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

Decision Date17 April 2000
Docket NumberNo. 46S03-0004-CV-00272.,46S03-0004-CV-00272.
CitationMenard, Inc. v. Dage-MTI, Inc., 726 N.E.2d 1206 (Ind. 2000)
PartiesMENARD, INC., Appellant (Plaintiff below), v. DAGE-MTI, INC., Appellee (Defendant below).
CourtIndiana Supreme Court

Michael A. Wukmer, John J. Morse, Ice Miller Donadio & Ryan, Indianapolis, IN, Gene Jones, Mark Lienhoop, Newby Lewis Kaminsky & Jones, LaPorte, IN, Attorneys for Appellant.

Paul J. Peralta, D. Lucetta Pope, Baker & Daniels South Bend, IN, Attorneys for Appellee.

ON PETITION TO TRANSFER

SULLIVAN, Justice.

Menard, Inc., offered to purchase 30 acres of land from Dage-MTI, Inc., for $1,450,000.Arthur Sterling, Dage's president, accepted the offer in a written agreement in which he represented that he had the requisite authority to bind Dage to the sale.The Dage board of directors did not approve and refused to complete the transaction.We hold that as president, Sterling possessed the inherent authority to bind Dage in these circumstances.

Background

Dage-MTI, Inc., is a closely held Indiana corporation which manufactures specialized electronics equipment.At all times relevant to this appeal, Dage was governed by a six-member board of directors ("Board"), consisting of Ronald and Lynn Kerrigan, Louis Piccolo(a financial consultant retained by Ronald Kerrigan), Arthur and Marie Sterling, and William Conners.In addition to being a Board member, Arthur Sterling("Sterling") had served as president of Dage for at least 20 years at the time of the trial on this matter.Of the six directors, only Arthur and Marie Sterling resided in Indiana.

For many years, Sterling operated Dage without significant input from or oversight by the Board.Over the course of the summer and early fall of 1993, however, Kerrigan took steps to subject Dage management to Board control.Kerrigan hired New York-based financial consultant and future Board member Piccolo to assess the company's performance.Kerrigan also retained New York attorney Gerald Gorinsky to represent his interests concerning Dage.

In late October of 1993, the Dage shareholders met in New Jersey to discuss an offer by Sterling to purchase the Kerrigans' shares of Dage.During the course of the meeting, Sterling first informed other directors that Menard, Inc., had expressed interest in purchasing a 30-acre parcel of land owned by Dage and located in the Michigan City area.Menard is a Wisconsin corporation that owns and operates home improvement stores in the Midwestern region of the United States.

On October 30, 1993, Menard forwarded a formal offer to Sterling pertaining to the purchase of 10.5 acres of the 30-acre parcel.Upon receipt of the offer, Sterling did not contact Menard to discuss the terms and conditions of the offer.Instead, on or about November 4, 1993, he forwarded the offer to all the Dage directors with a cover note acknowledging that Board approval was required to accept or reject the offer.Ultimately, this offer was rejected: Kerrigan, Piccolo, and Gorinsky determined that the offer should be rejected due to the collective effect of certain sections of the purchase agreement submitted by Menard, as well as co-development obligations that the offer imposed on Dage.This rejection was communicated to Sterling, and although he viewed the offer to purchase favorably, he let the offer lapse.Later, he informed Menard's agent, Gary Litvin, that members of Dage's Board objected to various provisions of the offer.

On November 30, 1993, Sterling called Kerrigan and informed him that Menard would make a second offer for the entire 30-acre parcel.Sterling presented a two-part proposed resolution ("consent resolution") to the Board: the first part authorized Sterling to "offer and purchase" another parcel located immediately to the north of the 30-acre parcel and referred to as the "Simon property"; the second part authorized Sterling to "offer and sell" the 30-acre parcel.Sterling, Kerrigan, Piccolo, and Gorinsky discussed the offer and Sterling was told to change the "offer and sell" provision to "to offer for sale."He was also instructed that he could purchase the Simon property on behalf of Dage, but could only "offer" the 30-acre parcel to Menard at a particular price.Additionally, Sterling was told that in soliciting offers for the 30-acre parcel, he was not to negotiate the terms of a sale.Gorinsky reminded Sterling that any offer from Menard would require Board review and acceptance, and he instructed Sterling to forward any offer to the Board for approval or rejection.

Finally, Sterling was told that if Menard submitted an agreement with the same objectionable provisions as the first offer, it would be rejected.Sterling agreed to follow the instructions of the Board "as long as I don't have to pay for" Gorinsky's and Piccolo's services in reviewing the offer.Based upon the discussion, Sterling drafted a new resolution, which stated that he was authorized "to take such actions as are necessary to offer for sale our 30 acre parcel ... for a price not less than $1,200,000."

On December 6, 1993, Sterling informed Piccolo that Menard had agreed to make another offer.Piccolo reminded Sterling of his obligation to secure Board approval of the offer.Menard forwarded a second proposed purchase agreement to Sterling.This agreement contained the same provisions that the Board found objectionable in the first proposed agreement.However, this offer differed in that it was for the purchase of the entire 30-acre parcel for $1,450,000.

During a week-long series of discussions beginning December 14, 1993, and unknown to any other member of the Dage Board, Sterling negotiated several minor changes in the Menard agreement and then signed the revised offer on behalf of Dage.Menard also signed, accepting the offer.Under Paragraph 5(c)(I) of the agreement, Sterling, as president of Dage, represented as follows: "The persons signing this Agreement on behalf of the Seller are duly authorized to do so and their signatures bind the Seller in accordance with the terms of this Agreement."(R. at 916; Finding of FactNo. 47.)(R. at 1144, 1149.)No one at Dage had informed Menard that Sterling's authority with respect to the sale of the 30-acre parcel was limited to only the solicitation of offers.

Upon learning of the signed agreement with Menard, the Board instructed Sterling to extricate Dage from the agreement.Later, the Board hired counsel to inform Menard of its intent to question the agreement's enforceability.However, it was not until March 29, 1994, that Dage first gave notice to Menard of this intent.

Menard ultimately filed suit to require Dage to specifically perform the agreement and to secure the payment of damages.Menard initially filed a motion for partial summary judgment, which was denied.Following a bench trial, the trial court ruled in favor of Dage.The Court of Appeals affirmed, finding that Sterling did not have the express or apparent authority to bind the corporation in this land transaction.Menard, Inc. v. Dage-MTI, Inc.,698 N.E.2d 1227(Ind.Ct.App.1998).

Discussion

The trial court's judgment in this case is embodied in Findings of Fact and Conclusions of Law entered pursuant to TrialRule 52(A).The findings or judgment are not to be set aside unless clearly erroneous, and due regard is to be given to the trial court's ability to assess the credibility of witnesses.SeeT.R. 52(A);Shell Oil Co. v. Meyer,705 N.E.2d 962, 972(Ind.1998), reh'g denied.In our review, we first consider whether the evidence supports the factual findings.Seeid.;Estate of Reasor v. Putnam Co.,635 N.E.2d 153, 158(Ind.1994), reh'g denied.Second, we consider whether the findings support the judgment.SeeShell Oil Co.,705 N.E.2d at 972;Estate of Reasor,635 N.E.2d at 158.As we have noted several times in recent cases, while we defer substantially to findings of fact, we do not do so to conclusions of law.See, e.g., Haseman v. Orman,680 N.E.2d 531, 533(Ind.1997);State v. Van Cleave,674 N.E.2d 1293, 1295-96(Ind.1996), reh'g granted in part,681 N.E.2d 181(Ind.1997).Here, we find that the evidence supports the trial court's findings of fact.However, its conclusions of law employed principles of "actual authority" and "apparent authority" when they should have employed principles of "inherent authority."A judgment is clearly erroneous if it relies on an incorrect legal standard.Shell Oil Co.,705 N.E.2d at 972.

I

Two main classifications of authority are generally recognized: "actual authority" and "apparent authority."Actual authority is created "by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account."Scott v. Randle,697 N.E.2d 60, 66(Ind.Ct.App.1998), transfer denied;seeRestatement (Second) of Agency§§ 7, 33(1958).Apparent authority refers to a third party's reasonable belief that the principal has authorized the acts of its agent, Pepkowski v. Life of Indiana Ins. Co.,535 N.E.2d 1164, 1166-67(Ind.1989); it arises from the principal's indirect or direct manifestations to a third party and not from the representations or acts of the agent, id.;Drake v. Maid-Rite Co.,681 N.E.2d 734, 737-38(Ind.Ct.App.1997), reh'g denied.On occasion, Indiana has taken an expansive view of apparent authority, including within the discussion the concept of "inherent agency power."SeeKoval v. Simon Telelect, Inc.,693 N.E.2d 1299, 1301(Ind.1998)(certifying answer to a federal court that retention of an attorney confers the inherent power on that attorney to bind the client to an in court proceeding);Storm v. Marsischke,159 Ind. App. 136, 140-41, 304 N.E.2d 840, 843-44(Ind.Ct.App.1973).1

"`Inherent agency power is a term used ... to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons...

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