Business Associations, Pages 34–43

Essco Geometric v. Harvard Industries

United States Court of Appeals for the Eighth Circuit, 1995

Facts:

Defendant made chairs and bought foam from various manufacturers for this purpose. Plaintiff was one such manufacturer and had long supplied a large portion of defendant's foam when purchased by defendant's purchasing manager, Best. When a large portion of the management was replaced, defendant's new purchasing agent, Ceresia, did not request bids from plaintiff however.

Another consequence of this turnover was the implementation of new policies. One of these policies required that defendant's new president, Kruske, initial all purchase orders. Another required that all acquisitions be approved by both the department manager and Kruske unless it was an emergency.

When plaintiff's president, Safron, learned that it had been cut out of the bidding process, he contacted defendant's new purchasing agent, Gray, to get a chance to bid. Ultimately, he was allowed to bid and did so. Gray then orally agreed to give plaintiff all of its foam business for all commercial contracts for the next two years.

The current supplier that defendant was using, American Excelsior, had been having a large number of quality problems, while plaintiff's product had never presented a single one and was bidding at a significantly lower price. Gray told Kruske of plaintiff's superiority, but Kruske did not learn of the agreement until the next year. Safron sent defendant a letter explaining the deal that Gray and Safron both signed.

Gray then issued plaintiff several purchase orders. Kruske visited plaintiff's plant as well as several others to assess their quality control programs. Plaintiff then delivered it goods to, got paid for its deliveries by, and coordinated more efficient deliveries with defendant.

Safron noticed that plaintiff was receiving an abnormally small amount of purchase orders however. He met with Gray, who told him that Ceresia was redirecting purchase orders towards American Excelsior. Gray complained to Kruske, ordered Ceresia to stop, and cancelled all orders with American Excelsior. Kruske however, put a hold on Gray's purchase orders to plaintiff. American Excelsior submitted new unsolicited purchase orders with marginally lower prices than plaintiff, which contract accepted. Plaintiff then sued.

Procedural History:

Jury awarded plaintiff $400,000, upon which the district court entered judgment.

Issue:

Did Gray have authority to make a contract with plaintiff?

Rules:

  • LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 38

    Under Missouri law, for an agent to have actual authority, he must establish that the principal has empowered him, either expressly or impliedly, to act on the principal's behalf. The principal can expressly confer authority by telling his agent what to do or by knowingly acquiescing to the agent's actions. Implied authority flows from express authority, and "encompasses the power to act in ways reasonably necessary to accomplish the purpose for which express authority was granted."

  • LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 41

    Under Missouri law, apparent authority is created by the conduct of the principal which causes a third person reasonably to believe that the purported agent has the authority to act for the principal, and to reasonably and in good faith rely on the authority held out by the principal. An agent may have apparent authority to act even though as between himself and the principal, such authority has not been granted. Apparent authority does not arise from the acts of the agent.

    LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 42

    If a principal allows an agent to occupy a position which, according to the ordinary habits of people in the locality, trade or profession, carries a particular kind of authority, then anyone dealing with the agent is justified in inferring that the agent has such an authority.

Reasoning:

  • Gray clearly did not have express actual authority, as his deal did not have the two signatures he was told was required.

  • Gray may have had implied actual authority. He believed that Kruske would approve the deal and that he authority to do so as purchasing manager. Gray was also told recently that he was to take a more active role in managing his department to work on reducing costs. Finally, both Gray's predecessor Best and others purchasing managers in the industry had the power to make unsupervised purchases. While this evidence is in conflict with defendant's express limitations, a jury could reasonably conclude that Gray had implied actual authority and it was properly submitted to them.

  • Again, defendant's old purchasing manager, Best, had the power to solicit bids, negotiate with vendors, and select them for defendant's contracts. Plaintiff did a substantial amount of business with Best knowing this. When Gray took over his job and had these limits imposed on him, no one told plaintiff. While plaintiff was told that only written contracts would be honored, the industry standard was that a purchasing manager could bind the company and did not require a writing.

Holding:

Yes, Gray had both actual and apparent authority. Affirmed.

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