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Menard, Inc. v. Dage-MTI, Inc. - 726 N.E.2d 1206 (Ind. 2000)

Rule:

While representations of the principal to the third party are central for defining apparent authority, the concept of inherent authority differs and originates from the customary authority of a person in the particular type of agency relationship so that no representations beyond the fact of the existence of the agency need be shown.

Facts:

Appellant corporation offered to purchase 30 acres of land from appellee corporation. Appellee's president accepted the offer in a written agreement in which he represented that he had the authority to bind appellee to the sale. For many years, the president operated the appellee corporation without significant input from or oversight by the Board. Appellee's board of directors did not approve and refused to complete the transaction. The trial court and the appellate court held in favor of appellee, holding that the appellee was not bound by the actions of its president. Appellant challenged the decision.

Issue:

Was the appellee corporation bound by the actions of its president in agreeing to sell a parcel of land?

Answer:

Yes.

Conclusion:

The Court reversed the decision of the lower courts, holding that trial court's conclusions of law employed principles of "actual authority" and "apparent authority" when they should have employed principles of "inherent authority." According to the Court, the decision constituted clear error. The Court averred that the president of the appellee corporation had inherent authority to bind appellee as he managed appellee's affairs with little or no board oversight, and had purchased real estate for appellee in the past. Appellant reasonably believed that the president was authorized to contract for the sale and purchase of appellee, and appellant had no notice that board approval might be required.

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