No. 13749 INTHE SUPREME COURT OF THE STATE OF MONTANA 1978

AUDIT SERVICESI INC

# .I a Montana corporation, Plaintiff and Appellant,

ELMO ROAD CORPORATION, a corporation, Defendant and Respondent.

Appeal from: DistrictCourt dtheFourth 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: 

## FEB22

## 19E

### Mr. JusticeFrank I. Haswell delivered the Opinion of the Court:

A collection agency, on thebehalf of three union trust funds, sued a corporation for an accounting and judgment for allsums owing pursuant to certain collectivebargaining agreements and declarations of trust. Following a nonjury trial, theDistrict Court, Lake County, denied relief tothe 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 torequire defendant Elmo Road Corporation to satisfy 

### its obligationsunder collectivebargaining compliance agreements tomake 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 itbecome a participant inthe trusts involved. The union representatives talked toRoy Winslow, the general manager of the defendant corporation. Winslow duly executed collectivebargaining compliance agreements with the union representatives. The compliance agreements provide that defendant agrees tobe bound by the existing collectivebargaining agreement ineffect between the union and the employer's association, that defendant agrees to comply with the various articles of trustwhich have been setup by collectivebargaining agreement, and that compliance 

### willcontinue until such time as either partynotifies the other inwriting atleast sixty days before the expiration of the then existing collectivebargaining agreement of 

### its intention towithdraw. 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 schooljob for Sletten Construction Company. Sletten Constructionwas a signatory to collectivebargaining agreementswith each of the three unions involved here. These agreements contained clauses requiring the signatory employer torequire allof his subcontractors tocomply with the conditions of the agreements. FromApril 1972 toOctober 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 toplaintiff. Prior to trialplaintiff 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 inthe amount of $1,802.02. The case was tried inthe District Court on September 29, 1976. Thereafterjudgment 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 agreementswould bind the corporation to a long term collectivebargaining 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 contractswhichwere usual, proper

or necessary to be made in the ordinary transactionof defendant's business. From these findings, the court concluded that Roy Winslow had no actual, implied,or ostensible authority to bind defendant to the collectivebargaining 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 certifiedby the National Labor Relations Board as the exclusivebargaining 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 invalidbecause 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 onbehalf 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 ormanaging officer or agent may enter into any contract which 

### isusual, proper ornecessary to be made, inthe ordinary transaction of the company's business, orwhich he 

### isheld out tothe public as having authority to make, orwhich, although beyond hisgeneral powers, he 

### is expressly authorized tomake; and a thirdperson who dealswith such manager isnot affectedby secret limitations upon such authority. 

# *

# **" 19C.J.S. Corporation, §1043(f). This rulehas been adopted inMontana. Electrical Products Consolidated v. ElCampo, Inc., (1937), 105Mont. 386, 73 P.2d 199. In this case the trialcourt concluded Winslow, as the general manager of Elmo Road Corporation, had no actual, implied,

.orostensible authority to sign the compliance agreements on behalf of the corporation. Plaintiff contends the evidence does not support thisconclusion. Inreviewing the findings and judgment of the District Court, 

### wewillnot disturb those findings if they are supported by substantial evidence, Johnson v. Jarrett, (1976), 169Mont. 408, 548 P.2d 144; Fautsch v. Fautsch, 

### (1975), 166 Mont. 98, 530 P.2d 1172. The evidence must be viewed inthe 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 tothis case, the District Court's finding that Roy Winslow had no actual authority tobind 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 acton behalf of the corporation; (2) the authority of the general manager 

### is set forth in theby-laws and regulations of the corporation; and 

### (3) the testimony of the president of the corporation, A1Hewankorn, as to the authority of the general manager. The employment contract outlined the general manager's duties tobe: 

### (1)procurement of contracts, obtaining financing and necessary equipment; 

### (2) overall supervision of fieldwork, officework, and equipment maintenance; and 

### (3) hiring, firing, disciplining and assigningjobs to allemployees. The contract provided the defendant agreed tohireWinslow as 

### itsgeneral manager inaccordance with the authority and responsibilities outlined initsregulations and by-laws. The regulations and by-laws stategenerally that themanager 

### willconsult with the Board of Directors on allmajor questions of policy and be prepared to submit such questions to the shareholders for final decision. Inhis testimony A1Hewankorn stated thatWinslow had

no authority tobind the corporation to any collectivebargaining agreement and the corporation considered any relationship with

a labor union tobe a major question of policy that would have tobe decided by the shareholders and not the general manager. A generalmanager can have implied authority toenter contracts on behalf of a corporation. Implied authorityhas been defined inthis manner: "Implied authority 

### is a form of actual authority derivedby implication from the principal's words or deeds. It is sometimes said that implied authority 

### isactualauthority circumstantially proved. In general, an agent has implied authority todo those actswhich areusual and incidental to the authorizedtransaction 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 inMontana on implied authorityhas been statedas follows: "No principle of law 

### ismore clearly settled than that an agent towhom is intrustedby a corporation the management of 

### its local affairs, whether such agent be designated aspresident, general manager, or superintendent, may bind hisprincipalby contracts which arenecessary, proper, or usual- tobe made in the ordinary prosecution of itsbusiness. 

# * ** The fact thathe occupies, by the consent of theboard of directors, the position of such an agent, implies, without further proof, the authority todo 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, 61P. 650. Inthis 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 factXVI: "The collectivebargaining agreements, towhich the various compliance orparticipating agreements executed by Roy Winslow purport tobind the Elmo Road Corporation, were not such contracts which were usual, proper ornecessary tobe made inthe 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 toobtain the Polson schooljob subcontract from Sletten Construction. He testified that if he had not signed the agreements, Elmo Road Corporationwould not have obtained the contract. Atthe trialof this case, in itsbrief, and inoralargument, 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 forWinslow 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 responsibilitieswas to procure work for the corporation. This finding is supportedby 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 transactionof defendant's business. Winslowhad the implied authority to sign the agreements. Plaintiff also contendsWinslow had ostensible authority to sign the agreements. As stated earlier, ostensible authority is another form of authority a generalmanager 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 showedWinslow was, as generalmanager of the corporation, the official representative of defendant's company; that the restrictionsonhis 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 sitewhen 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 RoyWinslow; that bothWinslow and Hewankorn testified they knew of no facts that would have put the union representatives onnotice of the restrictions in Winslow's authority;and that general managers usually sign such agreements onbehalf 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 corporationwere free to be examinedby the union representatives if they chose to examine them; and Winslow testifiedhe did not consider himself the official representative of the corporation for allpurposes. This Court has previously held that ostensible authority arises from the facts of the particular case and the test is found in a determinationof 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 reasonablybelieve the agent's authority to be. Butler Mfg. Co. v. 

### J & 

### L Imp. Co., (1975), 167Mont. 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 generalmanager of the corporationand the union representatives,

-9-

### unaware of any restrictions inhis authority, could reasonably believe Winslowhad 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 agreementswere "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 inWinslow to execute the agreements. As pointed out earlier, this finding dealswith 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, thatWinslow did not have ostensible authority to sign the compliance agreements. Ostensible authority canbe implied from the words and conduct of the parties and circumstances of the particular casenotwithstanding

a denialby the alleged principal. Ludwig v. Montana Bank and Trust Co., (1939), 

### 109Mont. 477, 

### 98 P.2d Applying that rule to this case,we find defendant, by making Roy Winslow its generalmanagr and authorizinghim to procure work for defendant, implied to third parties that he had the ostensible authority to sign agreements suchas those in questionhere. Indiscussing the effect of limitations on an 

### agent's authority on third parties, the Restatement onAgency 2d, 4167, states:"If a person dealingwith an agent has notice that the agent's authority 

### is created or described ina writing, which 

### is intended for his inspection, he 

### is affectedby limitations upon the authority contained inthe writing, unless misled by conduct of the principal

# ."

Comment b. to5167 states: 

### "*

# ** Ordinarily, by-laws of a corporation or the records of the employer's business arenot intended for the inspection of third persons within the the meaning of this Section

# ." Thus, under this rule, the limitations on the generalmanager's authority contained inthe regulations and by-laws can have no effect asnotice to third persons dealing with the manager, regardless of their being open for inspection ornot. The limitations inthose documents cannot limitthe general manager's ostensible authority. Therefore, we hold Roy Winslow had both implied and ostensible authority asgeneral manager of Elmo Road Corporation to act on behalf of the corporation and the District Court's conclusions to the contrary are inerror, In 

### its second issue plaintiff raised the issue of ratification attrialand on appeal. Defendant attrialand 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,

orwhat 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 inFreeman v. Withers, (1937), 104Mont. 166, 65 

### P.2d 601. There, this Court stated that where the principal, with knowledge of allthe material facts, voluntarily makes partialpayment 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 inan industry affecting commerce as defined inthis chapter, orbetween any such labor organizations, may be brought in any district court of the United Stateshavingjurisdiction of the parties, without respect to the amount incontroversy orwithout regard to the citizenship of the parties.II This sectionhas been construed to mean that there 

### is concurrent jurisdiction in the state courts tohear such disputes, but, in exercising thisjurisdiction, statecourts 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), 163Mont. 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 andconclusions were based on the National Labor Relations Act, 29 U.S.C. and 

### 5158(a)/(b)

## ,which deals with unfair labor practices. The United States Supreme Court, inconstruing 29 U.S.C. and 

### 5158(a) /(b)

## ,has held that the determination 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, 3L ed 2d 775. Thus, although a statecourt has the authority to construe and enforce collectivebargaining 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. Inthis case, we hold the District Court erred in invalidating the compliance agreements which were proper on their face because the statecourts lack the authority to do so. A case inpoint on this issue 

### isTrust Fund Services v. Heyman, (1977), 88Wash.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 practicewas resjudicata 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 theWashington 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 hasexclusive jurisdiction todetermine unfair labor practices and state courts aswell as federal courts must defer to the exclusive competence of theF.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, thejudgment of the District Court 

### isvacated. The cause 

### is remanded tothe District Court for entry of judgment in accord with this opinion, and for determination of reasonable attorney fees tobe awarded toplaintiff for the services of its attorneys attrialin the District Court. That award shallbe added to our award of $1,250 attorney fees for the services of 

### its attorneys on appeal and both sumshallbe incorporated into thejudgment

# .

Justice V

We Concur: