Butler Mfg. Co. v. J & L Implement Co.

• Decision Date: 05 September 1975
• Docket Number: No. 12860,12860
• Citation: 167 Mont. 519,540 P.2d 962
• Parties: BUTLER MANUFACTURING COMPANY, a corporation, Plaintiff and Appellant, v. J & L IMPLEMENT COMPANY, a partnership, Defendants and Respondents.
• Court: Montana Supreme Court

Page 962

540 P.2d 962

167 Mont. 519

BUTLER MANUFACTURING COMPANY, a corporation, Plaintiff and Appellant, v. J & L IMPLEMENT COMPANY, a partnership, Defendants and Respondents.

No. 12860.

Supreme Court of Montana.

Submitted June 12, 1975.

Decided Sept. 5, 1975.

Loren J. O'Toole (argued), Plentywood, for plaintiff and appellant.

Hadedank, Cumming & Best, Otto Habedank (argued), Sidney, for defendants and respondents.

JAMES T. HARRISON, Chief Justice.

This is an appeal by Butler Manufacturing Company, plaintiff, from a judgment entered following a jury verdict for J & L Implement Company, defendant, in the district court, Sheridan County.

The basic issue is whether an agency relationship, actual or ostensible, existed between Butler Manufacturing Company (hereinafter called Butler) and Jacobsen Construction Company, Inc. (hereinafter called Jacobsen) upon which J & L Implement Company, defendant, (hereinafter called J & L) could rely when returning unsold steel grain bins to the manufacturer, Butler, for credit.

J & L is a partnership is Plentywood, Montana, which sells farm equipment, steel buildings and granaries. Jacobsen was a distributor of steel buildings and granaries for Butler, the manufacturer. J & L ordered steel buildings and granaries through Jacobsen, receiving delivery from Jacobsen with billings and accountings coming directly from Butler, based on information supplied by Jacobsen.

Jacobsen had a chronic cash flow problem which led to its present insolvent, inactive state. Due to the unstable financial condition of Jacobsen, Butler's credit manager devised a unique sales arrangement whereby Butler directly billed Jacobsen's subdealers rather than selling to Jacobsen which would resell to the subdealers remitting payment to Butler from Jacobsen's account.

From 1969 through 1971, J & L sold approximately 45 bins under this arrangement, at all times dealing directly with Jacobsen and not Butler, except for billing and accounting purposes. In April 1970, J & L ordered 18 steel grain bins through Jacobsen, but due to drought conditions and the resulting bad crops that season, the bins did not sell. In March 1971, Jacobsen picked up four of these bins pursuant to an understanding between Jacobsen and its subdealers. This understanding arose out of a sales meeting called by Jacobsen for all of its subdealers and attended by officers and agents of Butler, at Jacobsen's invitation. There was no objection to this understanding voiced by the officers and agents of Butler attending that meeting. This understanding had been put into force between Jacobsen and a subdealer at least one other time in Montana.

The arrangement for returning the first four bins was made during a meeting in Plentywood attended by the president and general manager of Jacobsen and sales representative of Butler. Jacobsen issued a check to Butler upon picking up the four bins, and Butler credited J & L's account reflecting the cost of the returned bins.

On July 9, 1971, Jacobsen picked up the remaining fourteen bins, but did not issue a check to Butler reflecting payment for the bins, as it had done subsequent to the return of the first four bins. Jacobsen did not issue a check due to an agreement among Jacobsen, Butler, and Jacobsen's bank whereby, due to Jacobsen's unstable financial condition, all of Jacobsen's assets and cash in that bank would be applied to Jacobsen's account with Butler. J & L's account with Butler was not credited for the return of these fourteen bins.

On July 13, 1971, D. R. Bain, Butler's credit manager, called J & L concerning the return of the unsold bins. During this telephone conversation, Bain stated Butler's position that J & L was responsible for the payment of the bins, notwithstanding the physical return of the bins to Jacobsen. On July 14, 1971, Bain sent a letter to J & L again stating Butler's position that J & L was responsible for payment on the bins.

J & L informed Butler it had no obligation to pay for the bins, because they had been returned to Jacobsen pursuant to the understanding.

Butler filed this action in the district court seeking a judgment in the amount of $10,557.42, which was the balance of J &amp L's account. The jury returned a unanimous verdict in favor of J & L. Butler appeals from the judgment.

The issues raised in this appeal are:

(1) Was Jacobsen the ostensible agent of Butler with apparent authority to accept the return of the steel grain bins and credit the account of J & L for their return?

(2) If Jacobsen was the ostensible agent of Butler, did Butler disavow the acts of its agent within a reasonable length of time thereby terminating the apparent authority of the ostensible agent?

We find ample evidence on the record to establish the agency.

2A C.J.S. Agency § 4(a), page, 551, defines agency as:

'* * * the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.'

Montana's pertinent agency states are found in Title 2, Chapter 1, R.C.M.1947.

Section 2-101, states:

'An agent is one who represents another, called the principal, in dealings with third persons. * * *'

Section 2-104 provides there are two distinct types of agency, actual or ostensible.

Section 2-105 provides an agency is actual when:

'* * * the agent is really employed by the principal.'

Section 2-106 provides an ostensible agency is present when:

'* * * the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.'

Section 2-122 states the measure of an agent's authority is:

'* * * such authority as the principal actually or ostensibly confers upon him.'

Section 2-123 provides:

'Actual authority is such as the principal intentionally confers upon the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself to possess.'

Section 2-124 provides:

'Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess.'

This Court stated the rule on agency in Freeman v. Withers, 104 Mont. 166, 172, 65 P.2d 601, 603:

'An agency may be either actual or ostensible. * * * (Section 2-104, R.C.M., 1947.) It may be created by a precedent authorization, or a subsequent ratification. * * * (section 2-114, R.C.M.1947.) It may be implied from conduct and from all the facts and circumstances in the case (2 C.J.S. Adoption of Persons, p. 1043), and may be shown by circumstantial evidence. Doney v. Ellison, 103 Mont. 591, 64 P. (2d) 348. Also, ratification may be implied from the acts and conduct of the alleged principal.'

This rule was affirmed in Hamilton v. Lion Head Ski Lift, Inc., 139 Mont. 335, 340, 363 P.2d 716.

The record indicates from 1969 through 1971 J & L dealt with Jacobsen as a Butler Agri-Builder. J & L placed orders for Butler products through Jacobsen and received delivery from Jacobsen. Butler did bill J & L directly, but gave no indication that Jacobsen was not acting in an agency capacity. At the spring sales meeting held by Jacobsen for its subdealers, officers and agents of Butler were in attendance, including the president of Butler. When Jacobsen's president and general manager went to Plentywood on a collection visit, he was accompanied by a sales representative of Butler (it was during this March 1971 meeting that agreement was reached on the return of the first four bins). All these facts might lead a reasonable man to believe Jacobsen was an agent of Butler.

Pursuant to the understanding presented by Jacobsen's president and general manager at the spring sales meeting, at least two other subdealers of Jacobsen had returned unsold bins to Jacobsen without an adverse comment from Butler. J & L returned four bins to Jacobsen in March 1971, and had its account with Butler credited, again without adverse comment from Butler.

The Supreme Court of Wyoming in Ulen v. Knecttle, 50 Wyo. 94, 103, 58 P.2d 446, 111 A.L.R. 565, quoted in Hamilton, sets forth the rule of evidence for implied or ostensible authority:

'* * * Implied authority may, and in fact must, be shown by the course of dealing of the parties and other circumstances in the case.'

The course of dealing between the subdealers (including J & L) and Jacobsen, without denial of authority on the part of Butler prior to July, 1971, presented sufficient evidence of ostensible agency and authority in Jacobsen to support the verdict of the jury.

The Montana statute, section 2-205, R.C.M.1947, states:

'A principal is bound by acts of his agent, under a merely ostensible authority, to those persons only who have in good faith, and without ordinary negligence, incurred a liability or parted with value upon the faith thereof.'

The principal may repudiate the actions of his ostensible agent by prompt notice to the third party who is relying on the ostensible agency and authority. This Court in McLaren Gold Mines Co. v. Morton, 124 Mont. 382, 396, 224 P.2d 975, 982, said:

'It is settled that a principal who neglects promptly to disavow an act of his agent, by which the latter has transcended his authority, makes the act his own; he is bound to disavow it the first moment the fact comes to his knowledge.'

In 2A C.J.S. Agency § 89, p. 694, this rule is set out:

'The principal does not ratify an unauthorized act if he repudiates it with reasonable promptness after learning the facts * * *'.

Here, Butler asserts that it...