*2 ad- CLARK, by Arizona National issued Before RONEY and CHARLES be able to HENDERSON, they might vised investors that Judges. Circuit advantages under II. PAROL EVIDENCE obtain substantial tax arrangement, including deductions for found “it The trial court purchased the cost of feed in advance of all the understanding parties the cat- but, need, out pointed also feeding program tle that the individual in- spectus, profitability of the cattle feed- liability in vestors would have no excess of *3 ing program problematical. itself $6,500 unit.” per the The court concluded agreement optional an in- included that, limitation, because the inves- term, inves- demnification under responsible could be for Parrish’s tors tor limit but personal liability, his no however, It damages. apparent, is contract advantage provision. investor took of this wholly finding that the trial court’s is based 1975, January In late Arizona National parol on evidence. persuaded renego- Parrish to back date the provides investor signed explicitly each grain purchase contract tiated to December that agreed that is and understood “[i]t 31, for capacity in, way participates in no Arizona National individual investors under the cattle feed- for, any upon is liable Net Loss the sale nor ing assigned program, Arizona National to Moreover, unit(s).” prospectus renegotiated each a portion investor describing program potential cattle to grain purchase contract. Each investor de- following on its investors includes cover portion ducted his of the Parrish feed warning, printed large type: “This offer- contract cost on his 1974 tax return. Ulti- high risk . . . ing degree involves a [A]n however, mately, Arizona National was un- owner, proportion high because of the of, for, accept delivery able to pay or borrowings program, prepar- be in a grain purchased feed from Parrish. Parrish ed to incur a in excess of his substantial loss damages sued to recover its under the provisions cash investment.” As if these contract breached from Arizona National dispositive, alone were not and, identity, when learned of their from continued, clairvoyance, with remarkable to the individual investors. caution that jury, The case was tried without a [sjince legal relationship between the district court entered extensive find- the Company each Owner and is that of ings. The court found that the investors per- ... an owner is feeding were interested in the cattle (to sonally extent) unlimited gram primarily advantages, for its 1974tax obligations incurred on behalf were investors scope within Company its au- principals who pow- had conferred limited thority the Agreement. under For in- ers on Arizona National. Be- stance, to Company misapply if the were original cause the grain deal struck to pay an Owner’s funds and fail feed before the appointed investors Arizona Na- cattle, for the bills incurred Owner’s tional their and because the rene- liable to the personally Owner be gotiated contract was finalized after the operator payment feedlot for the of those year 1974 expired, tax the court ruled bills. authority Arizona National had no Thus, agreements, as executed written grain purchases make the on the investors’ indemnification, optional without are behalf. The trial court also found ambiguity. free from The investors potential liability investors’ under the cattle their exposed liability far in excess of feeding program was limited to the amount initial investment. $6500 investment, of their initial approximately parol law on the use evi Texas in most Based find- cases. on these In Hubacek equally unambiguous. dence is ings, trial court entered Bank, 166, Tex. 317 v. Ennis 159 State Parrish Arizona National 30, (1958), Supreme Texas full 32 damages, amount of contract but or- S.W.2d that a written contract nothing dered Court made clear that Parrish was take embody the entire presumed the investors. 1369 (1957). fully 210(1) principle is rec- This or inconsist- parties. § between the Previous written, Moody-Sea- in Texas ognized law. See whether ent oral or agreements, Ranch, vary Brown, the terms of Inc. v. 69 graves are inadmissible S.W.2d ref’d); (Tex.Civ.App.1934, Diacom- Texas cases writ contract. Id. Recent written See, (Tex.Civ. Lakeway Wright, 20 S.W.2d rule. Co. is v. reaffirm this Inc., aff’d in rev’d in Howard, App.1929), part, Leon Export Development grounds, 34 (Tex.1979); Texas other cases, however, Schleder, (Tex. evince a Texas sub- Corp. v. 519 S.W.2d Recent urge of when the writ). approach no tle Civ.App.1974, agent and limitation of “under- must choose between Advertising, principal. or v. Bruce standings” agreements, were collateral (Tex.Civ.App.1976, agreements which the written con- induced writ), tracts, and, law, might any considered read to hold are *4 rule, proceed- exceptions parol judgment against agent to the the bars evidence Howard, supra, v. Leon Lakeway ings against principal. Co. the The Sherrill tri- 662; McRae, agent at v. that and Anderson al court found both the the (Tex.Civ.App.1973, no joint were principal liable as venturers. writ). No such limitation of an investor’s appellate principal appealed. the Only would di- liability ruled, joint collateral. It was no that there court rectly unambiguous conflict with the terms liability, principal the venture but also that pro- the of both the and agency could not be doctrine spectus, the trial in con- judge and erred agent judgment against a the al- because the sidering such evidence. We hold that According to ready had become final. the agreement and the are the com- court, theory principal the and “[o]n plete expression agen- and exclusive of the principal . cannot now be held agent, the . . cy relationship between the investors and judgment there a final had liable since is National, and Arizona that the investors agent breach of the con- against for subject liability to in excess 867. Id. at tract.” price. unit contrast, in Pool By Medical Personnel Dallas, Seale, Inc. III. ELECTION ON APPEAL e.), r. (Tex.Civ.App.1977, writ ref’d n. the in Parrish asks us to find that the to elect a be- permitted party court third damages. vestors are liable for the contract appeal, even principal agent and on tween appeal judg no There has been from the accepted judg- though party the third National, however, against ment Arizona trial against principal the court. and right thus Parrish’s to recover explained denying mo- the court in As is, damages Arizona at least from National rehearing, by party tion for election “[a]n argue theoretically, intact.1 The investors party to contemplates a freedom against that Parrish elected proceed has to whom it de- defendant choose [the] law agent, precluded and is under Texas Because the judgment.” Id. at 215. sires seeking from an additional election for the had made the trial court principal.2 liability by attributing full to party, third elementary It and none to the aggrieved principal that an third appeals the third party damages recover both of civil held cannot full court appeal take from the was entitled to elect on principal party an undisclosed and agent instead. agent. (2d) Agency Restatement See 1. Arizona Na- 82 L.Ed. We are advised counsel S.Ct. result, practical suggestion bankrupt. Parr- Arizona tional is As While there is some agreement, apply agency see ish’s the trial court has doubtful to the law should (cid:127) 3, infra, electing value. between the issue of note agent principal is outside and case, course, diversity itself, are governed In this we bound law thus is apply the laws of state. Erie the forum forum. 64, 78, Tompkins, Railroad Co. 304 U.S. only cursory attention to that case devotes It is difficult to reconcile the Sherrill Sherrill, the the election issue. In undis- opinions. Medical Personnel Pool In Sher- rill, permitted theory was advanced for the party the third was not closed pursue appeal part on when both appeal, first time on and formed agent contrast, were found liable in the By the trial court’s decision. Pool, trial court. In Medical Personnel case in Medical Personnel Pool the this party permitted pursue third was fully devel- theory of appeal, though on even at oped important, trial. More the Sherrill enjoyed express ruling nonliability by merely prohibiting court recited the rule trial court. Because Texas has no recovery applied it to the facts double certification, duty, cedure it is our analysis it without of the rationale before case, diversity this to choose which authori- possibility rule. The of an election ty facts here. applied is to be not discussed. In Medical Pool, hand, the Personnel on the other court virtually indistin- us is The case before clearly required that the rule stated election Medical Personnel Pool. guishable from voluntary act of will on the case, one, acting on as in party. the Medical Personnel third Because contract- of an behalf applied Pool court articulated this rule and party. In both cases ed a third us, now before to facts identical those against both party brought suit third apply we conclude that we are bound to principal. In nei- the undisclosed that the in this require the trial court case. ther case did *5 other. Af- plaintiff elect to sue one or the trial, erroneously ter the court in each ease IY. OF AGENCY SCOPE party was immune from ruled that one Pool, the Personnel liability. In Medical Any liability of the investors for the motion for granted agent’s court purchases grain from Parrish must arise our veredicto.
judgment non obstante agency relationship from the between Ari- case, princi- that the the district court ruled zona the investors. The trial National and immune from lia- pals investors—were —the court found that the investors were undis- scenario bility. When confronted with this principals grain closed in the transac- feed Medical Per- appeal, the Texas court in on tions between Parrish and Arizona Nation- court’s error sonnel Pool held that the trial Although al. Parrish asserts instead that making a vol- prevented from princi- partially the investors were disclosed election, party was untary and that pals, finding is not court below By the same appeal. entitled to elect on clearly erroneous. law, token, that, under Texas we believe recovery against to elect Parrish is entitled law,3 Texas Under principals present case. is liable for contracts made long acting as the within many While also is similar scope See, authority. g., of his e. Medi- us, opinion before respects to the case See, subject interpret parties of the contract. matter and the trial court have Marketing, Dowling 578 S.W.2d v. NADW ed the under Texas law. 1979, e.); 475, (Tex.Civ.App. itself, however, ref'd n. r. agreement provides writ Accept v. Finance Agreement Securities Investment Co. executed is to be deemed “[t]his 261, (Tex.Civ.App. Corp., governed 474 S.W.2d ance under and to be construed and Thus, e.). might appear ref’d n. r. writ laws of the State of Arizona.” Texas choice of law, law, have doctrine, should apply not Texas that Arizona law which we are bound to National’s of Arizona supra, determined the extent Tompkins, under Erie Railroad Co. party authority. raised Because neither recognizes right parties to a contract appeal, we assume on or briefed this issue govern choose the law that will their contractu apply. law relationship, long whose law al as the forum relationship to the is chosen has a reasonable Dallas, Seale, cal Personnel argument Pool of Inc. While the investors’ is not (Tex.Civ.App.1977, writ unappealing, proves, anything, if too Moreover, e.). r. principal may ref’d n. much. The investors would have us believe liable, even when the acts without purchase that Arizona National could authority, when the retains the they for them before entered the cat- King, benefits of the transaction. Owen v. feeding program tle or after the end of the (Tex.Civ.App.1935) year. practical it is apparent But from a grounds, rev’d on other 130 Tex. 111 standpoint managed feeding that the cattle (1938). Thus, if Arizona Na- depended purchases program advance authority agency tional had grain. The attraction of the agreement purchase grain from Parrish gram standpoint the investors’ was its behalf, on the investors’ or if investors advantages. 1974 tax Yet no investor en- transaction, retained the benefits of the program tered the until December and at then the investors are liable to We Parrish. least two investors waited until December hold that the investors are liable under ei- sign agency agreement. In view theory. ther logistical complexities of the acquiring cattle, feeding large number of There can be little that Ari hardly expected have authority, zona National had at least for purchases would be made in the short time, period some cattle and period signing between the feed for the investors. The entire agreement and the year. They end of the purpose feeding cattle must prepa- have known that some advance feed, for Arizona acquire, National to rations would be made. market investors’ cattle. The investors, signed by the and the Moreover, out, points as Parrish agen- offering prospectus, make Arizona Nation cy agreement explicitly recognized pos- authority al’s regard incontrovertibly in this sibility purchases grain. advance clear. prospectus provided that *6 Owner, Company, for the out, however, [t]he point investors may engage purchases in the advance initially purchased Arizona National grains feed and grain feed feed to be fed to cattle Parrish several weeks be- fore signed the first investor an agency program. involved in each ... It must agreement. that, They argue that, whatever au- pointed be out while such advance thority Arizona enjoyed National after the purchasing usually results in advanta- agency agreement signed, it had no has, geous prices, may bulk in some Moreover, authority prior to that time. instances, paying resulted in an Owner investors renegotiated grain note that might more for such feed than be the purchase contract January was finalized on purchases case if were not made until the purpose 1975. Because the cattle required by feed was the Owner’s cattle. feeding program provide was to the inves- prospec- It is true that this extract from the tors with tax deductions for the inves- to “advance” tus be intended to refer argue grain tors purchases after the purchases only they in the sense that are in year end of the beyond also were Arizona cattle, consumption by the advance of Thus, National’s authority. although the entry of the investors not advance must concede that Nevertheless, authorized Arizona National program. into the inher- purchase grain investors, they argue for the ent ambiguity provision should have purchased potential warned investors that there was a grain from Parrish was grain by purchases for loss occasioned purchased early renegotiated too too they which had to be made in 1974 before late to within au- come Arizona National’s joined program. thority. Equally important, renegotiated the investors received and transferred precisely they sought and retained what for their benefit and from which they, in managed feeding program. fact, from the cattle derived the intended benefit. The The prospectus fact that timing some other grain of feed make clear profit eventual from purchases may have been more advanta- marketing the cattle was far from assured. geous does not affect their liability to Parr- Indeed, charts included in the ish. that, previous year, indicated
four out of thirteen investors sold their We hold that the investors are liable to them, buy cattle for more than it cost to grain Parrish on the contracts because Ari- them, bring raise them to market. zona National had actual authority pur- Thus, prime attraction of the chase the grain investors, and be- consequences. was its tax pro Under the cause the investors received and retained gram National, designed by Arizona each the benefits of the transaction made paid investor price who unit their behalf. represented Parrish has entitled to a thirty deduction between this court that as between Arizona National forty thousand dollars.4 Each investor investors, and the judg- elects to have sued Parrish in case deducted the Accordingly, latter. cost of grain purchases the advance from it judgment against Arizona National is va- on the investor’s federal income tax for cated and the in favor of the 1974. No investor renounced the tax ad investors is reversed. The case is remanded vantages that accrued to him because of to the district court with instructions to Arizona dealings National’s with Parrish. enter in favor of Arizona Nation- Nevertheless, by contesting liability for Ari al as Parrish and in favor of Parrish zona Parrish, National’s contract they investors, the district court to seek to disavow the economic realities determine, applicable law, brought them very those tax advantages. amount of liability of each investor. argue that, The investors not whether or
Arizona
pur-
National was authorized to
V. BANKERS AG
grain
prior
entry
chase
for them
to their
program,
into the
Parrish asserts that Bankers Ag
engage
allowed to
self-dealing. They
Corporation
Credit
also is liable for the
assignment
contend that
them of
grain contracts. Arizona
assigned
National
contracts in which Arizona
the Parrish
Ag
contracts to Bankers
National had a loss
such self-
constituted
*7
part
as
of
financing arrangement
a
de
dealing.
loss-shifting
effect of
such
signed to ensure that
correspond
the debts
assignment might
controlling
be
in an ac-
ing
grain purchases
to the
principals
tion between
were dated in
and a false
bearing
investors,
result,
but
has no
the
the
1974 and that
issue of
the
aas
Self-dealing
investors’
to Parrish.
would be entitled to 1974 tax deductions.
by
agent
the
cannot relieve an undisclosed
assignments
specifically provided, how
principal
obligations
of his
party.
to a third
ever,
Ag agreed
pay
that Bankers
to
reposed
Both Parrish and the investors
con- grain “as the commodity is consumed.” Be
fidence in Arizona National. Loss must
grain
cause no
ever was consumed under
befall one or the other. The investors can-
the
Ag
and Bankers
had no
not avoid contractual
Parrish
obligations
Parrish,
to
relationship to
we affirm the trial
time,
price
4. The
unit
was used to
the
a
cash
cattle owner who used the
pay
accounting
cattle and to
Arizona National’s fee. Feed
method
basis
of
could deduct
grain
$40,000,
expenses,
totaling
grain purchased
year
as much as
of feed
in
cost
the current
by
against
security
despite
were met
funds borrowed
a
the fact that
would be deliv-
existing
year.
interest
in the cattle. Under tax law
in a future
at
ered and consumed
Boothe,
breach”); Nail v.
S.W.
ruling
Ag
Bankers
bears
court’s
(“the plaintiff
payments
(Tex.Civ.App.1924)
on the
cannot
responsibility for
contracts.
and undis-
against
recover
both
which he
principal, but must elect
closed
and
IN PART
REVERSED
AFFIRMED
single
sue”).
recognize
cases
a
will
Other
PART.
IN
agent, but
principal
both
and
action
“the
HENDERSON,
rule that the seller
sue
Judge, concurring
enunciate
Circuit
part
dissenting
part:
princi-
and
in
the undisclosed
both
and
option may,
judg-
and at his
before
pal,
portion
I
and
agree
concur
ment,
elect to
hold
opinion
panel
holding
that Parrish
as
taking
a nonsuit
pursued
might have
the investors instead
agent.”
King,
Owen v.
84 S.W.2d
so,
and, having
Arizona National
done
accord,
Beach
(Tex.Civ.App.1935);
Veazie v.
Contrary
them.1
to
have recovered from
Co.,
Plumbing
Heating
&
235 S.W.
however,
majority,
view of the
I do not
(Tex.Civ.App.1921); Pittsburg Plate
the right
believe that Parrish had
to make
v.
Roquemore,
Co.
88 S.W.
notice Glass
appeal.
that election on
Parrish’s
(Tex.Civ.App.1905).
specifically
por
limited its
to “that
. .
providing
tion of the
.
majority
two
Texas
focuses on
recent
plaintiff
nothing
take
Bankers
courts,
appellate
cases from intermediate
Ag
did
named
Parrish
investors].”
[and
v. Bruce Ad-
Medical Personnel and Sherrill
request
amend
leave to
its notice
(Tex.Civ.
vertising,
National,
appeal, or offer to free Arizona
to
approach
that “evince a subtle
App.1976),
argument,
until after oral
which time
plaintiff
must
question of when
parameters
argument
of the investors’
Ante,
between agent
principal.”
choose
were well set.
Parrish
its reasons for
really
These
cannot
recon-
at 1369.
cases
be
appealing only
might
None of the
court,
ciled.
distinctions
district
bound
reasoning
3(c)
significant
be drawn
26(b).
decision. F.R.A.P.
courts,
I do not
understand
The Texas decisions are inconsistent
majority
point
to
more
than
find one case
approach
of when a
Rather,
majority
the other.
as the
candid-
princi-
seller must decide whether
hold a
out,
points
is to
ly
our task
choose
Yet,
agent.
pal
exception
or his
with the
In my opinion,
follow.
Sherrill conforms
Dallas,
v.
Medical Personnel Pool of
Inc.
jurisprudence
Seale,
well-established
(Tex.Civ.App.1977),
App.1925) permitted In Sherrill when both contract. appeal). developer for breach of real estate developer learned the When opinions the reported conclude Some trust that acting agent for the had been that a seller name both cannot estate, the trustee owned real action, single in a elect but must judg- as a After the trial joined defendant. Pollard, which to sue. 76 Tex. Heffron against both defendants *8 ment was entered 96, 165, (1889) (“a plaintiff 11 S.W. 166 only trustee joint theory, on a venture both; sue elec- cannot he must make his held Appeals The of Civil appealed. Court tion.”); Wright, Diacomis v. joint venture. there had been no that (Tex.Civ.App.1929), 140 rev’d in on oth- that the trustee “imply” went on to (Tex.1931) (“ei- 34 court grounds, er S.W.2d the devel- ther, both, principal of but not for a was the undisclosed sued majority’s I adhere 1. also conclusion Ag grain con- Bankers liable on the was not tracts.
oper, but
plaintiff
concluded that since the
judge, and from
only.
that decision
In oth-
appealed
had not
the judgment against
words,
plaintiff
er
never made an elec-
agent it could no longer elect to look to the
tion,
“contemplates
since an election
a free-
payment.
undisclosed
choose,”
party
dom
which free-
An
discharged
dom
judge
the trial
plaintiff.
denied the
from liability upon
if,
a contract
Id.
knowledge
identity
of the
princi-
majority
giving
discounts
Sherrill
pal, the
party
other
judgment
recovers
“only cursory attention to the election is
against
contract,
who made the
sue,”
says
“the
merely
Sherrill court
for breach of the contract. Restatement
recited the rule prohibiting double recov
(Second) of Agency
210(1) (1957).
§
Ante,
true,
ery.”
at 1370. If that be
it is
While this rule has received some discred-
because it was written before Medical Per
(See Merrill,
it
Election Between Agent
sonnel, when the Texas law was clear.2
Principal:
Undisclosed
Shall we fol-
rely
The court did not
against
on the rule
low the Restatement?
12 Neb.L.V.
recovery,
double
but rather
the “consist
(1933)), the Texas courts have consistent-
ently followed” Texas mandate that recov
ly followed it.
Tex.Dig. Principal
&
ery
judgment against
agent discharges
Agent
145(4) (1974). Here,
judg-
§
principal.
If
opinion
either
is short of
Crane-Maier has
analysis,
Personnel,
is Medical
become final.
the theory
On
of principal
ignores
previous
Texas decisions and
principal,
Trust,
any
fails to cite
case permitting election on
cannot now be held liable since there is a
appeal.
judgment
final
When state law controls an issue in a
breach of the contract.
case,
diversity
a federal court must look to
(emphasis
S.W.2d at 867
supplied); see
pronouncements
highest
state’s
also
Ray,
Sherrill v.
(Tex.
cial rule.”
350 U.S.
of a
of a
he was unaware when entered
tract, only permitted then he should See, principal responsible.
hold the
Heffron. there is
The Restatement observes satisfactory explanation for the entirely America, of UNITED STATES rule, with the is “inconsistent Plaintiff-Appellee, underlying liability basic reason of perhaps even principal,” undisclosed Second, Restatement, “unjust.” Agency CROSS, Ransom Patrick comment a. Cf. Williston Con- § Defendant-Appellant. fact, (3d 1959). tracts ed. § No. 79-5704. wide-spread approval election rule met with partly in Texas because of dissatisfaction Appeals, United Court States liability of an logic underlying with the Fifth Circuit. not, and, principal, just or it is undisclosed A Unit time than the clear that Parrish more contemplates to make its choice. rule March judg Restatement’s treatment principals against partially ments disclosed
provides comparison sup useful
ports approach older “Recovery cases. partially of a disclosed or thereby . dis
disclosed . . does not Restatement,
charge ...”
Second, Agency 184(1). The comment on § points
this subsection out that a seller loses rights against when he
“gets” agent after
discovering identity a,
principal, comment but “satisfaction judgment against termi [partially
nates the disclosed] (emphasis supplied).3
principal,” comment c this distinc jurisdictions
Other have noted election rules
3. The comment observes that the principals are on disclosed and undisclosed in accord.” “not