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United States v. Grace Evangelical Church of South Providence Ridge.

December 16, 1942


Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; John P. Barnes, Judge.

Author: Lindley

Before EVANS, SPARKS, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

This is an appeal from a judgment of the District Court entered in a condemnation proceeding instituted by the Government for procuration of title ot land for the Elwood Ordnance Plant. Included in such were the church yard and church of defendant, the value of which the jury fixed at $4,840. Defendant contended there as it does here that the proper measure of compensation should have been $7,000, the amount agreed upon in a written contract between the Government and defendant.

On November 15, 1940, one Herman, representing the Government in securing the desired acreage, presented to defendant an option whereby the latter offered to sell the property to the United States for $7,000. Among the special provisions was one to pay Herman a commission of 5 per cent of the sales price as compensation to him for services rendered in procuring the sale and preparing the deed. This option was forwarded by Herman to the War Department and there accepted on November 22, 1940. On the same day, the Department notified defendant that it had elected to purchase the property in accord with the option and desired possession within 30 days. The church arranged to terminate its use of the premises, holding its last service in February, 1941. On March 1, 1941, the Government took possession and has since retained it.

On August 4, 1941, ignoring the contract, the Government filed a proceeding in condemnation and a declaration of taking. In October, defendant filed a crosspetition or counterclaim, setting up the contract, averring that it was ready, able and willing to execute and deliver proper conveyance and praying that the court order the Government to pay it, in accord with the accepted option, the agreed price of $7,000. The Government having answered the petition, the parties stipulated as to the facts. Without first entering any order upon the petition, the court set the cause for hearing to determine fair compensation. At the trial the Government introduced the testimony of one witness that the land was worth $4,840. Defendant's offer of the contract to sell for $7,000 was refused. The court directed the jury to return a verdict for $4,840 and dismissed the counterclaim, except as to the allowance of interest.

In the District Court the Government objected to introduction of the agreement upon the ground that there existed no proof of authority to act in the officer who executed it in behalf of the United States. The court sustained the objection upon this ground, saying that the United States should not be bound by contracts executed by persons other than those who are authorized to make them, and that if it appeared that the Secretary of War had authorized the agreement, that would be the "end of the case." In this court, the Government has abandoned this contention and admits that the person who signed was authorized by the Secretary of War "to enter into contracts for the pupchase of lands." It relies here, for the first time, upon the claim that the agreement is void as against public policy, because it appears therefrom that the agent of the Government was to receive a commission from the vendor. This fact, it now says, made the contract invalid from its inception.

Herman had been employed by the Government as soliciting agent to procure options. He procured some 300 or more such documents from other land owners in the same territory, each of which was on a form which the Government had apparently approved and authorized him to use, identical with that executed by defendant, and containing a recital that the commission was to be paid by the vendor. It is obvious that the Government was fully aware of this provision; that it was fully advised and had apparently approved a system whereby it permitted its agent to procure options providing for payment of his commission by the vendors.

The public policy is to be found in the constitution and laws and the decisions of the courts. St. Louis Mining & M. v. Montana Mining, 171 U.S. 650, 19 S. Ct. 61, 43 L. Ed. 320. And when the court is asked to declare a contract void upon the ground that it conflicts with the public policy, to justify sustaining the defense, the line of that policy must be clear and distinct. Bank of Augusta v. Earle, 13 Pet. 519, 597, 10 L. Ed. 274. this is upon the reasoning that men shall have the utmost liberty of contracting and that their agreements, when entered into fairly and voluntarily, shall be held sacred and enforced by the courts. This freedom of contract is not to be lightly interfered with.The burden of showing illegality is upon the party asserting it and it is not sufficient merely to create confusion and ssuggest doubts as to its legality. Illinois Surety Co. v. O'Brien, 6 Cir., 223 F. 933.

It is well recognized that one employed as agent violates no duty to his principal by acting for another party to the transaction if he makes full disclosure of all relevant facts which the principal knows or should know, or if the principal otherwise knows of them and acquiesces in the agent's conduct. Restatement, Agency, Sections 390, 391 and 392; Williston on Contracts, Revised Edition, Vol. 5, section 1532 and cases there cited. Likewise if either principal, upon learning of the true situation, after the transaction has been thus brought about, ratifies the dual representation the transaction is no longer voidable by him. Section 1532. And unless the principal rescinds within a reasonable time after learning the true situation he is presumed to ratify. Fitzgerald v. Union Central L. Ins. Co., 8 Cir., 42 F.2d 76, certiorari denied 282 U.S. 838, 51 S. Ct. 38, 75 L. Ed. 744.

Consequently, it seems to us, there was nothing illegal in the transaction. If the agent had secretly procured commissions from the Government's adversary, a different situation would arise, but there is no federal statute or court decision forbidding the Government, if it is fully advised, from entering into such a contract, or establishing a public policy avoiding a contract generally recognized as valid, - one in which the agent fully discloses to his principal that he is receiving compensation from the adversary. In such case the principal has no cause for complaint. Cholot v. Strohm, 235 App.Div. 150, 256 N.Y.S. 647.Illegalilty arises from secret commissions, not from those known to both parties. Freedom of contract is to be preserved and where, as here, the procedure, if not instituted or suggested by the Government, was at least carried to a conclusion with its knowledge and acquiescence, it may not complain.

The United States insists further that the consideration mentioned in the contract was arrived at by including improper items. However, there is no evidence in the record to substantiate this assertion. In view of our conclusions, if this claim has any proper place in the hearing, it may be given consideration in the District Court.

The judgment will be reversed with directions to proceed in accord with the ...

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