interest-paying date, which included interest to that date. On January 10, 1924, McMahan paid that amount to the Investment Company. The Investment Company acknowledged receipt of it, credited plaintiff therewith on its books, but did not remit. The Investment Company did not have possession of the notes or mortgage, and apparently it paid plaintiff interest until February, 1929. It was then learned that the Investment Company had defaulted.

McMahan had constructive notice of the assignment of the notes and mortgage to plaintiff. McMahan testified he did not know of the existence of plaintiff until 1931, so there is no question of apparent agency, or estoppel to deny authority, involved. The simple question is presented of whether or not the Investment Company had actual authority to collect the moneys paid by McMahan.

As to the $500 loan due in 1923, the plaintiff wrote the Investment Company in 1924 to "look after the renewal or payment of the $500 bond." This was express authority to collect this item, and the decree in respect to this item is affirmed. As to authority to collect the $5,000 loan, which was not due when paid, the record shows:

J. Luther Taylor was the principal stockholder and managing officer of the Investment Company from 1903 until 1930. Plaintiff is a corporation which acquired and invested funds for Methodist churches and colleges, including Baker University. Taylor was a member of the Board of Trustees of Baker from 1900 until 1931, and was a director of plaintiff during the same period, and for years was treasurer of plaintiff. During this long period, the Investment Company had sold plaintiff many real estate loans, at one time plaintiff holding $250,000 of such. Every dollar of principal and interest collected on all of these loans during this 27-year period was collected by the Investment Company for plaintiff. Plaintiff never communicated with a borrower, nor collected a cent directly from a borrower, during this entire period. Taylor testified "it was understood and agreed that the Pittsburg Mortgage Investment Company should service all loans sold to the Kansas Educational Association and that service included the collection of the interest, principal, looking after the taxes and insurance, and all other matters in connection with proper servicing of loans sold to the Kansas Educational Association." When the Investment Company collected the principal of a loan, the sum collected was credited on the books of the Investment Company to plaintiff, and the proceeds later invested by the Investment Company in a new mortgage loan approved by plaintiff. Never, during the years, did plaintiff remonstrate or protest against this exercise of authority. The treasurer of plaintiff admitted this long-standing practice, but testified to the erroneous legal conclusion that in making such collections, the Investment Company acted as agent for the borrower.¹

The collection in question was handled in the same manner as all other collections of principal, a credit being passed to plaintiff on the books of the Investment Company. The Investment Company, however, did not reinvest the proceeds nor remit the principal. Upon the February, 1924, interest-paying date — when in fact both loans were paid off — plaintiff acknowledged receipt from the Investment Company, without protesting the exercise of authority, of the interest due on the $5,000 loan. In the same letter, the Investment Company is requested to procure payment or renewal of another loan. The treasurer of the plaintiff testified that when plaintiff purchased a mortgage from the Investment Company "We understood that the money would be remitted through the Pittsburg Mortgage Investment Company to us," and "that he expected the Investment Company to collect the interest and principal * * * and get it into the hands of plaintiff." The reports of plaintiff carried an account with "J. L. Taylor (Investing Agent)." The Investment Company did not have possession of the note or mortgage when any of these collections, throughout the years, was made. The notes were payable at the office of the Investment Company.

Actual authority may be established by direct testimony of powers expressly conferred, or by proof of other facts and circumstances from which the trier of the facts may find that the authority had been conferred. Where agency is asserted by a third party, quite generally it must be proven as a conclusion from other facts. Perhaps the most satisfactory indirect proof of actual authority is the acquiescence by the principal in the exercise by the agent of the challenged authority over a period of time. The Restatement of Agency, § 15, reads:

"An agency relationship exists only if there has been a manifestation by the principal to the agent that the agent may act on his account, and consent by the agent so to act.

"Comment: This consent may be communicated by any of the means stated in § 26, including acquiescence by the principal in a series of acts previously done by another as agent."

Restatement of Agency, § 26, provides:

"Except for the execution of instruments under seal or for the performance of transactions required by statute to be authorized in a particular way, authority to do an act may be created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account.

"Comment: Thus, a secretary who, without previous authorization, purchases office supplies which are paid for without objection by the principal, may reasonably conclude that the principal wishes a continuance of this practice and hence would be authorized to continue to purchase similar supplies."

And on the particular question here involved, § 43 (2) of the Restatement of Agency is:

"Acquiescence by the principal in a series of acts by the agent indicates authorization to perform similar acts in the future."

Mr. Mechem states the same rules in §§ 241, 244, as follows:

"The authority, moreover, need not be expressly conferred. In the great majority of the cases it is informally conferred, or is presumed from the acts and conduct of the principal. A large portion of the transactions of the modern business world is carried on by simple and informal means." Mechem on Agency (2d Ed.) § 241.

"* * * Whatever powers, therefore, the given principal may, by his course of conduct, by his general methods of dealing, by his long continued acquiescence or tacit approval, have in fact attached either to the given agent or to such an agent as he is, are to be deemed to exist when that agent proceeds to do similar acts with persons ignorant of any actual limitations put upon this authority. It is not essential in this case (unlike the case of estoppel to be hereafter considered) that the person dealing with the agent shall at the time have known of and relied upon the facts creating the authority any more than it is in any other case; if it in fact exists he may avail himself of it in the same way that a person who at the time really relied, for example, upon the incompetent assertions of the agent may afterwards...