AMERICAN ANCHOR & CHAIN CORPORATION v. United States

• Decision Date: 15 May 1964
• Docket Number: No. 297-60.,297-60.
• Citation: 331 F.2d 860
• Parties: AMERICAN ANCHOR & CHAIN CORPORATION, Chester, Pennsylvania v. The UNITED STATES.
• Court: U.S. Claims Court

331 F.2d 860 (1964)

AMERICAN ANCHOR & CHAIN CORPORATION, Chester, Pennsylvania v.The UNITED STATES.

No. 297-60.

United States Court of Claims.

May 15, 1964.

Edward Gallagher, Washington, D. C., for plaintiff.

Mary J. Turner, Washington, D. C., with whom was Asst. Atty. Gen. John W. Douglas, for defendant.

Before JONES, Chief Judge, and LARAMORE, DURFEE and DAVIS, Judges.

DAVIS, Judge.

Plaintiff is a small Pennsylvania company, organized in June 1955 to manufacture non-magnetic anchors, chains, tools, fittings, and foundry items.Its sole plant and its mailing address were at Fieldsboro, New Jersey, but the executive officers were stationed some sixty miles away in Chester, Pennsylvania, where an affiliated company was located.During 1956 the employee in charge at Fieldsboro was H. L. Landauer, the Works Manager.¹He was not authorized to sign, at his own will, contracts with the Federal Government, but he could do so after receiving the prior approval of Mr. Linnenbank, a vice-president (in Chester).The source of the present controversy is that in September 1956 Landauer entered into two Government contracts, on behalf of plaintiff, which plaintiff now disavows as unauthorized.After unexcused delays in shipment, the defendant terminated these two agreements for default, purchased the items from another supplier, and deducted the excess it had to pay ($9,893.32) from amounts due plaintiff under other contracts.Plaintiff sues to recover that sum on the ground that the defaulted agreements were not its responsibility, but were the products of an unauthorized frolic of Landauer's which the company never confirmed.That is the sole challenge to the defendant's actions in reletting the contracts.

There is a direct clash between Landauer and Linnenbank as to whether the latter orally approved the former's signing of these two specific contracts, and on this record we do not find that such prior approval was actually given.Decision turns, rather, on the issues of apparent authority and ratification.If Landauer was apparently endowed with authority to consummate federal contracts, or if the company later ratified his actions, the defendant cannot be held for terminating the agreements and charging the excess costs to plaintiff.

A.It is now commonplace that, except where formality is expressly required, apparent authority to do an act on behalf of a principal may be created by written or spoken words or other conduct of the principal which, if reasonably interpreted, causes a third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him.A.L.I., Restatement, Agency2d, § 27(1958);Standard Oil Co. v. Lyons, 130 F.2d 965, 968(C.A.8, 1942).The heart of this principle is that it is fair — especially in a complex society where transactions are most often carried on through others — to require "one who allows another to appear to be his agent * * * to bear any loss resulting to a third party from his dealings with the apparent agent in that capacity in reliance on his supposed authority."Mechem, Outlines of the Law of Agency(4th ed., 1952), § 84.The free flow of commerce, large and small, would be shackled if the burden of ascertaining the agent's real authority were put upon the multitudes of individuals dealing, every day, with agents whose principals seem to have clothed them with adequate authority to do business.Although the Federal Government still stands on the stricter requirements of actual authority for its own agents (see, e. g., Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10(1947)), the agents of Government contractors are governed by the usual rules.

One familiar type of agency by apparent authority is appointment "to a position, such as that of manager or treasurer, which carries with it generally recognized duties; to those who know of the appointment there is apparent authority to do the things ordinarily entrusted to one occupying such a position, regardless of unknown limitations which are imposed upon the particular agent."A.L.I., Restatement, Agency2d, § 27, Comment a (1958)."It makes no difference that the agent may be disregarding his principal's directions, secret or otherwise, so long as he continues in that larger field measured by the general scope of the business entrusted to his care."Kidd v. Thomas A. Edison, Inc., 239 F. 405, 407(S.D.N.Y.), aff'd, 242 F. 923(C.A.2, 1917).See, alsoMechem, op. cit. supra, § 93;Grand Trunk Western R. Co. v. H. W. Nelson Co., 116 F.2d 823, 834(C.A.6, 1941);Arkansas Valley Feed Mills, Inc. v. Fox De Luxe Foods, Inc., 171 F.Supp. 145(W.D.Ark.1959), aff'd, 273 F.2d 804(C.A.8, 1960).

Except possibly for one factor, the present case fully meets this classic measure of apparent authority.Plaintiff had but one plant, at Fieldsboro, and its letterhead gave Fieldsboro as its only address.The telephone number given in its bids and applications was that of the plant.Landauer, called the "Works Manager," was the man in charge of the management and operation of that single plant; no one stationed there was above him in authority and no notice was given the defendant of any limitations on his authority.He appeared to be a top management official, though not an officer.He was admittedly authorized to make certain small purchases and minor sales, as well as to sign checks for the payroll and for the purchases he made — so that on the surface he would appear to third parties, unaware of the limitations on his authority, as having the usual buying, selling, and employing functions of a top manager.Landauer consistently held himself out, orally and in writing, as fully competent to deal with Government representatives.²He alone dealt on a managerial level with the inspector who came to make the pre-award survey on one of the contracts in suit; the inspector had no contact (and was not asked to make contact) with any of plaintiff's officers.Whatever phone conversations were had before the awards were with Landauer.He signed all the applications, bids, and correspondence, on behalf of the plaintiff.Four bids on Government work were made by plaintiff in 1956 to the same naval office in Philadelphia (the two in suit and two others); each was signed by Landauer, alone, as "Works Manager."Plaintiff admits that the bids on the two awards not now involved, though signed only by Landauer, were authorized in advance by Linnenbank; those authorized bids (looking precisely like the bids in suit) were dated and received by the Navy well before September 1956 when it made the awards now challenged.Two negotiated contracts, likewise authorized in advance, were later made with that same Navy office, and each was similarly signed by Landauer alone.³Plaintiff thus allowed the Navy to believe that Landauer was its Works Manager, competent to sign Government contracts, and possessed of general contractual authority.The same appearance was maintained at all relevant times.Between February and December 1956, there were some fifteen contacts, written and oral, between the two interested Navy offices (in Philadelphia and Camden) and plaintiff in which Landauer was the sole person to act for the company; there were no contacts with any other representative of plaintiff.Whatever intermittent supervision there was from Chester was invisible to third parties without day-to-day connection with the company.⁴

The short of it is that plaintiff placed Landauer in a managerial position in which (i) outsiders would naturally be led to believe that he had authority to carry on the business of this small company's sole plant, including the making of contracts which would engage that plant's facilities, and (ii) Landauer himself was left free to act as if he were the company's full manager and authorized representative and, in doing so, to exceed his real authority without check or deterrent.Through carelessness or design, this principal pushed its agent to the very forefront of its sole operation and kept well hidden all the strings it had tied to him.It cannot complain if, like Pinocchio, he broke the strings and grasped the substance of the role it allowed him to appear to have.The defendant did not have the burden of ferreting out unrevealed restrictions that might have been placed on the agent.By its own affirmative conduct as well as its omissions, plaintiff made it entirely reasonable for the Government to believe that Landauer had authority to commit the company to the two Government contracts for which it now disclaims responsibility.That he was known not to be an officer of the corporation was immaterial; the important thing was that he was made (and allowed) to appear as the manager of the company's only operation, and, as such, in charge of that...