Menard, Inc. v. Dage-MTI, Inc.

Indiana Court of Appeals · 2000 · Corporations

CorporationsAgencyAuthority of corporate officersexpress authorityapparent authoritycorporate presidentboard approvalsole negotiator

Facts

Dage was governed by a six-member board whose approval was required for corporate action, and its president, Arthur Sterling, had recently been told by board representatives that he could no longer act beyond board control. After Menard's first offer to buy part of Dage's land was sent to the board, Sterling expressly told Menard that board approval would be required before acceptance or rejection, and the board rejected the offer because of objectionable provisions. The board later authorized Sterling only to "offer for sale" the entire thirty-acre parcel at a minimum price, told him he could solicit offers but not negotiate terms or complete a sale, and instructed him to submit any Menard offer for board review. Despite those instructions, Sterling privately made minor revisions to Menard's second agreement, signed it on Dage's behalf, and represented in the document that he was duly authorized.

Issue

Whether Dage's president had express or apparent authority to bind Dage to Menard's purchase agreement for the thirty-acre parcel, and whether the trial court therefore erred in denying Menard partial summary judgment on the agreement's validity.

Rule

An agent has no authority to act contrary to the known wishes and instructions of the principal and is authorized to do only what it is reasonable for the agent to infer the principal desires in light of the principal's manifestations and the facts known or reasonably knowable to the agent. Apparent authority arises only from the principal's direct or indirect manifestations to a third party creating a reasonable belief of authority; it cannot arise from the agent's own representations, and any inference of authority from the agent's role as sole negotiator is defeated when the third party knows the agent must obtain principal approval.

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

Lakeview Components, a closely held manufacturer in Fort Wayne, owns a vacant warehouse parcel in Gary. Its board tells president Nolan Pierce that he may "offer the property for sale" at no less than $900,000, may gather bids, and must send any proposal to the board for approval; Nolan then signs a sales contract with Beacon Retail Group without board review.

Is Lakeview most likely bound on the theory that Nolan had express authority to sign the contract?

Explanation. Express authority extends only to what it is reasonable for the agent to infer the principal desires in light of the principal's manifestations and known facts. Here, the board expressly limited Nolan to offering the property for sale and forwarding proposals for board approval. Signing a binding contract exceeded those known limits, so he lacked express authority. (Derived from Menard, Inc. v. Dage-MTI, Inc. (2000).)