corporationsagencycorporate officersinherent authoritycorporate presidentboard approvalreal estate saleclosely held corporation
Facts
Menard offered to buy Dage's 30-acre parcel for $1,450,000, and Dage's president, Arthur Sterling, signed the revised agreement on Dage's behalf after negotiating minor changes. Sterling represented in the agreement that the signers were duly authorized and that their signatures bound Dage, and no one at Dage told Menard that Sterling's authority was limited to soliciting offers. Sterling had long managed Dage with little board oversight and had previously purchased real estate for Dage without board approval. After learning of the signed agreement, Dage's board refused to perform and did not notify Menard of any enforceability issue until March 29, 1994.
Issue
Whether Dage was bound by its president's execution of the land sale agreement even though the board had not approved the sale and had privately limited his authority. More specifically, whether the case should be analyzed under inherent authority rather than actual or apparent authority, and whether Sterling had inherent authority to bind Dage in these circumstances.
Rule
A corporate president may bind the corporation under the doctrine of inherent authority even without actual or apparent authority if the president's act usually accompanies or is incidental to transactions he is authorized to conduct, the third party reasonably believes the president is authorized, and the third party has no notice that the president lacks such authority. In evaluating inherent authority, the focus is on the agent's office or station and the customary authority arising from the agency relation, not solely on the principal's manifestations.
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10 practice questions + 4 AI-graded essays on this case
One of 10 multiple-choice questions for this case. Pick an answer to see why.
Blue Mesa Sensors, a closely held corporation in Fort Wayne, owns an unused warehouse in Gary. Its president, Nolan Price, has run the company for 18 years with minimal board oversight and has previously leased and purchased company property without prior board votes. The board privately instructs Nolan that he may only solicit offers for the warehouse, but Nolan signs a sale contract with Harbor Point Development, and no one tells Harbor Point about the limitation.
If Harbor Point sues to enforce the contract, which is the strongest argument that the corporation is bound?
Explanation. The majority held that a corporate president may bind the corporation through inherent authority even without actual or apparent authority when the act usually accompanies or is incidental to transactions the president is authorized to conduct, the third party reasonably believes the president is authorized, and the third party has no notice of the limitation. The focus is on the president's office and customary authority, not solely on direct manifestations from the board or whether the transaction is within the ordinary line of the corporation's product business. (Derived from Menard, Inc. v. Dage-MTI, Inc. (n.d.).)