Lamb v. General Associates, Inc.

• Decision Date: 27 September 1962
• Docket Number: No. 35918,35918
• Citation: 374 P.2d 677,60 Wn.2d 623
• Court: Washington Supreme Court
• Parties: M. L. LAMB, Respondent, v. GENERAL ASSOCIATES, INC., a corporation, and Old American Life Co., a corporation, also known as Old American Company, Appellants.

Page 623

60 Wn.2d 623

374 P.2d 677

M. L. LAMB, Respondent, v. GENERAL ASSOCIATES, INC., a corporation, and Old American Life Co., a corporation, also known as Old American Company, Appellants.

No. 35918.

Supreme Court of Washington.

Sept. 27, 1962.

Rehearing Denied Nov. 29, 1962.

As Corrected Dec. 4, 1962.

Shirley Boyd Williams, Seattle, for appellant.

Sullivan & Jones, J. Don Sullivan, Seattle, for cross-appellant.

Donald L. Burcham, Oakesdale, McMannis & Schauble, Pullman, for respondent.

ROSELLINI, Judge.

The plaintiff in this action alleged in his complaint that an agent of the defendants, one Ralph Stachon, had fraudulently procured from him the loan of $10,000 to be used for the financing of the construction of a social center at Kennewick; that defendants' agent represented to the plaintiff that debenture bonds to secure the repayment of the loan would be issued to him bearing interest at the rate of 8 per cent per annum; that the money had not been repaid, and that Ralph Stachon had stolen and embezzled the same.

The plaintiff alleged that he had a right to rely on Stachon's representations because he had previously sold him insurance polices and stocks of the defendants, and that the defendants had faithfully complied with the contractual obligations. He further alleged that the defendants knew, or in the exercise of reasonable diligence should have known, that Stachon was dishonest, but nevertheless suffered and permitted him to continue to act as their agent, thereby making the fraud and embezzlement possible.

In their answers, the defendants denied that Stachon acted as their agent and also denied that they were negligent in hiring him. As an affirmative defense, they alleged that the action of the plaintiff was barred by the statute of limitations.

The cause was tried to a jury, before whom evidence was introduced tending to show that Stachon was hired by the defendant Old American Life Co., in 1951 or 1952, to sell insurance in the Pullman area. He set up an office in Pullman, designating it the 'Old American Agency,' and himself 'Manager.'

The plaintiff, a farmer in that area, had previously purchased stock in the Old American Company (a corporation organized for the purpose of holding all of the stock of the Old American Life Co.), and was advised by letter from the home office of that company or the Old American Life Co. that Ralph Stachon was to be the Old American representative in his area. Stachon called on the plaintiff, sold him policies of life insurance, and won his confidence.

In May 1955, Stachon represented to the plaintiff that the defendant General Associates, Inc., and Old American Company were financing a social center in Kennewick and were issuing debenture bonds paying 8 per cent interest in connection therewith, and induced the plaintiff to give him a check for $5,000. No bonds were received by the plaintiff, but Stachon paid him interest on the loan regularly.

In the following year, Stachon induced him to loan $6,000 to Old American Company for three months at 3 per cent interest; this loan was repaid by Stachon. In May 1956, he secured from the plaintiff another check for $5,000 to be invested in the debenture bonds that he represented were being issued to raise money to finance the Kennewick social center. This sum was not repaid; and no bonds were furnished, but the interest was paid, as in the case of the loan made in May 1955.

Subsequently, Stachon obtained on behalf of General Associates, Inc., another $5,000 loan. Unlike the other checks, which were made out to 'Old American Agency' and never reached the attention of the officers of the corporations, this check was made payable to General Associates, Inc. Stachon took it to the secretary of the corporation. He told her it was made out to the corporation by mistake and should have been made to him personally and she endorsed it to him. This sum he later repaid to the plaintiff.

Stachon paid interest on the $10,000 which was advanced for debenture bonds until 1958. Subsequently, he gave the plaintiff a check for $1,000 for the purchase of a station wagon. This check was returned, showing insufficient funds in his account. At this point, the plaintiff's suspicions were aroused and he began an investigation, which disclosed that Stachon had not been acting for the defendants when he procured the loans. When it appeared that he would not, or could not, repay the loans, the plaintiff instituted this action against the defendants herein. Old American Life Co. is a party defendant because Old American Company was dissolved, and Old American Life Co. is its successor.

It is undisputed that Stachon had no actual authority to solicit loans or sell debenture bonds on behalf of any of the corporations that he purported to represent. He had been authorized to sell stock of General Associates, Inc. at one time, but he was not a licensed broker. He also sold some stock of Old American Company, or Old American Life Co., but the evidence tended to show that this was not stock offered for sale by the corporations, but was stock held by shareholders. It is also undisputed that the corporations did not finance and did not contemplate financing the Kennewick social center; and their boards of directors did not authorize the borrowing of money or the issuing of bonds for this purpose.

The testimony of the plaintiff was that he trusted Stachon and relied upon his representations that he was authorized to represent General Associates, Inc. and Old American Company, and to borrow money on their behalf. There was no evidence that he was ever employed as an agent of either of these companies, but it was the contention of the plaintiff that they were so closely associated with Old American Life Co., which did hire Stachon as an insurance agent, that they should be treated as one and the same. For the purposes of this opinion, we will assume that there is merit in this contention.

The court instructed the jury that it could find in favor of the plaintiff if it found that Stachon had apparent authority to solicit loans on behalf of the companies, or that they were negligent in hiring him. A verdict was returned in favor of the plaintiff, awarding him $5,000.

Both defendant corporations appealed, filing separate briefs. They assignnumerous errors in the admission of evidence and in the giving and refusing of instructions, and other rulings of the trial court. Their chief contention is that the evidence does not support the verdict; and this contention is meritorious and decisive of the case.

It is a general rule, and the rule in this state, that a corporation may be bound by the contracts or agreements of its agent if within the apparent scope of the agent's authority, although the contract may be beyond the scope of his actual authority. Peninsular Savings & Loan Ass'n v. C. J. Breier Co., 137 Wash. 641, 243 P. 830; Livieratos v. Commonwealth Security Co., 57 Wash. 376, 106 P. 1125; Brace v. Northern Pac. R. Co., 63 Wash. 417, 115 P. 841, 38 L.R.A.,N.S., 1135.

It is also the well-established rule that the apparent or ostensible authority of an agent can be inferred only from acts and conduct of the principal. Nichols v. McDougal, 175 Wash. 536, 27 P.2d 699; Bowles Co. v. Clark, 59 Wash. 336, 109 P. 812, 31 L.R.A.,N.S., 613. The extent of an agent's authority cannot be established by his own acts and declarations. Stouffer-Bowman, Inc. v. Webber, 18 Wash.2d 416, 139 P.2d 717; Nichols v. McDougal, supra; Allen v. Farmers & Merchants Bank of Wenatchee, 76 Wash. 51, 135 P. 621.

The burden of establishing agency rests upon the one who asserts it. Facts and circumstances are sufficient to establish apparent authority only when a person exercising ordinary prudence, acting in good faith and conversant with business practices and customs, would be misled thereby, and such person has given due regard to such other circumstances as would cause a person of ordinary prudence to make further inquiry. Olsson v. Hansen, 50 Wash.2d 199, 310 P.2d 251.

A principal may be estopped to deny that his agent possesses the authority he assumes to exercise, where the principal knowingly causes or permits him so to act as to justify a third person of ordinarily careful and prudent business habits to believe that he possesses the authority exercised, and avails himself of the benefit of the agent's acts. Pagni v. New York Life Ins. Co., 173 Wash. 322, 23 P.2d 6, 93 A.L.R. 1325.

In this case, there is no question but that the defendants were ignorant of Stachon's activities in obtaining loans from the plaintiff, and nothing occurred that would put them on notice of these activities or arouse their suspicions until some time after the loans had been obtained. They derived no benefit from any of the loan transactions with the plaintiff. They did not authorize Stachon to seek loans. They did permit him to conduct his agency under the designation of 'Manager' of the 'Old American Agency.' The agency, however, was limited to the selling of insurance and activities incident thereto, and the selling of some stocks of General Associates, Inc.

The plaintiff's testimony showed that he relied entirely on the representations of Stachon, whom he personally trusted, when he loaned him money for use by the corporations he purported to represent. He knew that Stachon was in the business of selling insurance, and that his agency was an insurance agency. He was also aware, shortly after the first loan was made, that no bonds were forthcoming and that the interest on the loan was being paid by Stachon, or his agency, rather than by the home offices of the corporations.

In 55 A.L.R.2d 1215, we find the subject 'Authority of agent to borrow money for principal' annotated. The annotated case is Mattice v. Equitable Life Assur. Society, 270 Wis....