Case Name: Master Consolidated Corporation, Appellant, v. BancOhio National Bank, Appellee
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1991-08-28
Citations: 61 Ohio St. 3d 570
Docket Number: No. 90-1388
Parties: Master Consolidated Corporation, Appellant, v. BancOhio National Bank, Appellee.
Judges: Moyer, C.J., Sweeney and H. Brown, JJ., concur.
Reporter: Ohio State Reports, Third Service
Volume: 61
Pages: 570–584

Head Matter:
Master Consolidated Corporation, Appellant, v. BancOhio National Bank, Appellee.
[Cite as Master Consolidated Corp. v. BancOhio Natl Bank (1991), 61 Ohio St.3d 570.]
(No. 90-1388
Submitted April 17, 1991
Decided August 28, 1991.)
Shulman & Hall, L.P.A., Thomas G. Kramer and Elizabeth O. M. Troxell, Talbott & Duc/cer and John T Ducker, for appellant.
McFadden & Winner, Joseph C. Winner and Melodee S. Kornacker, for appellee.

Opinion:
Holmes, J.
Master has appealed to this court on the grounds that BancOhio, as trustee, acted negligently in disbursing monies from the bond construction fund without conducting an independent investigation of the propriety of Glueckert's request for disbursement. Specifically, Master argues that BancOhio dealt with Master's purported agent, Glueckert, at its own risk, that BancOhio should have exercised diligence and prudence to ascertain the authority of such purported agent prior to disbursing bond proceeds, and that because it failed to do so, BancOhio should reimburse Master for the misdirected funds. Before addressing this issue, we must initially consider whether Glueckert had the authority to request the disbursement of bond proceeds from BancOhio and to direct the payment of these proceeds. After reviewing the pertinent documents and peculiar circumstances of this case, we find that Glueckert did have authority to bind Master.
The relationship of principal and agent, and the resultant liability of the principal for the acts of the agent, may be created by the express grant of authority by the principal. Absent express agency, the relation may be one of implied or apparent agency. As the Supreme Judicial Court of Maine observed, " Express authority is that authority which is directly granted to or conferred upon the agent or employee in express terms by the principal, and it extends only to such powers as the principal gives the agent in direct terms; and the express provisions are controlling where the agency is expressly conferred. " Stevens v. Frost (1943), 140 Me. 1, 7, 32 A.2d 164, 168. Several key documents contain evidence of an express agreement between Glueckert and Master and thereby delineate the authority to be exercised by Glueckert at the bond closing.
Glueckert, as Executive Vice President of Master, was authorized pursuant to a resolution of Master's board of directors to execute and deliver, on Master's behalf, the bond agreement, a promissory note, a mortgage and security agreement and "such other instruments and agreements, and to perform such other acts, as in his judgment may be necessary or appropriate in order to effectuate the issuance of the Bonds and the intent and purpose of the foregoing resolutions." (Emphasis added.) In accordance with such express authority, Glueckert executed Certificate # 1 at the bond closing which requested BancOhio to disburse bond proceeds in the total amount of $1,423,290.10. Of this sum, $489,532.68 was wired to Futra.
Master urges this court to find that the foregoing language in the resolution of Master's Board of Directors narrowly circumscribed the authority of Glueckert to act on behalf of Master at the bond closing. We disagree with this assertion.
Certainly, Master's insistence cannot be reconciled with any reasonable interpretation of the board resolution's language. In addition to providing Glueckert with specific grants of authority, the resolution broadly empowered this officer of Master to exercise his own professional judgment in deciding what further action is "necessary or appropriate in order to effectuate the issuance of the Bonds ." The decision as to how those funds should be applied and utilized was the prerogative of Master's management in the exercise of its judgment, and Master delegated the authority to make that decision to Glueckert pursuant to a valid resolution. It should be noted that there exists in the law a general presumption that a corporation's management, in making business decisions, acts on an informed basis, in good faith and in the honest belief that the action was in the best interests of the company. Absent an abuse of discretion, courts will defer to corporate business judgment. Gries Sports Enterprises, Inc. v. Cleveland Browns Football Co. (1986), 26 Ohio St.3d 15, 26 OBR 12, 496 N.E.2d 959. This is no less true when the authority to make those decisions is expressly conferred upon the corporation's agent as in this case. Essentially, an agent is in fact authorized to do "what it is reasonable for him to infer that the principal desires him to do in the light of the principal's manifestations and the facts as he knows or should know them at the time he acts." 1 Restatement of the Law 2d, Agency (1958), Section 33.
The bond agreement entered into between BancOhio and Master provided that BancOhio, acting as trustee, was to "disburse funds from the Construction Fund to pay for all items within the definition of 'Cost of the Project'." "Cost of the Project" was defined to include, inter alia:
"(f) All items of expense not elsewhere specified in this Section as may be necessary or incident to: (i) the authorization, issuance and sale of the Bonds; (ii) the acquisition, improvement, equipping and furnishing of the Project [i.e., the Master plant]; and (iii) the financing thereof; and
"(g) Reimbursement to Borrower [Master] or those acting for it for any of such costs paid by them, whether before or after the execution of this Agreement." (Emphasis added.)
We conclude that the above language found within the resolution of the Master board of directors, along with the bond agreement, granted to Glueckert (the Executive Vice President of Master) the express authority to direct BancOhio as to the disbursement of the bond funds.
We find that in interpreting Glueckert's express grant of authority, it was reasonable for BancOhio to conclude that Glueckert had such authority to direct BancOhio to disburse bond proceeds and wire the disputed funds to Futra.
Although we hold that the transfer of funds to Futra was reasonably within the scope of the express authority conferred upon Glueckert by the board of directors' resolution of August 1, 1983, we also hold that the appellate court was correct in finding that Glueckert had apparent authority to execute Certificate # 1 and to direct BancOhio to wire a portion of the proceeds to Futra.
"Apparent authority" has been defined as " the power to affect the legal relations of another person by transactions with third persons arising from the other's manifestations to such third persons." 1 Restatement of the Law 2d, Agency (1958) 30, Section 8. This court, in Miller v. Wick Big. Co. (1950), 154 Ohio St. 93, 42 O.O. 169, 93 N.E.2d 467, paragraph two of the syllabus, held that:
"Even where one assuming to act as agent for a party in the making of a contract has no actual authority to so act, such party will be bound by the contract if such party has by his words or conduct, reasonably interpreted, caused the other party to the contract to believe that the one assuming to act as agent had the necessary authority to make the contract." See, also, Cascioli v. Central Mut. Ins. Co. (1983), 4 Ohio St.3d 179, 181, 4 OBR 457, 459, 448 N.E.2d 126, 128.
Further, this court in General Cartage & Storage Co. v. Cox (1906), 74 Ohio St. 284, 294, 78 N.E. 371, 372, explained that, " '[w]here a principal has by his voluntary act placed an agent in such a situation that a person of ordinary prudence, conversant with business usages, and the nature of the particular business, is justified in assuming that such agent is authorized to perform on behalf of his principal a particular act, such particular act having been performed the principal is estopped as against such innocent third person from denying the agent's authority to perform it.' "
Thus, in order for a principal to be bound by the acts of his agent under the theory of apparent agency, evidence must affirmatively show: " ' (1) [t]hat the principal held the agent out to the public as possessing sufficient authority to embrace the particular act in question, or knowingly permitted him to act as having such authority, and (2) that the person dealing with the agent knew of the facts and acting in good faith had reason to believe and did believe that the agent possessed the necessary authority. The apparent power of an agent is to be determined by the act of the principal and not by the acts of the agent; a principal is responsible for the acts of an agent within his apparent authority only where the principal himself by his acts or conduct has clothed the agent with the appearance of the authority and not where the agent's own conduct has created the apparent authority. '" Logsdon v. ABCO Constr. Co. (1956), 103 Ohio App. 233, 241-242, 3 O.O.2d 289, 293, 141 N.E.2d 216, 223; Ammerman v. Avis Rent A Car System, Inc. (1982), 7 Ohio App.3d 338, 7 OBR 436, 455 N.E.2d 1041; Blackwell v. Internatl. Union, U.A.W. (1983), 9 Ohio App.3d 179, 9 OBR 289, 458 N.E.2d 1272.
In reviewing the record here, we hold that the evidence supports the conclusion that Master's conduct, reasonably interpreted by BancOhio, caused BancOhio to believe that Glueckert had the authority to execute requests for bond proceeds and to direct BancOhio's payment of the proceeds to the designated parties. Through the following documents, Master communicated to BancOhio that Glueckert was its authorized agent and that BancOhio, as lender and trustee, could rely upon Glueckert's authority without further investigation.
The bond agreement reads in pertinent part:
"Section 8.2. Designated Representatives. Lender and Borrower [Master] shall each designate one or more persons, to act for Lender and Borrower respectively in carrying out the provisions of this Agreement and the Indenture. Any communications in writing from any such designee shall be entitled to be treated as the authorized act of the respective designor and Lender, Borrower and the Trustee may fully rely and act upon the authority of such communications. Such designees may be changed from time to time by Lender or Borrower by appropriate resolution and notice thereof given in writing to the other and to the Trustee. Lender hereby designates the present President of the Board of County Commissioners of Lender and Borrower hereby designates Richard F. Glueckert to serve initially hereunder." (Emphasis added.)
Another highly relevant portion of the bond agreement explains the duties of the lender and trustee (both being BancOhio):
"Section 4.5. General Provisions Regarding Disbursements. Anything herein to the contrary notwithstanding, Lender's and the Trustee's obligations hereunder shall be confined to the funds in the Construction Fund and in no event shall Lender or the Trustee be obligated to expend funds other than those in the Construction Fund. The sole obligation of Lender under Sections Jj.,3 and J.J hereof [regarding disbursements] shall be to cause the Trustee to disburse funds upon receipt of the certificates and other instruments described therein. The Trustee may rely fully on such certificates and other instruments and shall not be required to make any independent investigation in connection therewith. The Trustee may, in its reasonable discretion, excuse the inability of Borrower or the Supervising Engineer to make any representation or to express any opinion or to undertake any obligation required to be in such certificates or other instruments if the Trustee reasonably determines that Borrower or the Supervising Engineer, as the case may be, is acting in good faith and that insistence on the omitted representation, opinion, or obligation would not be in the best interests of the Bondholders. All requests for draws from the Construction Fund shall be submitted on the form attached hereto as Exhibit 'C', and shall have attached thereto the items specified therein." (Emphasis added.)
In addition to the above-cited sections of the bond agreement, the Secretary of Master, Charles D. Lowe, certified that Master's Board of Directors had adopted the resolution of August 1, 1983 which gave Glueckert the express authority to execute documents and perform other acts in connection with the issuance of the bonds. Additionally, Lowe's opinion letter dated August 31, 1983 assured BancOhio that the bond agreement and other documents were "duly authorized by all required corporate action ."
The above-mentioned language of the bond agreement and Lowe's two representations of August 1, 1983, as well as the resolution granting Glueckert express authority, satisfy the requirements of the test for apparent authority.
In the case sub judice, Master would have this court characterize the events which led to the disbursement of bond proceeds as being so suspicious as to call attention to the impropriety of the transaction such that BancOhio could only have been negligent in releasing the bond proceeds and directing their payment to Futra. We cannot adopt such a characterization. BancOhio complied with the terms of the bond agreement and trust indenture.
Master contends that BancOhio breached its obligations to Master under the trust indenture by failing to make an independent investigation of the propriety of the request for disbursement. Such an assertion disregards the plain language of the trust indenture. The relevant portions of the trust indenture are:
"Section 1101. Acceptance of the Trusts. The Trustee hereby accepts the trusts imposed upon it by this Indenture and agrees to perform such trusts as would an ordinarily prudent trustee under a corporate mortgage, but only upon and subject to the following express terms and conditions:
"(a) The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees but shall be answerable for the conduct of the same in accordance with the standard specified above, and shall be entitled to advice of counsel concerning all matters of trusts hereof and the duties hereunder, and may in all cases be reimbursed hereunder for reasonable compensation paid to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Issuer or User [Master]), approved by the Trustee in the exercise of reasonable care. The Trustee shall not be responsible for any loss or damage resulting from any action or non-action in good faith in reliance upon such opinion or advice.
6i
"Section 1111. Trustee Protected in Relying Upon Resolutions, etc. The resolutions, opinions, certificates and other instruments provided for in this Indenture may be accepted by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for the release of any property, the withdrawal of any monies, or the taking of any other action by the Trustee as provided hereunder." (Emphasis added.)
Section 8.2 of the bond agreement specifically designated Glueckert as Master's authorized representative to request disbursements from the bond construction fund. The cornerstone of the agreement between the trustee and the borrower is that the trustee can fully rely on the representations of the borrower's designated representative.
In the express language of section 8.2 of the bond agreement, Master held Glueckert out to be its designated agent and BancOhio cannot be charged with lack of reasonable diligence and prudence for relying on that language and other documents. In fact, BancOhio was entitled to rely on Certificate # 1 and Glueckert's direction to disburse a portion of the proceeds to Futra without making an independent investigation. With regard to disbursements, BancOhio's sole obligation as trustee was to disburse funds upon receipt of properly executed certificates. Its duty was ministerial, not discretionary. As indenture trustee, BancOhio received the contractually specified document executed by the contractually designated agent of Master and responded by distributing funds as it was obligated to do.
Moreover, Lowe's opinion letter dated August 31, 1983 reasonably allows BancOhio to rely upon Glueckert's request for disbursement as being duly authorized by all required corporate action. BancOhio relied in good faith upon this letter as well as the bond agreement which designated Glueckert as the representative of Master.
In light of the special business relationship enjoyed by Master and Futra, the mere routing of a substantial sum from the bond construction fund from a wholly owned subsidiary to its parent does not raise the specter of an unauthorized gift or loan. Since neither the bond agreement nor the trust indenture specified exactly how reimbursement to Master was to be made, the funds could legitimately have been intended for temporary deposit into an interest-bearing cash account of Futra for redistribution to or on behalf of Master. This court is unwilling to impose on the indenture trustee a duty of inquiry that operates to override the provisions of a trust indenture. If Master and BancOhio had intended to prevent this sort of transaction, the trust indenture should have so stated.
Based upon all of the foregoing, the judgment of the court of appeals is affirmed.
Judgment affirmed.
Moyer, C.J., Sweeney and H. Brown, JJ., concur.
Douglas, J., dissents without opinion.
Wright and Resnick, JJ., dissent.
. Charles D. Lowe, as Secretary of Master, certified a resolution giving Glueckert authority to sign the bond agreement and to perform other acts in connection with the issuance of bonds. Lowe authored an opinion letter dated August 31, 1983, wherein the following was set forth: "The execution and delivery of the Loan Agreement [meaning the bond agreement], Note, Mortgage and User's [Master's] Certificate have been duly authorized by all required corporate action, and each has been properly executed and delivered on behalf of the User."
. The bond agreement was made and entered into as of August 1, 1983 between the county of Montgomery (the "lender") and Master Consolidated Corporation (the "borrower"). Concurrently with the issuance of the bonds, the lender assigned to the trustee (BancOhio) all of its rights as lender under the bond agreement and related documents to BancOhio for the benefit of the bondholders. Thus, although the bond agreement was originally entered into between Montgomery County and Master, BancOhio was assigned the rights of Montgomery County as lender and became both lender and trustee.
. A comment in 1 Ohio Jury Instructions (1990) 200, Section 15.10, distinguishes apparent authority from agency by estoppel:
"Estoppel and apparent authority are similar in that they are based on the underlying principle that a person shall be bound by his words or deeds. They are distinguished as follows: estoppel is essentially the principle that a person must compensate another for any change of position (loss) induced by reliance on what the person said or otherwise manifested, because it would be unjust to allow him to deny the truth of his words or manifestations; apparent authority is based on the objective theory of contracts, and arises when a person manifests to another that an agent or third person is authorized to act for him, irrespective of whether the person really intended to be bound, of whether the person told the same thing to the agent, and of whether the other person changed his position." See, also, 1 Restatement of the Law 2d, Agency (1958), Section 8, Comment d.