Opinion
No. 165.
Argued: February 6, 1969.
Decided: March 4, 1969.
APPEAL from a judgment of the circuit court for Adams county: HERBERT A. BUNDE, Circuit Judge of the Seventh circuit, Presiding. Reversed.
For the appellants there were briefs by Nikolay, Jensen Scott of Colby, and oral argument by Frank L. Nikolay.
For the respondent there was a brief by Potter Wefel of Wisconsin Rapids, and oral argument by John M. Potter.
Action by plaintiff, Walter Carlson, against the defendants, Frank Taylor, his wife Alice Taylor, and Mary Taylor, for specific performance of an option agreement for the conveyance of certain described land. On February 9, 1967, the defendants, Arrowhead Growers Sales, Inc., Robert Sweet, and his wife Helen Sweet were made parties to the action.
The plaintiff Walter Carlson is a farmer residing in Adams county. The defendants Frank Taylor, his wife Alice Taylor and his sister Mary Taylor are residents of Rock county. The defendants-appellants Robert Sweet and his wife Helen Sweet are residents of Portage county. Mr. and Mrs. Sweet are the corporate officers and the sole stockholders of Arrowhead Growers Sales, Inc. (hereinafter "Arrowhead"), a Wisconsin corporation which has its principal place of business in Portage county.
The subject of this action was a certain parcel of real estate consisting of 240 acres which was located in Adams county. This land was known as the Rock Farm.
During November, 1959, Mary Taylor became the owner of the Rock Farm under a land contract. She obtained title to this land by deed of December 30, 1960.
At no time did Mary Taylor ever live on the Rock Farm or operate the farm in any way. Instead she testified that she orally leased it to her brother for $1,000 per year. As part of the lease arrangement, Frank Taylor was to pay the taxes and the insurance on the property and he was entitled to deduct these payments from the annual rent. The evidence is unequivocal that Frank Taylor operated the farm as if it were his own, including the subleasing of the same. He often referred to the farm as his own and apparently people generally considered him to be the owner. The farm was assessed in his name and the Adams county platbook listed his name as the owner. The official county records, however, named Mary Taylor as the sole owner of the property.
In late 1964 or early 1965, Frank Taylor's stepson, Byron Hosthoff, attempted to purchase the Rock Farm. Negotiations broke down when Hosthoff was unable to obtain financing. When it was obvious that the deal was not going to be consummated, Frank Taylor wrote to the plaintiff who had also expressed an interest in the farm:
"Dear Walter: The man that was dealing on the farm cannot see his way to finance it, so, I will have it for sale or rent. I prefer to sell.
"You may be next in line to deal on it.
"I want $20,500 for it. If I don't get it sold I will rent it for four dollars per acre . . . ."
On April 30, 1965, plaintiff traveled to the residence of Frank Taylor and negotiated the terms of the lease and option to purchase the Rock Farm. The parties orally agreed to a one-year lease and a ten-month option to purchase which would expire on January 31, 1966. The purchase price under the option was $20,000 and the consideration for the lease and option together was set at $900. The plaintiff immediately contacted a lawyer in Janesville who drew up two separate instruments. The first was a lease which recites a consideration of $800; the second was the option which stated a consideration of $100. Plaintiff took these instruments back to Frank Taylor's residence where they were signed by Frank Taylor, his wife Alice, and by plaintiff. At that time plaintiff gave Frank Taylor a check for $100.
Within a few days after the lease was executed, Frank Taylor happened to see Robert Sweet in the office of a mutual business acquaintance. The lease and option in favor of the plaintiff was discussed briefly at that time.
Shortly thereafter the plaintiff met Robert Sweet by chance and they talked about the lease and option. Plaintiff testified that Sweet seemed to be upset by the arrangements.
On May 24, 1965, Frank Taylor sent another letter to plaintiff:
"Dear Walter: When I bought the. farm from Smoker, my sister Mary furnished a large part of the money and we had it recorded in her name. I have always had the management of it.
"When we made the contracts it did not occur to me that I had no authority to give an option on it and one that I would give would be of no value.
"I am therefore returning it to you with the $100 which you paid and then you will need to deal with Mary on any option. I am also sending you $10 which you spent to have the contract made.
"The contract for the rent should now be $900 instead of $800. If you want to make out a new one I will pay for it.
"I have the authority to lease it to you but if you would rather, Mary will give you a contract for the lease. . . .
"P. S. Make check for rent to Mary Taylor."
Plaintiff returned the check to Frank Taylor. In subsequent conversations with Mary Taylor, plaintiff stated that he felt the option agreement was binding on all the parties. There was no attempt to negotiate a new lease or option.
When plaintiff subsequently attempted to pay the rent by a check made payable to Frank Taylor, the check was returned. The check was thereafter made payable to Frank Taylor and Mary Taylor. It was then accepted and cashed. A later rent check payable only to Frank Taylor was accepted and cashed.
During the summer of 1965, plaintiff testified that he again met with Robert Sweet. These parties had previously agreed orally to the lease of some different pasture land owned apparently by Arrowhead, and, pursuant to that lease, plaintiff had some cattle grazing on that land. Mr. Sweet informed the plaintiff that he no longer wanted the cattle on the pasture land and he served a notice of ejectment. Plaintiff further testified that he was told by Mr. Sweet that the cattle could remain where they were if plaintiff turned over the option to the Rock Farm.
On January 5, 1966, Robert Sweet wrote the following letter to Frank and Alice Taylor:
"I am aware that another party has an option to purchase your Farm.
"If, however, this option is not picked up, I did want you to know that I would be interested in discussing the purchase of your farm with you."
Frank Taylor replied by letter of January 8, 1966, that the farm belonged to his sister but that she might be interested in selling it. The letter also discussed the option problem.
On January 22, 1966, plaintiff served a written notice of his election to exercise his option to buy the Rock Farm on Frank Taylor, Alice Taylor and Mary Taylor. Neither the abstract of title nor a deed was ever offered to plaintiff as called for in the option contract.
On March 18, 1966, Frank Taylor drove Mary Taylor to Plover, Wisconsin, where they discussed the purchase of the Rock Farm with Robert Sweet and his wife Helen Sweet. The same day Frank Taylor, Mary Taylor, Robert Sweet and Helen Sweet went to the law office of Attorney Robert McDonald in Stevens Point and they executed a contract by which Arrowhead would purchase the Rock Farm for $25,000. A deed was later delivered.
On May 12, 1966, plaintiff commenced this action for specific performance by service of a summons and complaint on Frank Taylor, Alice Taylor and Mary Taylor. On May 9, 1966, a lis pendens was recorded in the office of the register of deeds for Adams county. On February 9, 1967, an amended complaint was served on Robert Sweet, Helen Sweet, and Arrowhead. The following day the original defendants were also served with the amended complaint.
The case came on for trial on November 27, 1967. By a special verdict the jury determined after hearing all the evidence that Frank Taylor was acting as an agent for Mary Taylor when he gave the option, that the fair market value of the Rock Farm on January 25, 1966 (when plaintiff attempted to exercise his option) was $24,000, and that Frank Taylor, Mary Taylor, Robert Sweet and Helen Sweet had participated in a conspiracy to deprive the plaintiff of his lawful rights under the option contract.
Motions for judgment notwithstanding the verdict and motions seeking to change the answers to the various questions in the verdict were heard on December 22, 1967, and they were all denied.
The trial court also entertained a motion for reconsideration of the judgment granting specific performance on July 15, 1968. At that time Arrowhead alleged that it had a substantial investment in permanent improvements to the Rock Farm and that it would be inequitable to grant specific performance where money damages would be satisfactory. The trial court denied the motion for reconsideration on the ground that it was not timely and he further denied the motion on its merits.
Arrowhead alleges that it has a total tangible investment in the Rock Farm of $66,629.69. If the purchase price, the loss of profits, and the interest charge for various items is subtracted, it appears that Arrowhead spent about $22,000 on improvements to the Rock Farm. It also appears that these improvements were made before Arrowhead or the Sweets were impleaded as defendants in this lawsuit.
The following issues are presented:
(1) Was there any credible evidence supporting the jury finding of agency;
(2) Was there any credible evidence supporting the jury finding of a conspiracy involving Robert Sweet and Helen Sweet;
(3) Are Robert Sweet and Helen Sweet individually liable for their actions performed as officers to the corporation;
(4) Was it error to proceed to trial in the absence of Robert Sweet and Helen Sweet;
(5) Was it error to dismiss the counterclaim of Robert Sweet and Helen Sweet for malicious prosecution; and
(6) Should specific performance have been granted in the absence of a showing that the remedy at law is inadequate?
Agency.
Plaintiff could not point to any writing which established that Frank Taylor had authority to sell the Rock Farm. However, it is well established in this state that:
". . . parol authority may create an agency relationship which will permit the agent to bind the principal by a written contract to sell real estate, but such parol authority must be clear and express. In Lauer v. Bandow (1878), 43 Wis. 556, 563, involving an analogous situation, Mr. Chief Justice RYAN stated: `Parol agency to charge a principal's realty ought to be expressed, and clearly established.' To the same effect see Challoner v. Bouck (1883), 56 Wis. 652, 14 N.W. 810." Krause v. Holand (1967), 33 Wis.2d 211, 215, 216, 147 N.W.2d 333.
It is conceded by both parties to this appeal that there is no direct evidence of an agency agreement between Frank Taylor and his sister Mary. However, plaintiff contends that an agency relationship is established by certain circumstantial evidence from which the jury had every right to infer that Frank Taylor had authority to sell the Rock Farm. Basically plaintiff's evidence boils down to the fact that Frank Taylor always acted and spoke as if he were the owner of the farm and that Mary Taylor never took any affirmative action to dispute that apparent ownership. This is simply not sufficient to support an inference that Frank Taylor either had actual or apparent authority to sell the farm. At best, the evidence supports the inference that Frank Taylor had the authority to negotiate toward an offer which would be ultimately accepted or rejected by Mary Taylor.
There was a multitude of evidence which showed that Frank Taylor held himself out as the owner of the Rock Farm. In addition to the letters which are in the record, Frank testified that he often referred to the Rock Farm as "my farm." It was previously noted that the Rock Farm was assessed under Frank's name. Mary Taylor never had the assessment changed. Moreover, at one point, Mary Taylor allowed Frank to advertise the farm for sale in his name. It also appears that Frank participated in negotiations to sell the farm to his stepson.
When the Rock Farm was purchased in 1959 (under a land contract), Mary Taylor went with her brother to Indiana in order to negotiate the closing. When Frank Taylor's stepson wanted to buy the Rock Farm in late 1964, Frank Taylor conveyed that offer to Mary Taylor for approval. When the Sweets tried to buy the farm for Arrowhead (after the disputed option was given), Frank Taylor apparently did the preliminary negotiating. However, when the time came to close the deal, Mary Taylor went with her brother to Stevens Point to bargain for her own price. The record does not disclose the slightest evidence which would support the inference that Mary Taylor gave Frank Taylor the actual authority to sell the farm without her approval.
The second part of plaintiff's argument is that Frank Taylor had "apparent authority" to sell the farm.
". . . The distinction between authority and apparent authority is important. A principal may direct an agent not to do a particular act; as to that act the agent has no authority. The principal may by words or conduct lead a third person to believe reasonably that the agent has authority to act for the principal with respect to the forbidden act. If under such circumstances the agent acts, the principal is bound although the agent had no authority because the agent had apparent authority." Zummach v. Polasek (1929), 199 Wis. 529, 534, 227 N.W. 33.
A principal is liable for the actions of an agent who has apparent authority because some actions of the principal have misled the third party into reasonably believing that the agent had the authority which he seemed to possess. Voell v. Klein (1924), 184 Wis. 620, 200 N.W. 364; McDermott v. Jackson (1897), 97 Wis. 64, 72 N.W. 375. Before "apparent authority" is properly considered in a case, the third party must realize that he is dealing with an agent. In this case, the plaintiff testified that he never knew that Mary Taylor was the owner of the Rock Farm until after the option agreement was signed. Up until that time, plaintiff always thought that Frank Taylor was the owner.
"Since apparent authority is the power which results from acts which appear to the third person to be authorized by the principal, if such person does not know of the existence of a principal there can be no apparent authority." Restatement, 2 Agency 2d, p. 430, sec. 194, comment a.
It is questionable whether proof of "apparent authority" is the "clear and express" type of evidence which establishes a parol agency for purposes of charging a principal's realty. But even if "apparent authority" is enough, the plaintiff's evidence fails to establish such authority.
There is another factor which should be considered in this case. Although there is no clear and unequivocal statement in the record, it appears that at all times pertinent in this case, the deed by which Mary Taylor took title to the Rock Farm was properly recorded in the register of deeds office for Adams county. The following portions of the record would sustain such a conclusion:
" Q. Did you ever look in the Register of Deeds office for Adams County to see who owned the Rock Farm? A. [By plaintiff, Walter Carlson] I had no reason to, really."
" Q. Now, Mrs. [Mary] Taylor, prior to April 15, 1965 and after December 30, 1960, you were the record holder of title of the property known as the Rock Farm, is that right?
". . .
" A. I was the owner a year previous to that on a land contract and I think the date of that land contract was November 5, 1959."
Attorney Robert McDonald investigated the title to the Rock Farm in April, 1966, when that property was sold to Arrowhead. At that time he found merchantable title to be in Mary Taylor. All these factors, taken together, certainly indicate that title to the Rock Farm was definitely not in Frank Taylor's name when plaintiff took the alleged option to purchase on April 30, 1965. Thus plaintiff was put on notice that Frank Taylor was not the true owner of the Rock Farm.
"In general, under the recording laws, the recording of a deed or mortgage or other instrument entitled to be recorded is constructive notice to purchasers and encumbrancers who, subsequent to the recording, acquire some interest or right in the property under the grantor or mortgagor. A subsequent encumbrancer or purchaser must know or take notice of the condition of the record title up to the time of creating the encumbrance or making the sale, for it is his duty to examine the record." 45 Am. Jur., Records and Recording Laws, p. 469, sec. 87.
This court has already held that an option to purchase is an interest in real estate. Bratt v. Peterson (1966), 31 Wis.2d 447, 452, 143 N.W.2d 538; Telford v. Frost (1890), 76 Wis. 172, 174, 44 N.W. 835. A person who takes such an interest in real estate is certainly one of those who is put on notice as to the condition of the title of the land.
". . . constructive notice is in point of literal fact neither notice nor knowledge. For the promotion of sound policy or purpose, the legal rights and interests of parties are treated as though they had actual notice and knowledge." Schoedel v. State Bank of Newburg (1944), 245 Wis. 74, 76, 13 N.W.2d 534.
Constructive notice will not operate in favor of a party making false representations, but it certainly should operate in favor of a record title holder when an independent third party contracts to convey an interest in land which he does not own.
Thus if plaintiff brought a damage suit against Frank Taylor, the doctrine of constructive notice could not be used to establish that plaintiff knew title was in someone other than Frank Taylor. The recording acts are not intended as a protection to those who make fraudulent representations. Schoedel v. State Bank of Newburg, supra.
It should be noted that even if Mary Taylor's deed was not recorded at the register of deeds office, the outcome of this case would not be changed because the evidence does not establish that Frank Taylor had authority to sell this farm. Constructive notice is only discussed to establish that plaintiff was not even equitably entitled to a judgment of specific performance.
Ratification.
Plaintiff also argues that even if there was not sufficient evidence to support the jury finding of agency, the evidence adduced at the trial was sufficient to establish that Mary Taylor ratified the lease and option to purchase.
Plaintiff properly points out that, although the lease was a separate document from the option, the lease and option to purchase were negotiated as a package transaction. Plaintiff concludes that Mary Taylor ratified this entire agreement by accepting the rent payments under the lease.
". . . A person cannot retain the avails of an unauthorized contract, made for his benefit by another assuming to act as his agent, and repudiate the responsibilities of such contract, and any attempt so to do, with full knowledge of the facts, constitutes a ratification of the unauthorized act and creates a liability on the part of such person to the same extent as if such contract were originally authorized." Gnat v. Westchester Fire Ins. Co. (1918), 167 Wis. 274, 277, 167 N.W. 250.
It is quite clear that there was no ratification of the unauthorized act.
"As a rule, if the principal, before changing his position to his prejudice, decides not to ratify an unauthorized act by the retention of the benefits thereof, he should return anything he may have received as a result of the unauthorized act." 3 Am. Jur. 2d, Agency, p. 563, sec. 177.
Twenty-four days after the lease and unauthorized option were entered into the plaintiff received the letter from Frank Taylor which admitted the option was not authorized and had been repudiated by his sister. At that point plaintiff had no obligation under either the lease or the option. He was free to take any action he desired. The fact that he continued performance under the lease does not indicate that Mary Taylor ratified the package agreement between the plaintiff and Frank Taylor.
Conclusion.
We conclude that the record does not support the jury finding of agency and therefore we do not reach the other issues raised by the appellants in this case.
We make no finding as to any liability which Frank Taylor and/or Alice Taylor have to the plaintiff because of their representations of ownership.
By the Court. — Judgment as against appellants is reversed and cause remanded for further proceedings with directions to dismiss the action as against appellants.