Menard, Inc. v. Dage MTI, Inc.

Indiana Court of Appeals · Corporations

CorporationsAgencyAuthority of corporate officersexpress authorityapparent authoritycorporate presidentboard approvalsole negotiator

Facts

Dage was a closely held corporation whose six-member board had to act by written consent of all members under the bylaws. Although president Arthur Sterling had long operated the company with little oversight, the board in 1993 told him he could only "offer for sale" Dage's thirty-acre parcel, solicit offers, and submit any Menard offer for board review and acceptance. Sterling had previously told Menard that board approval was required for the first offer, and the board rejected that offer because of objectionable provisions. Despite those instructions, Sterling later negotiated minor changes to Menard's second offer, which still contained the same objectionable provisions, and signed it on Dage's behalf without informing the board.

Issue

Whether Sterling had express authority or apparent authority to bind Dage to the real estate purchase agreement with Menard, and whether the trial court therefore erred in entering judgment for Dage and in denying Menard's motion for partial summary judgment. More specifically, the question was whether board instructions limiting Sterling to soliciting offers and requiring board approval prevented the agreement from binding Dage.

Rule

An agent has no authority to act contrary to the known wishes and instructions of the principal, and the agent is authorized to do only what it is reasonable for him to infer the principal desires in light of the principal's manifestations and the facts known or reasonably knowable to him. Apparent authority arises only from the principal's direct or indirect manifestations that reasonably cause a third party to believe the agent is authorized; it cannot arise from the agent's own representations. Placing an agent in the position of sole negotiator may permit a finding of apparent authority, but it does not require one, especially where the third party knows the agent must obtain further approval.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Components, a closely held corporation in Indianapolis, owns a warehouse in Fort Wayne. Its board tells president Nolan Price that he may market the property, gather offers, and send any signed proposal to the board for approval; Nolan later signs a sale contract with Lakefront Storage LLC without sending it to the board.

Is Blue Mesa most likely bound by the contract on a theory that Nolan had express authority?

Explanation. Express authority is limited by the principal's manifestations and by the instructions known or reasonably knowable to the agent. Here, the board specifically limited Nolan to marketing the property and forwarding proposals for board approval, so signing a binding contract exceeded his express authority. The majority opinion rejects the idea that the officer's title alone or the act of marketing automatically authorizes execution of the final agreement. (Derived from Menard, Inc. v. Dage MTI, Inc. (n.d.).)