No. 13749 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1978 

AUDIT SERVICES I INC . I 

a Montana corporation, 

Plaintiff and Appellant, 

ELMO ROAD CORPORATION, 

a corporation, 

Defendant and Respondent. 

Appeal from : District Court dthe Fourth Judicial District, 

Honorable Jack L. Green, Judge presiding. 

Counsel of Record: 

For Appellant: 

George, Williams and Benn, Missoula, Montana 

Ric hard Ranney arpued, Missoula, Montana 

For Respondent: 

Poore, PIcKenzie, Roth, Robischon and Robinson, 

Butte, Montana 

David Wing argued, Butte, Montana 

For Amicus Curiae: 

Hilley and Loring, Great Falls, Nontana 

; , ;<=.,. Emilie Loring argued, Great Falls, Montana 

McKittrick and Duffy, Great Falls, Plontana 

D. Patrick McKittrick arcped, Great Falls, FIontana 

Submitted: January 31, 1978 

Decided : FEB 22 19n 

Filed: FEB 22 19E 
Mr. Justice Frank I. Haswell delivered the Opinion of the Court: 

A collection agency, on the behalf of three union trust 

funds, sued a corporation for an accounting and judgment for 

all sums owing pursuant to certain collective bargaining agreements and declarations of trust. Following a nonjury trial, 

the District Court, Lake County, denied relief to the collection 

agency. The collection agency appeals. 

Plaintiff Audit Services, Inc. is a collection agency for 

three union trust funds. The trust funds are: Laborer's A.G.C., 

Health and Welfare, Pension and Training; Operating Engineers 

Trust of Montana, Health and Welfare, Pension, Apprenticeship 

and Vacation; ~eamster's Trust of Montana, Health and Welfare. 

Plaintiff is attempting to require defendant Elmo Road Corporation 

to satisfy its obligations under collective bargaining compliance 

agreements to make contributions to these trust funds. 

During the spring 1972, representatives of the Operating 

Engineers, Teamsters and Laborers Unions contacted the Elmo Road 

Corporation and requested that it become a participant in the 

trusts involved. The union representatives talked to Roy Winslow, 

the general manager of the defendant corporation. Winslow duly 

executed collective bargaining compliance agreements with the 

union representatives. The compliance agreements provide that 

defendant agrees to be bound by the existing collective bargaining 

agreement in effect between the union and the employer's association, that defendant agrees to comply with the various articles 

of trust which have been set up by collective bargaining agreement, 

and that compliance will continue until such time as either party 
notifies the other in writing at least sixty days before the 

expiration of the then existing collective bargaining agreement 

of its intention to withdraw. The declarations of trust, which 

the defendant agreed to comply with, set forth a schedule for 

contributions to the trust funds by the employers bound to the 

agreements. 

When the compliance agreements were signed, defendant was 

working as a subcontractor on a Polson school job for Sletten 

Construction Company. Sletten Construction was a signatory to 

collective bargaining agreements with each of the three unions 

involved here. These agreements contained clauses requiring the 

signatory employer to require all of his subcontractors to comply 

with the conditions of the agreements. 

From April 1972 to October 1972, the period of the Sletten 

Construction subcontract, defendant paid the required contributions to the trust funds. When defendant stopped contributing, 

the trusts sent delinquency notices. No payments were made by 

defendant. The trusts, therefore, assigned their causes of action 

to plaintiff. Prior to trial plaintiff had the records of defendant 

audited. This audit indicated an amount owing to the three 

trust funds of $31,842.53, which includes contributions, liquidated 

damages, interest and audit fees. In addition, under the terms of 

the trust documents, attorney fees are recoverable. Prior to 

trial, plaintiff incurred attorney fees in the amount of $1,802.02. 

The case was tried in the District Court on September 29, 1976. 

Thereafter judgment was rendered for defendant. Findings of 

fact and conclusions of law were entered on December 7, 1976. The 

court found that Roy Winslow did not have authority to sign the 

compliance agreements on behalf of Elmo Road Corporation; that he 
did not believe the compliance agreements would bind the corporation to a long term collective bargaining agreement; that the 

unions had not been certified as the exclusive bargaining representatives of defendant's employees; and, that the collective 

bargaining agreements, which the compliance agreements purported 

to bind defendant, were not such contracts which were usual, proper 

or necessary to be made in the ordinary transaction of defendant's 

business. From these findings, the court concluded that Roy Winslow 

had no actual, implied, or ostensible authority to bind defendant 

to the collective bargaining agreements; that because he had no 

authority to bind the defendant to the agreements, the defendant 

has no obligation to contribute to the trust funds; and, that 

because the unions were not certified by the National Labor Relations Board as the exclusive bargaining representative of defendant' s 

employees and did not represent a majority of the employees, the 

compliance agreements are invalid and unenforceable. Plaintiff 

now appeals from this judgment. 

Three issues are before this Court: 

1) Whether the District Court erred in finding, concluding, 

and decreeing that the agreements entered into between the 

defendant and the unions were invalid because the employer's 

general manager had no authority to bind the defendant to the 

agreements? 

2) Whether the defendant by making the contributions to the 

trust funds for a period of time in 1972, ratified the collective 

bargaining compliance agreements? 

3) Whether the District Court erred in invalidating the 

agreements between the employer and the unions which required the 

employer to make contributions to the trust funds on behalf of 

its employees? 
The general manager of a corporation can have either actual, 

implied, or ostensible authority to enter into contracts on behalf 

of the corporation. The general rule is stated in this language: 

"Unless his authority is specially restricted, a 

general or managing officer or agent may enter into 

any contract which is usual, proper or necessary to 

be made, in the ordinary transaction of the company's 

business, or which he is held out to the public as 

having authority to make, or which, although beyond 

his general powers, he is expressly authorized to make; 

and a third person who deals with such manager is not 

affected by secret limitations upon such authority. * * *" 19 C.J.S. Corporation, §1043(f). 

This rule has been adopted in Montana. Electrical Products 

Consolidated v. El Campo, Inc., (1937), 105 Mont. 386, 73 P.2d 

199. 

In this case the trial court concluded Winslow, as the 

general manager of Elmo Road Corporation, had no actual, implied, 

.or ostensible authority to sign the compliance agreements on 

behalf of the corporation. Plaintiff contends the evidence does 

not support this conclusion. 

In reviewing the findings and judgment of the District 

Court, we will not disturb those findings if they are supported 

by substantial evidence, Johnson v. Jarrett, (1976), 169 Mont. 

408, 548 P.2d 144; Fautsch v. Fautsch, (1975), 166 Mont. 98, 

530 P.2d 1172. The evidence must be viewed in the light most 

favorable to the prevailing party. Johnson v. Jarrett, supra; 

Luppold v.Lewis, (1977), Mont , , 563 P.2d 538, 34 St. Rep. 

Applying that standard to this case, the District Court's 

finding that Roy Winslow had no actual authority to bind the corporation to the compliance agreements is supported by substantial 

evidence. The evidence supporting this finding is that: (1) 

Roy winslow's employment contract limited his authority to act 
on behalf of the corporation; (2) the authority of the general 

manager is set forth in the by-laws and regulations of the corporation; and (3) the testimony of the president of the corporation, A1 Hewankorn, as to the authority of the general manager. 

The employment contract outlined the general manager's 

duties to be: (1) procurement of contracts, obtaining financing 

and necessary equipment; (2) overall supervision of field work, 

office work, and equipment maintenance; and (3) hiring, firing, 

disciplining and assigning jobs to all employees. The contract 

provided the defendant agreed to hire Winslow as its general 

manager in accordance with the authority and responsibilities 

outlined in its regulations and by-laws. The regulations and 

by-laws state generally that the manager will consult with the 

Board of Directors on all major questions of policy and be prepared to submit such questions to the shareholders for final 

decision. In his testimony A1 Hewankorn stated that Winslow had 

no authority to bind the corporation to any collective bargaining 

agreement and the corporation considered any relationship with 

a labor union to be a major question of policy that would have 

to be decided by the shareholders and not the general manager. 

A general manager can have implied authority to enter 

contracts on behalf of a corporation. Implied authority has 

been defined in this manner: 

"Implied authority is a form of actual authority 

derived by implication from the principal's words or 

deeds. It is sometimes said that implied authority 

is actual authority circumstantially proved. In 

general, an agent has implied authority to do those 

acts which are usual and incidental to the authorized 
transaction and those which are reasonably 

necessary to accomplish the principal's 

purposes, including the making of whatever 

contracts are needed." Sell, Agency, 540 (1975). 

The rule in Montana on implied authority has been stated as 

follows : 

"No principle of law is more clearly settled than 

that an agent to whom is intrusted by a corporation 

the management of its local affairs, whether such 

agent be designated as president, general manager, 

or superintendent, may bind his principal by contracts 

which are necessary, proper, or usual- to be made in 

the ordinary prosecution of its business. * * * The 

fact that he occupies, by the consent of the board 

of directors, the position of such an agent, implies, 

without further proof, the authority to do anything 

which the corporation itself may do, so long as the 

act done pertains to the ordinary business of the 

company." Trent v. Sherlock, (1900), 24 Mont. 255, 

263, 61 P. 650. 

In this case, the District Court found that Roy Winslow 

did not have implied authority to sign the compliance agreements 

on behalf of Elmo Road Corporation. Specifically, the court 

found in its finding of fact XVI: 

"The collective bargaining agreements, to which the 

various compliance or participating agreements executed 

by Roy Winslow purport to bind the Elmo Road Corporation, were not such contracts which were usual, proper 

or necessary to be made in the ordinary transaction 

of the Elmo Road Company' s business ." 

Plaintiff contends the evidence does not support this finding. 

We agree. 

The evidence indicates Roy Winslow signed the compliance 

agreements to obtain the Polson school job subcontract from 

Sletten Construction. He testified that if he had not signed 

the agreements, Elmo Road Corporation would not have obtained 

the contract. At the trial of this case, in its brief, and 

in oral argument, defendant admits Winslow signed the agreements 

so the corporation could obtain the subcontract. However, 
defendant contends the signing of the agreements was not usual, 

proper or necessary for Winslow to do in the ordinary transaction 

of defendant's business. 

We believe Winslow did have implied authority to sign the 

compliance agreements and the finding of the District Court on this 

issue cannot be upheld. The court found that one of Winslow's 

responsibilities was to procure work for the corporation. This 

finding is supported by the evidence. In order to procure work 

on the Polson school job, the evidence shows that he had to sign 

the compliance agreements. Thus, his signing of those agreements 

was proper, usual and necessary in the transaction of defendant's 

business. Winslow had the implied authority to sign the agreements. 

Plaintiff also contends Winslow had ostensible authority 

to sign the agreements. As stated earlier, ostensible authority 

is another form of authority a general manager can have to act on 

behalf of a corporation. Ostensible authority is defined in section 

2-124, R.C.M. 1947: 

"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. 1' 

The District Court concluded Roy Winslow did not have 

ostensible authority to sign the compliance agreements. Plaintiff 

argues the evidence does not support this conclusion. 

Plaintiff' s argument is that the evidence showed Winslow 

was, as general manager of the corporation, the official representative of defendant's company; that the restrictions on his authority 

were in regulations and by-laws, which were not recorded or filed 
nor available to be viewed by the union representatives; that 

A1 Hewankorn, president of Elmo Road Corporation, was on the 

job site when the union representatives came to get the agreements signed and he made no effort to tell the union agents 

they should talk to him and not Roy Winslow; that both Winslow 

and Hewankorn testified they knew of no facts that would have 

put the union representatives on notice of the restrictions in 

Winslow's authority; and that general managers usually sign such 

agreements on behalf of their companies. 

On the other hand, defendant argues the evidence shows 

that Winslow did not have ostensible authority. It again argues 

the agreements were signed to obtain the subcontract and this 

is not evidence of ostensible authority. Further, it argues 

that A1 Hewankorn testified the by-laws and regulations of the 

corporation were free to be examined by the union representatives 

if they chose to examine them; and Winslow testified he did not 

consider himself the official representative of the corporation 

for all purposes. 

This Court has previously held that ostensible authority 

arises from the facts of the particular case and the test is 

found in a determination of the exact extent to which the principal 

held the agent out or permitted him to hold himself out as 

authorized, and what a prudent person acting in good faith under 

the circumstances would reasonably believe the agent's authority 

to be. Butler Mfg. Co. v. J & L Imp. Co., (1975), 167 Mont. 

519, 540 P.2d 962. Applying that standard here, we find Roy 

Winslow had ostensible authority to sign the compliance agreements and bind the defendant to them. He was held out to be the 

general manager of the corporation and the union representatives, 

-9- 
unaware of any restrictions in his authority, could reasonably 

believe Winslow had the authority to sign the agreements. 

In concluding as a matter of law that Roy Winslow did not 

have ostensible authority, the District Court made no finding 

of fact that he lacked such authority. The defendant, in its 

brief and at oral argument, states the finding which says the 

compliance agreements were "not such contracts which were usual, 

proper or necessary to be made in the ordinary transaction of 

Elmo Road Company's business", is a finding of a lack of ostensible 

authority in Winslow to execute the agreements. As pointed out 

earlier, this finding deals with implied authority and not 

ostensible authority. Implied authority and ostensible authority 

are not one and the same. 

We believe the District Court misapplied the law in 

concluding, as a matter of law, that Winslow did not have ostensible authority to sign the compliance agreements. Ostensible 

authority can be implied from the words and conduct of the 

parties and circumstances of the particular case notwithstanding 

a denial by the alleged principal. Ludwig v. Montana Bank and 

Trust Co., (1939), 109 Mont. 477, 98 P.2d Applying that 

rule to this case, we find defendant, by making Roy Winslow its 

general managr and authorizing him to procure work for defendant, 

implied to third parties that he had the ostensible authority to 

sign agreements such as those in question here. 

In discussing the effect of limitations on an agent's 

authority on third parties, the Restatement on Agency 2d, 4167, 

states: 
"If a person dealing with an agent has notice that 

the agent's authority is created or described in a 

writing, which is intended for his inspection, he is 

affected by limitations upon the authority contained 

in the writing, unless misled by conduct of the 

principal ." 

Comment b. to 5167 states: 

"* * * Ordinarily, by-laws of a corporation or the 

records of the employer's business are not intended for the 

inspection of third persons within the the meaning of this 

Section ." 

Thus, under this rule, the limitations on the general manager's 

authority contained in the regulations and by-laws can have no 

effect as notice to third persons dealing with the manager, 

regardless of their being open for inspection or not. The 

limitations in those documents cannot limit the general manager's 

ostensible authority. 

Therefore, we hold Roy Winslow had both implied and ostensible 

authority as general manager of Elmo Road Corporation to act on 

behalf of the corporation and the District Court's conclusions 

to the contrary are in error, 

In its second issue plaintiff raised the issue of ratification at trial and on appeal. Defendant at trial and on appeal 

argues that the doctrine of ratification has no application to 

this case, The District Court made no findings of fact or conclusions of law on the issue of ratification. Nor did the court 

make a finding of fact or conclusion of law on why Elmo Road 

Corporation made the contributions to the trust funds in 1972, 

or what effect those contributions had regarding the rights and 

obligations of the parties to this action. 

The proper resolution of the issue of ratification is the 

rule set forth in Freeman v. Withers, (1937), 104 Mont. 166, 65 

P.2d 601. There, this Court stated that where the principal, with 

knowledge of all the material facts, voluntarily makes partial 
payment on an unauthorized contract, there is strong evidence 

of ratification. Applying that rule here, we find that Elmo 

Road's voluntary contributions to the trust funds during the 

months of April through October, 1972, ratified insl low's act of 

signing the agreements requiring the contributions. 

The third issue, whether the District Court erred in invalidating the compliance agreement, is a dispute involving a collective 

bargaining agreement. Plaintiff claims the compliance agreements 

are valid. Defendant claims they are illegal and invalid. To 

resolve this disagreement, 5 301 of the Taft-Hartley Act, 29 

U.S.C. 5 185(a) must be invoked. That section reads: 

"Suits for violation of contracts between an 

employer and a labor organization representing 

employees in an industry affecting commerce as 

defined in this chapter, or between any such labor 

organizations, may be brought in any district court 

of the United States having jurisdiction of the 

parties, without respect to the amount in controversy 

or without regard to the citizenship of the parties. I I 

This section has been construed to mean that there is concurrent 

jurisdiction in the state courts to hear such disputes, but, in 

exercising this jurisdiction, state courts must apply federal labcr 

law. Dowd Box Co. v. Courtney, (1962), 368 U.S. 502, 82 S.Ct. 519, 

7 L ed 2d 483. Montana has recognized this principle. Lowe v. 

O'Connor, (1973), 163 Mont. 100, 515 P.2d 677. 

In its findings of fact and conclusions of law, the District 

Court held that the compliance agreements were invalid and unenforceable by the union trust funds. Specifically, the court found 

the unions were not certified by the National Labor Relations Board 

as the exclusive bargaining representative of defendant's employees; 

that the unions never represented a majority of the employees of 

any bargaining unit of defendant's employees; and that the unions 

had no authority to represent the employees. These findings and 
conclusions were based on the National Labor Relations Act, 29 U.S.C. 

and 

5 158(a) /(b) , which deals with unfair labor practices. 

The United States Supreme Court, in construing 29 U.S.C. 

and 

5 158(a) /(b) , has held that the determina tion of an unfair labor 

practice is exclusively a function of the federal system. San Diego 

Building Trades Council v. Garmon, (1959), 359 U.S. 236, 79 S.Ct. 773, 

3 L ed 2d 775. Thus, although a state court has the authority to 

construe and enforce collective bargaining agreements, it does not 

have the authority to invalidate a labor contract, proper on its 

face, because one of the parties has allegedly engaged in an unfair 

labor practice. In this case, we hold the District Court erred in 

invalidating the compliance agreements which were proper on their 

face because the state courts lack the authority to do so. 

A case in point on this issue is Trust Fund Services v. Heyman, (1977), 88 Wash.2d 698, 565 P.2d 805. In that case, a collection agency was attempting to collect contributions from an employer 

who was obligated to contribute to union trust funds and had 

failed to do so. The employer's defense was an allegation of 

unfair labor practices on the part of the union. He further argued 

the issue of unfair labor practice was res judicata because the 

9th circuit and the Federal District Court had rescinded the 

contract between the employer and the union, when the employer sued 

the union in federal court for recission of the contract on a 

claim of unfair labor practice. The Washington Supreme Court held 

the claim of unfair labor practice was no defense to the action 

by the collection agency for the unions. Further the Washington 

Court held that it was not bound by the decision of the federal 

courts. Citing San Diego Building Trades v. Garmon, supra, the 

Washington Court stated the National Labor Relations Board has 
exclusive jurisdiction to determine unfair labor practices and 

state courts as well as federal courts must defer to the exclusive 

competence of the F.L.R.B. Thus, in this case, the defendant can 

only raise the question of unfair labor practices on the part 

of the unions before the N.L.R.B. This Court cannot decide that 

issue. 

Therefore, the judgment of the District Court is vacated. 

The cause is remanded to the District Court for entry of judgment 

in accord with this opinion, and for determination of reasonable 

attorney fees to be awarded to plaintiff for the services of its 

attorneys at trial in the District Court. That award shall be 

added to our award of $1,250 attorney fees for the services of 

its attorneys on appeal and both sumshall be incorporated into 

the judgment . 

Justice V 

We Concur: