No. 12860 INTHE SUPREME COURT OF THE STATE OF MONTANA 1975



### BUTLER MANUFACTURING COMPANY, a corporation, Plaintiff and Appellant,

J & L IMPLEMENT COMPANY, a PARTNERSHIP, Defendants and Respondents.

Appeal from: District Court of theFifteenth Judicial District, Honorable M. James Sorte, Judge presiding. Counsel of Record: ForAppellant: Loren J. 0'~oole argued, Plentywood, Montana For Respondents: Habedank, Cumming & Best, Sidney, Montana OttoHabedank argued, Sidney, Montana

Submitted: June 12, 1975 Decided:

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. .J L. airMr. Chief Justice James T. Harrison delivered the Opinion of the Court. This is an appeal by Butler Manufacturing Company, plaintiff, from a judgment entered following a jury verdict for J & L ImplementCompany, defendant, in the district court, Sheridan County. The basic issue is whether an agency relationship,actual

or ostensible,existed between Butler Manufacturing Company

(hereinaftercalled Butler) and JacobsenConstruction Company, Inc. (hereinafter called Jacobsen)upon which J & L Implement Company, defendant, (hereinafter called J & L) could relywhen returning unsold steel grain bins to the manufacturer, Butler, for credit. J & 

### L is a partnership in Plentywood, Montana, which sells farm equipment, steel buildings and granaries. Jacobsen

was a distributor of steel buildings and granaries for Butler, themanufacturer. J & 

### L ordered steelbuildings and granaries through Jacobsen,receiving delivery from Jacobsenwith billings and accountings coming directly from Butler,based on information supplied by Jacobsen. Jacobsen had a chronic cash flowproblemwhich led to its present insolvent, inactive state. Due to the unstable financial condition of Jacobsen,Butler's creditmanager devised a unique sales arrangement whereby Butler directly billed Jacobsen's subdealers rather than selling to Jacobsen which would resell to the subdealers remitting payment to Butler from Jacobsen's account.From 1969 through 1971,J & 

### L sold approximately 45 bins under this arrangement, at all times dealing directlywith Jacobsen and not Butler, except forbilling and accounting purposes. InApril 1970,J & L ordered 18 steelgrain bins through Jacobsen,but due to drought conditions and the resulting bad crops that season, the bins did not sell. InMarch 1971,Jacobsenpicked up fourof thesebins pursuant to an understanding between Jacobsen and its subdealers. This understanding arose out of a sales meeting called by Jacobsen for all of its subdealers and attended by officers and agents of Butler, at Jacobsen's invitation. There was no objection to this understandingvoiced by the officers and agents of Butler attending thatmeeting. This understanding had been put into force between Jacobsen and a subdealer at least one other time inMontana. The arrangement for returning the first fourbins was made during a meeting in Plentywood attended by the president and generalmanager of Jacobsen and a sales representative of Butler. Jacobsen issued a check to Butler upon picking up the four bins, and Butler credited J & L's account reflecting the cost of the returned bins. On July 9, 1971,Jacobsen picked up the remaining fourteen bins, but did not issue a check to Butler reflecting payment for the bins, as ithad done subsequent to the return of the first fourbins. Jacobsen did not issue a check due to an agreement among Jacobsen, Butler, and Jacobsen's bank whereby, due to Jacobsen's unstable financial condition,all of Jacobsen's assets and cash in thatbank would be applied to Jacobsen's accountwith Butler. J & L's accountwith Butler was not credited for the returnof these fourteenbins. On July 13, 1971,D. R. Bain, Butler's credit manager, called J & L concerning the return of the unsold bins. During this telephone conversation, Bain stated Butler's position that J & L was responsible for the payment of the bins, notwithstanding the physical return of the bins to Jacobsen. On July 14, 1971,Bain sent a letter to J & L again stating Butler's position that J & L was responsible forpayment on the bins.J & L informed Butler ithad no obligation to pay for the bins, because they had been returned to Jacobsenpursuant to the understanding. Butler filed this action in the district court seeking a judgment in the amount of $10,557.42, which was the balance of J & L'saccount. The jury returned a unanimous verdict in favor of J & L. Butler appeals from the judgment. The issues raised in this appeal are:

(1)Was Jacobsen the ostensible agent of Butler with apparent authority to accept the return of the steel grain bins and credit the account of J & L for their return? (2) If Jacobsenwas the ostensible agent of Butler,did Butler disavow the acts of its agentwithin a reasonable length of time thereby terminating the apparent authority of the ostensible agent? We find ample evidence on the record to establish the agency. 2A C.J.S. 

### 5 4(a), page 551, defines agency as: 

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## * * * the fiduciary relationwhich results from the manifestation of consent by oneperson to another that the other shall act onhis behalf and subject to his control,and consentby the other SO to act." Montana's pertinent agency statutes are found in Title 2,Chapter 1,R.C.M. 1947. Section 2-101, states: "An agent is onewho represents another, called the principal, in dealings with third persons. 

## * * *" Section 2-104 provides there are two distinct types of agency, actual or ostensible. Section 2-105 provides an agency is actualwhen: 

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## * the agent is really employed by the principal." Section 2-106 provides an ostensible agency ispresent when: 

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## * * * the principal intentionally,or by want of ordinary care, causes a third person to believeanother to be his agent who is not really employed by him." Section 2-122 states themeasure of an agent's authority is: 

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## * such authority as the principal actually or ostensibly confersupon him." Section 2-123 provides: "Actualauthority is such as the principal intentionally confersupon the agent, or intentionally, or by want of ordinary care,allows the agent to believe himself to possess." Section 2-124,provides: "Ostensible authority is such as a principal, intentionallyor by want of ordinary care, causes or allows a third person to believe the agent to possess.

### " This Court stated the rule on agency in Freeman

### v. Withers, 104 Mont. 166, 172, 65P.2d 601: "Anagencymay be either actual or ostensible. 

## * * * [section 2-104, R.C.M., 1947.1 Itmay be created by a precedent authorization, or a subsequent ratification. 

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## * [section 2-114,R.C.M. 1947.1 Itmay be implied from conduct and from all the facts and circumstances in the case (2C.J.S. p. 1043) and may be shown by circumstantial evidence. (Doney

### v. Ellison, 103 Mont. 591, 64P.2d 348.) Also, ratificationmay be implied from the acts and conduct of the alleged principal." This rulewas affirmed in Hamilton v. Lion Head Ski Lift, Inc., 139Mont. 335, 340, 363 P.2d 716. The record indicates from 1969 through 1971 J & L dealt with Jacobsen as a Butler Agri-Builder. J & L placed orders for Butler products through Jacobsen and received delivery from Jacobsen. Butler did bill J & L directly,but gave no indication that Jacobsenwas not acting in an agency capacity. At the spring salesmeeting held by Jacobsen for its subdealers, officers and agents of Butler were in attendance, including the president of Butler. When Jacobsen'spresident and general manager went to Plentywood on a collection visit, he was accompanied by a sales representative of Butler (it was during thisMarch 1971meeting that agreement was reached on the return of the first four bins). All these facts might lead a reasonable man to believe Jacobsen was an agent of Butler. Pursuant to the understanding presented by Jacobsen's president and general manager at the spring salesmeeting, at least two other subdealers of Jacobsen had returned unsold bins to Jacobsen without an adverse comment from Butler. J & L returned four bins to Jacobsen in March 1971,and had its account with Butler credited,againwithout adverse comment from Butler. The Supreme Court of Wyoming in Ulen v. Knecttle, 50 Wyo. 94, 103, 58 P.2d 446, 111A.L.R. 565,quoted in Hamilton, sets forth the rule of evidence for implied or ostensible authority: 

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## * * * Implied authority may, and in factmust, be shown by the course of dealing of the parties and other circumstances in the case." The course of dealing between the subdealers (including J & L) and Jacobsen,without denial of authority on the part of Butler prior to July, 1971,presented sufficient evidence of ostensibleagency and authority in Jacobs+ento support the verdict of the jury. The Montana statute, section 2-205, R.C.M. 1947, states :"Aprincipal is bound by acts of his agent,under amerely ostensible authority, to thosepersons only who have in good faith,and without ordinary negligence, incurred a liability or parted with value upon the faith thereof." The principal may repudiate the actions of his ostensible agent by prompt notice to the third party who is relying on the ostensible agency and authority. This Court in McLaren Gold Mines Co. v. Morton, 124Mont. 382, 396, 224 P.2d 975, said: "It is settled that a principal who neglects promptly to disavow an act of his agent,bywhich the latter has transcended his authority, makes the act his own;he is bound to disavow it the first moment the fact comes to his knowledge." In 2A C.J.S. Agency § 89,p. 694,this rule is set out: "Theprincipal does not ratify an unauthorized act if he repudiates it with reasonable promptness after learning the facts

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## *". Here, Butler asserts that it repudiated the ostensible agency and authority of Jacobsen promptly upon learning the facts. To support this assertion,Butler refers to the July 13, 1971, telephone call to J & L inwhich itwas stated that J & L was responsible for payment of the returned bins. This call

was followed by a letter dated July 14, 1971, from Butler's creditmanager to J & L reasserting Butler's position stated in the telephone call of July 13, 1971. Sufficient evidence appears in the record to permit the jury to concludeButler had knowledgeof the bin return understanding between Jacobsen and the subdealers and that bins were actually returned pursuant to the understanding,with the subdealers' accounts with Butler being credited. The record contains factswhich would indicate that Butler had such knowledgeas early as 1970,without repudiation or disavowal on the part of Butler. On appeal, Butler objects to the refusal of the district court to giveplaintiff's proposed instructions numbers 12 and

Plaintiff's proposed instruction number 12 reads: "You are instructed that the agent is not authorized from ostensible authority to collect or receive payment to assume the debt from the third person to the principal, and such assumption, unless ratified, does not constitutepayment. Thus, if, instead of paying money, the debtor writes off a debt due to him from the agent, such a transaction is not payment as against the principal, who is not a party to the agreement, though itmay have been agreed to by the agent."Butler cites Lindsey v. Keenan,Andrews & Allard, 118 Mont. 312, 317, 165 P.2d 804, (quotingfrom 2Arn.Jur. § 165, p. 133) as the basis for proposed instruction number 12: "'The general rule is that in the absence of express authority or custom to the contrary, the power of an agent authorized to collect or receivepayment is limited to receiving that which the law declares to be legal tender, or which is by common consent considered and treated asmoney, and passes as such at par. This is in accordancewith the general principle that authority to receivepayment implies only an authority to receive the thing due to an obligation, and not an authority to commute for any other thing'". The general rule for determining the scope and extent of ostensible authority is set forth in 2A C.J.S. Agency § 159,p.

"Thescope of the apparent or ostensible authority of an agent is to be gathered from all the factsand circumstances surrounding the transaction. [CitingCampbell v. Oriental Trading Co., 58 Mont. 520, 193 P. 1112.1 The considerations which fix and determine it are the same as those applicable to the determination of whether an apparent agency, or agency by estoppel exists 

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## *. The authority arises,when it does arise, from the factsof the particular case. 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 circumstanceswould reasonably believe the authority to be." The proposed instructionwould have led to possible confusion

on the part of the jury. Plaintiff's proposed instruction number 14 reads: "Ifyou should find that Jacobsen Construction Co. was the ostensible agent of the Plaintiff,Butler Manufacturing Company, and thus authorized to accept the return of the bins and credit the account of J & L Impaement Company,youmust also examine the facts and determine if Butler Manufacturing disavowed the act of its agent, Jacobsen Construction Company, within a reasonable length of time. "Ifyou determine that Butler Manufacturing Company notified the defendant, J & L Implement Company, within a reasonable length of time that they would not be bound by the acts and representationsmade by Jacobsen Construction Company, the act of Jacobsen Construction Company cannot bind Butler Manufacturing Company to credit the account ofJ & L Implement Company." Instruction number 12given by the district court adequately covered the issue of disavowalby Butler. Instruction number 12 reads: "It is settled that a principal who neglects promptly to disavow an act of his agent,by which the latter has transcended his authority, makes the act his own; he is bound to disavow it the firstmoment the fact comes to his knowledge." The district court's instruction number 12 is less confusing to the jury and sets forth the disavowal rule as stated in McLaren Gold Mines Co. This Court held in Wollan v. Lord, 142Mont. 498, 504, 385 P.2d 102, that: 

### "Atrial judgewill not be held in error for refusing to give instructionswhere the subject has been adequately covered by other instructions, Carter v. Miller, 140Mont. 426, 372 P.2d 421; Franck v. Hudson, 140Mont. 480, 373 P.2d 951; Holland Furnace Co. v. Rounds, 139Mont. 75, 360 P.2d 412; or where it is not applicable to the pleadings and the evidence. Malano v. Bressan, 76 Mont. 366, 245 P. 871; Schumacher v. Murray Hospital, 58 Mont. 447, 193 P. 397; Townsend v. City of Butte, 41Mont. 410, 109 P. 969." Butler asserts the district court was in error in not granting a directed verdict at the end of the presentation of evidence. This assertion is based on Butler's contention that the disavowal of Jacobsen's ostensibleagency was within a reasonable time after gaining knowledge of the facts. This Court in Mueller v. Svejkovsky, 153Mont. 416, 420, 458 P.2d 265 held: "Onan appeal from a motion denying a directed verdict there are three rules which apply.

(1)The evidence introducedby the plaintiff will be considered in the lightmost favorable to him.

(2) The conclusion sought to be drawn from the facts must followas a matter of law. (3)Only the evidence of the plaintiff will be considered." See also: Pickettv. Kyger, 151Mont. 87, 439 P.2d 57; Pushard

v. J. C. Penney Co., 151Mont. 82, 438 P.2d 928; Solich

### v. Hale,150Mont. 358, 435 P.2d 883;Gerard v. Sanner, 110Mont. 71, 103 P.2d 314. Here,viewing the evidence in the lightmost favorable to the plaintiff, the conclusions sought to be drawn from the facts do not follow as amatter of law. As stated in Freeman "ratificationmay be implied from the acts and conduct of the alleged principal." (104Mont. 166, 172) The evidence presented by Butler did not, on its face,repudiate the ostensible agency and authority as amatter of law; the promptness of the disavowal remained an open question of fact. In Estate of Dillenberg, 136Mont. 542, 545, 349 P.2d 573, this Court held: 

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## * if there be in the record substantial evidence sustaining the finding [of the jury] wemust sustain the court's action in submitting the cause to the jury and sustain the finding of the jury and the judgment based thereon." Themotion for a directed verdict was not improperly denied. The judgment is affirmed.



## ............................... Chief Justice We concur:

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