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

726 N.E.2D 1206 (2000)


Sterling ran his company for many years, generally unsupervised by the board, of which he was a member.  In his capacity, Sterling purchased land for the company without the approval of the board.  Some time later, Menard offered to buy a 30 acre piece of land from Menard.  Sterling took the offer to the board, and the offer was rejected.  Menard then offered to buy the entire parcel.  As part of their response, the board clarified that Sterling could only present offers to purchase to the board, and could not in his position bind the company to any sale.  More specifically, he could not negotiate conditions of such an offer with the buyer.  Moreover, the board specified that Sterling could not accept the second offer if it contained the same “objectionable” language and conditions as the first offer.  Later, without the board’s consent, Sterling agreed to purchase the original 30 acres.  In his agreement with Menard, Sterling specified that he had the ability and authority to bind Dage to the sale.  The board challenged the agreement, attempting to nullify it.  Menard then sued.

The trial court held that Sterling didn’t have the authority to bind Dage, thus nullifying the agreement.   The trial court held that the purchase of land was not in the “ordinary course” of Sterling’s employment as CEO of an electronics manufacturing firm.  His purchase of land was, thus, extraordinary and not inherent or implied.  Menard appealed.


“`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 harmed by or dealing with a servant or other agent.'”


Whether Sterling had the inherent authority to purchase land as CEO, regardless of the board’s specifications.


Yes., transferred and vacated.  “If one of two innocent parties must suffer due to a betrayal of trust—either the principal or the third party—the loss should fall on the party who is most at fault. Because the principal puts the agent in a position of trust, the principal should bear the loss.”

The court asks whether Sterling was acting within his inherent authority.  In so doing, they ask the following three questions: “(1) first, Sterling acted within the usual and ordinary scope of his authority as president;(2) second, Menard reasonably believed that Sterling was authorized to contract for the sale and purchase of Dage real estate;and (3) third, Menard had no notice that Sterling was not authorized to sell the 30-acre parcel without Board approval.”

(1)  Yes.  Because Sterling managed the company “with little or no oversight” from the board since the company started, his actions were in the usual and ordinary scope of his authority as president.  Moreover, he had purchased land on behalf of the company in the past.

(2)  Yes, Menard reasonably believed Sterling could sell the land.  The court looks at the “direct and indirect manifestations” to determine if Menard reasonably believed or could have reasonably believed Sterling had authority to sell the land.  Menard is not required to investigate or scrutinize his ability to carefully because he is the president of the company.  Menard did not need to question Sterling’s authority, because the authority of his acts were inferred from the continuity of his prior acts of having sold real estate.  Moreover, Sterling was a member of the board himself.

(3) Yes, Menard had no notice that Sterling was not authorized.  The facts of the case suggest Menard had no clue the board had specifically instructed against selling.  Moreover, the Dage’s attorneys weren’t even put on notice until a few months after the agreement.  Most importantly, Sterling did not communicate to Dage issues with enforceability until two months after the agreement.

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