Weinhagen v. Hayes

183 N.W. 162, 174 Wis. 233, 1921 Wisc. LEXIS 90

• Court: Wisconsin Supreme Court
• Decided: May 31, 1921
• Status: Published

Opinions

The following opinion was filed July 3, 1920:

Rosenberry, J.

We wish to commend the careful, lawyer-like, and thorough manner in which this case has been prepared for presentation to this court by the attorneys on both sides. We are furnished with a printed case, the index to the exhibits gives a short statement as to what the exhibit is; an index which simply says that exhibit so and so may be. found on page so and so, requires us to look at a large number of exhibits before the one which we seek may be found. A short statement, as “Letter Remeeus to Car-row, June 3, 1916,” indicates in a general way the character of the exhibits and saves much time and search here. Each of the briefs is arranged in an orderly way, and at the beginning of the brief is a subject index which refers in detail to the matters set out in the brief, contains an outline of the argument, and authorities presented, with references to the pages of the brief on which the various topics are discussed. Such an index or outline is very helpful in our study and consideration of the cases here, and requires but comparatively little time for preparation on the part of attorneys. Such an index or outline is required under the rules of the United States supreme court. While up to the present time we have not felt warranted in adopting such a rule here, our labors would be greatly lightened, and we should be able to give more time to important matters, if in cases involving many points such an outline were made and printed at the beginning of the brief. In the present assignment there are thirty-four cases, containing 3,861 pages, in which hundreds of cases are cited. Manifestly anything which saves us time in searching through briefs, page by page, enables much more time to be devoted to matters of argument and authority. This practice has been adopted in many cas.es heretofore presented, and we take this occasion of commending it to the attention of the profession generally.

We shall not attempt to treat in detail all of the questions raised and argued in briefs of counsel. We shall first dispose of the question raised as to whether or not the plaintiff was charged with the knowledge of Schenck, his agent, in respect to the transactions relating to the negotiation and execution of the lease in question. The trial court did not find directly upon this point, but found that the plaintiff had agreed to pay McClure, ITarvey, and Remeeus $6,000, and had agreed to pay Schenck $3,000, upon procuring a lessee of the premises who would accept a lease prepared by the plaintiff and embodying terms dictated by him. We have carefully considered the argument of counsel and the evidence, and are convinced that Schenck was the agent of Weinhagen and not a mere middleman employed to sell a specified definite property upon a commission. The whole transaction arose through the suggestion made by the plaintiff to Schenck that he desired to procure a long-time lessee for the property. Throughout the negotiations Schenck represented plaintiff, and we axe of the opinion, therefore, that the plaintiff must be charged with whatever knowledge Schenck had as to the agency of McClure, Harvey, and Hyatt.

The trial court found that the persons aforesaid, that is, McClure, Hyatt, Remeeus, and Schenck, merely produced the defendant H. Jay Hayes as a proposed lessee. We think this finding is clearly against the preponderance of the evidence. It appears practically without dispute that McClure and Harvey and their employee, Hyatt, came to Milwaukee for the purpose of looking up a lease, and throughout the entire negotiation, down to the point where they demanded a commission, represented an undisclosed principal and not themselves. When the negotiations had proceeded so far that the introduction of the proposed lessee was necessary, McClure and Harvey made a demand for the commission in question. It taxes human credulity to believe that under such circumstances Schenck did not know that McClure and Harvey represented the proposed lessee.

When Hayes and his associates came to Milwaukee they made no inquiry in regard to the property, no investigation of local conditions, but simply viewed the property and took a general survey of the city, and it is established beyond question that they relied upon their agents, McClure and Harvey, throughout the entire negotiations. We find no evidence in the record as to any specific knowledge that the plaintiff had in regard to the relationship between McClure, Harvey, and Hyatt and the lessees, but that Schenck had such knowledge seems to us to be established beyond question.

The plaintiff being chargeable, therefore, with knowledge of the fact that McClure and Harvey were the agents of Hayes and his associates, what effect upon the contract did the payment of the $6,000 by the plaintiff have? It is argued that the circumstances here are within the principles referred to in Tasse v. Kindt, 145 Wis. 115, 128 N. W. 972. In that case it was held that a broker who undertakes merely to procure a customer for land at a price fixed by the seller is in reality only a middleman and is entitled to the agreed commission for such service, even though by an agreement unknown to the seller he is also to receive a commission from the purchase!-. In the present case the agents of the lessees were not agents to procure a long-time lease at a fixed price, but represented their principals in securing a location of the property, fixing the terms and conditions of the lease, upon which its value very largely depended, and throughout a long period of negotiation attempted to secure a contract which would be acceptable to their, clients and in the judgment of the agents a profitable investment. They were invested with large discretion in many respects. They cannot be said in any sense of the term to have been mere middlemen." The question cannot be regarded solely from the standpoint of the plaintiff, but in considering the effect upon the contract of the double agency the relationship of the double-dealing agents to both parties to the transaction must be considered.

It is the established law that the acceptance by an agent of a secret commission of compensation from the opposite party, where the agent is to exercise, on behalf of his principal, skill and judgment, vitiates the contract, and the principal who has thus been imposed upon may rescind the contract even though the other party paid the commission or compensation in good faith. 2 Mechem, Agency (2d ed.) § 2138, and cases cited.

Absolute fidelity and loyalty to the interests of his principal is the first duty and the highest obligation of an agent. An opposite party negotiating a contract with an agent may not deprive the agent’s principal of the benefit of the agent’s skill and judgment by paying him a commission, without the full knowledge and consent of the principal, and if he does so it operates as a fraud, actual or constructive, upon the principal, and he may for that reason repudiate the transaction.

The perusal of the testimony of some of the witnesses in this case indicates that there is a very confused state of mind on the part of many real-estate agents as to their rights, duties, and responsibilities in transactions of this kind. The payment of compensation or a commission to the agent of the opposite party is in some states punishable as. an offense under the law. More and more the business world is compelled to rely upon the fidelity of agents in the transaction of business, and an agent who undertakes to negotiate a contract or transact business for a principal should be held strictly accountable for the faithful performance of his duty. An agent’s duties or responsibilities are not lessened or modified because he calls himself a broker, factor, or by some other name. The thing that fixes his duty and responsibility is the character of the service which he undertakes to perform and not the style or the name under which he does business. Usage or custom, however long continued, does not warrant unfaithful, disloyal conduct on the part of an agent. Such conduct is abhorrent to the letter and spirit of the law and cannot be justified under its forms.

Upon the undisputed facts in this case the plaintiff made the agent of the lessees his agent without the knowledge or consent of the lessees. While the plaintiff had no guilty-intent or .fraudulent purpose, his act operated nevertheless as a fraud upon the lessees. 1 Black, Rescission and Cancellation, § 34, and cases cited.

It follows from what has been said that upon the discovery of the fraudulent conduct of their agent the lessees had a right to rescind and repudiate the contract, but the law requires, under such circumstances, that the lessees should act without unnecessary delay and with due promptness. This brings us to the most serious question in this case.

An application for the cancellation or rescission of a contract is addressed to the sound discretion of a court of equity. Stimpson v. Stimpson, 168 Wis. 146, 169 N. W. 295. The trial court found that, after having knowledge of the fraud, the lessees continued to exercise acts of ownership over the premises described in the lease and elected to retain the lease and waive their rights, if any they had, to cancellation. This finding of the trial court, more fully set out in the statement of facts, is a mixed conclusion of fact and law. We are not told at what time or times the lessees received such knowledge, or what act or acts upon their part constituted a waiver or election. As has been stated many times, this court will not overturn findings of the trial court unless they are against the clear preponderance or the great weight of the evidence. This rule, however, does not apply to findings which are general in their nature. Damman v. Damman, 145 Wis. 122, 128 N. W. 1062. See, also, Harrigan v. Gilchrist, 121 Wis. 127 (99 N. W. 909), at p. 312 et seq.; and McMillen v. Strange, 159 Wis. 271, 150 N. W. 434.

The question of whether or not there was a waiver or an election was put sharply in issue by the pleadings and was thoroughly litigated upon the trial. On behalf of the plaintiff it is contended that the lessees at all times knew that a commission was to be paid by the plaintiff to McClure and Harvey. In that respect it is claimed that while on a train between Milwaukee and Chicago in October, 1911, Hyatt told Carrozv, Hayes, and their attorney that Harvey and McClure were receiving a commission. He says he told them in the following language, in response to a question from Carrozu, “Why, McClure can tell you about that;” and McClure said, “Yes, we are receiving a small part of the commission given the Milwaukee brokers, which, however, will not pay our expenses.” He does not say that any information was given as to who was paying the commission, or any information as to the amount of it or when it was to be paid. Hyatt is the only one who testifies to this conversation. He relates circumstances in connection with it which, as conclusively shown by other evidence, could not have occurred. After a careful examination of the record we are of the opinion that Hyatt’s testimony as to this transaction, even if worthy of belief, is insufficient to bring home to the lessees knowledge of the true situation. It is thoroughly discredited. McClure attempts to corroborate it, but admits that his recollection is hazy, due to the number of cocktails which he had consumed. His corroboration is of very little if any value. In addition to that, the conduct of the parties subsequent to the time is wholly inconsistent with any knowledge on their part of the true nature of the transaction, and their suspicions were apparently not aroused in any way. Contrasted with their conduct after they admittedly had full knowledge, their lack of objection is a very convincing circumstance that they received no notice and were not put upon inquiry at that time.

On behalf of the plaintiff it is argued that late in 1913 or early in 1914 the attention of Carrow and Guy H. McFall was expressly called to the fact that the plaintiff had paid a commission to Harvey and McClure. Evidence as to this transaction rests entirely upon the evidence of Hyatt, but in his testimony Hyatt describes circumstances which show conclusively that at the time he arrived in the office where the interview took place the lessees were in possession of full information. Upon his arrival there he was charged with wrongful conduct, advised that had the lessees known of the payment of the commission they would not have entered into the deal, and he describes the session as a “stormy interview.” From a careful examination of the record we are convinced that the testimony of Hyatt relates to an interview some time after the lessees had acquired knowledge as to the payment of the commission.

It is claimed that the defendant Hayes should have been put upon inquiry by a remark made by Remeeus to Hayes in response to a suggestion made by Hayes that no one but Remeeus seemed to be taking any interest in the property. Remeeus is said to have replied, “The probable reason is that the other brokers received their commission; mine is still in jeopardy.” If this statement were taken at its face value it would not apprise the defendant of the real facts and circumstances connected with this transaction. It is to be remembered that Remeeus was at this time endeavoring to make an arrangement with Hayes so that the taxes would be paid, in order that Remeeus might collect the notes given by Weinhagen, which were conditioned upon payment of the taxes. It is not very probable that he would have made statements to Hayes which would have tended to arouse the suspicion of Hayes as to the legality of the entire transaction.

It is admitted that on July 28, 1916, Remeeus wrote to Carrow giving him full information as to the payment of the commission, and it further appears that a short time previous to the writing of this letter. Remeeus had a conversation with Carrow to the same effect.

After a careful examination of the evidence we are brought to the conclusion that the evidence does not sustain a finding that the lessees had knowledge of the payment of the commission or of facts which should have put them upon inquiry previous to July, 1916.

There is evidence in the record which it is claimed sustains the finding to the contrary, such as an intimation in a letter, from McClure to Carrow, in which McClure says that his integrity has been questioned; but the correspondence shows that this complaint relates to McClure’s failure to carry out the terms of the contract by which Harvey and McClure were to look after, and care for. his property. There are also some statements made in the depositions which relate to time, but a reading of the testimony convinces us that the circumstances recited indicate that the witnesses were, as they subsequently claim, mistaken as to the time. The whole correspondence and course of dealing between the parties indicate very strongly and conclusively that the lessees did not have knowledge of the wrongful conduct of their agents until July, 1916. We shall not attempt to recite all of the circumstances which lead us to that conclusion.

It is argued very forcefully on behalf of the plaintiff that after receiving the letter of Remeeus in July, 1916, the lessees deliberately elected to continue as the owners of the leasehold estate, and thereby waived their right of rescission. In the letter of July 28, 1916, Remeeus wrote to one of the lessees:

“Right here let me state that this commission was paid as follows: Schenck received $3,000; Hyatt $2,000; Harvey-McClure Co. $2,000; myself and another Milwaukee broker the other $2,000.”

It seems that a broker by the name of Wheeler brought the parties together and was considered entitled to a part of the commission, but his conduct has no relation to the matters here involved.

On July 25th the plaintiff’s attorney had written a letter to Carrow. In reply to this letter Carrow states the fact in regard to the payment of the commission, expressed the dissatisfaction of himself and his associates with it, relates the financial difficulties in which the lessees found themselves, and explains why payments have not been made, and then says:

“We should judge from this offer that the impression has gained ground that it is owing to a lack of faith in the property rather than a lack of funds that we have allowed the taxes and other matters to go unpaid. This is absolutely not the case. . . . The reason these payments were not made was for lack of funds to meet them; neither have we any now.”

In the closing paragraph of the letter Carrozv says:

“While, of course, these particular things with which we have had to contend does not interest Mr. Weinhagen, it is simply in the way of explanation of the reason we have been unable to make these payments, and which puts us in a position at this time of not being able to consider Mr. Weinhagen’s offer, as we know no way in which these funds can at present be raised.”

This explanation of why they had not performed their contract cannot be construed into an election to waive the fraud and continue with the contract. There was some correspondence with Hayes, between Hayes and Harvey, in which Hayes referred to the commission, but we do not perceive what bearing this can have upon the question of an election by the lessees to waive the fraud of their agents.

There is evidence in the record tending to show also that they made efforts to dispose of the property. While of course this is a circumstance bearing upon the question of whether or not they intended to waive the fraud, standing by itself it is by no means conclusive. Smith, Fraud, § 136. Nothing further seems to have been done until after the commencement of this suit, which was begun November 25, 1916. After the commencement of the suit there were further efforts to find a purchaser, and Remeeus twice suggested prospective methods of financing the project.

The facts as to the conduct of Hayes and his associates after being fully apprised in reference to the fraudulent acts of their agents are practically undisputed. Whether or not their conduct constituted a waiver is therefore a question of law. Fraser v. Ætna L. Ins. Co. 114 Wis. 510, 90 N. W. 476. There is no claim that the conduct of the defendants created an estoppel in pais. The plaintiff did nothing in reliance upon their conduct or in any way changed his position in reference to the subject matter of the controversy.

The situation in which the defendants found themselves when they discovered the fraud of their agents had existed for. nearly five years. They had incurred large obligations outside of and beyond the contract obligations arising out of the lease; they had expended considerable sums of money; and those upon whom they had relied had betrayed their confidence; and they no doubt were at a loss to know where to turn or what to do. Their effort to find a purchaser and inability to do so was probably a natural factor in their final decision. A rescission of the contract would not place them in statu quo, and their failure to act more promptly under such circumstances cannot be held to constitute a waiver of their right of rescission. They delayed from about the middle of July until November, and did nothing which showed any intent on their, part either to waive the fraud or to rescind the contract, and unless they are barred by lapse of time, or unless their failure to act of itself amounts to a waiver, they had at the time the suit was begun the right of election. As was said in Swedish American Nat. Bank v. Koebernick, 136 Wis. 473, 479, 117 N. W. 1020:

“A waiver may be shown by a course of conduct signifying a purpose not to stand on a right, and leading, by a reasonable inference, to the conclusion that the right in question will not be insisted upon. And a person who does some positive act which, according to its natural import, is so inconsistent with the enforcement of the right in his favor as to induce a reasonable belief that such right has been dispensed with, will be deemed to have waived it.”

In this case no situation arose subsequent to and before the commencement of this- action which required the defendants to act, and they did nothing which indicated in any positive way that they had determined upon the one course or -the other. An inference of intent to waive does not readily arise where the situation in which the party required to elect finds himself is the result of the opposite party’s fraud or misconduct. Ketchum v. Wells, 19 Wis. 25; 40 Cyc. 259, par. 2, and cases cited.

There being no positive affirmative act indicating that the defendants intended to waive their right of rescission during the period which intervened between their receiving actual notice in July and the commencement of this action, we are of the opinion that mere delay under such circumstances did not amount to an election or an affirmance of the contract or a waiver of the right of rescission. While we recognize the distinction between waiver and estoppel in pais and that we are here considering mere waiver, nevertheless the fact that the parties stand in exactly the same situation now as they would have stood had the defendants made their election the next day after receiving full information is a matter worthy of consideration. No circumstances arose which required them to choose, and they did not choose. Mere delay did not amount to a waiver of their rights. Ellis v. Southwestern L. Co. 102 Wis. 400, 78 N. W. 747; Knowlton v. Walker, 13 Wis. 264; Cedar Lake H. Co. v. Cedar Creek H. Co. 79 Wis. 297, 48 N. W. 371; 2 Black, Rescission and Cancellation, § 546, and cases cited.

It is further contended that the matter was concluded in the receivership proceedings and is no longer open to investigation. We do not regard this contention as sound. The validity of the contract or the defendants’ right of rescission was in no way drawn in question in that proceeding. In fact, the circumstances upon which the right of rescission is based were then unknown to the defendants.

The conclusion at which we have arrived makes it unnecessary to consider the extent of the revivor of the action as against the estate of Eugene McFall. The principal contract having been rescinded, the obligation of the bondsmen, which in no way guaranteed the genuineness of the original contract, falls with it, and not only the lessees, but the parties to the bond, are discharged from further liability or obligation under its terms.

Our conclusion being that the lease should be canceled, it follows that the parties to the transaction should so far as possible be placed in statu c[uo, and to this relief the defendants are entitled under their, counterclaim or cross-complaint. There should be an accounting between the parties, but in this accounting the plaintiff should not be chargeable with any losses, expense, or diminution of receipts due to the defaults, negligence, or mismanagement of the defendants.

Neither are the defendants entitled to have or receive, upon a rescission of the contract, any part of the amount paid by the plaintiff as commissions. Having elected to rescind the contract and to be placed in statu quo, they can certainly have no claim upon the money paid by the plaintiff.

As a condition of this relief the defendants are of course required to place the plaintiff in statu quo as to the property, and they should therefore release or procure a release of all rights as against the property which exist in, by, through, or under them.

By the Court. — The judgment is reversed, and the cause remanded for. further proceedings according to law and in accordance with this opinion; the defendants to recover one bill of costs in this court.

The following opinion was filed August 5, 1920: