Title: AUDIT SERVICES INC v ELMO ROAD
Citation: N/A
Docket Number: 13749
State: Montana
Issuer: Montana Supreme Court
Date: February 22, 1978

N o . 13749 I N T H E SUPREME C O U R T O F THE STATE O F M O N T A N A 1978 AUDIT SERVICES I I N C . I a Montana c o r p o r a t i o n , P l a i n t i f f and Appellant, E L M O ROAD CORPORATION, a c o r p o r a t i o n , Defendant and Respondent. Appeal from : D i s t r i c t Court d t h e Fourth J u d i c i a l D i s t r i c t , Honorable Jack L. Green, Judge p r e s i d i n g . Counsel o f Record: For Appellant: George, Williams and Benn, Missoula, Montana R i c hard Ranney arpued, Missoula, Montana For Respondent: Poore, PIcKenzie, Roth, Robischon and Robinson, Butte, Montana David Wing argued, Butte, Montana For Amicus Curiae: H i l l e y and Loring, Great F a l l s , Nontana ; , ;<=.,. Emilie Loring argued, Great F a l l s , Montana McKittrick and Duffy, Great F a l l s , Plontana D. P a t r i c k McKittrick arcped, Great F a l l s , FIontana Submitted: January 31, 1978 Decided : FEB 2 2 1 9 n F i l e d : FEB 2 2 1 9 E M r . Justice Frank I. Haswell delivered the Opinion of the Court: A collection agency, on the behalf of three union t r u s t funds, sued a corporation for an accounting and judgment for a l l sums owing pursuant t o certain collective bargaining agree- ments and declarations of trust. Following a nonjury t r i a l , the District Court, Lake County, denied r e l i e f t o the collection agency. The collection agency appeals. Plaintiff Audit Services, Inc. is a collection agency for three union t r u s t funds. The t r u s t 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; ~ e a m s t e r ' s Trust of Montana, Health and Welfare. Plaintiff is attempting t o require defendant Elmo Road Corporation t o s a t i s f y its obligations under collective bargaining compliance agreements t o make contributions to these t r u s t 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 i n the t r u s t s involved. The union representatives talked t o 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 t o be bound by the existing collective bargaining agreement i n effect between the union and the employer's associa- tion, that defendant agrees t o comply with the various a r t i c l e s of t r u s t which have been s e t up by collective bargaining agreement, and t h a t compliance w i l l continue u n t i l such time a s either party n o t i f i e s the other i n writing a t l e a s t sixty days before the expiration of the then existing collective bargaining agreement of its intention t o withdraw. The declarations of t r u s t , which the defendant agreed t o comply with, s e t forth a schedule for contributions to the t r u s t funds by the employers bound t o the agreements. When the compliance agreements were signed, defendant was working a s a subcontractor on a Polson school job for Sletten Construction Company. Sletten Construction was a signatory t o collective bargaining agreements with each of the three unions involved here. These agreements contained clauses requiring the signatory employer t o require a l l of h i s subcontractors t o comply with the conditions of the agreements. From April 1972 t o October 1972, the period of the Sletten Construction subcontract, defendant paid the required contri- butions t o the t r u s t funds. When defendant stopped contributing, the t r u s t s sent delinquency notices. N o payments were made by defendant. The t r u s t s , therefore, assigned t h e i r causes of action t o p l a i n t i f f . Prior t o t r i a l p l a i n t i f f had the records of defendant audited. This audit indicated an amount owing to the three t r u s t funds of $31,842.53, which includes contributions, liquidated damages, interest and audit fees. In addition, under the terms of the t r u s t documents, attorney fees a r e recoverable. Prior t o t r i a l , p l a i n t i f f incurred attorney fees i n the amount of $1,802.02. The case was t r i e d i n the District Court on September 29, 1976. Thereafter judgment was rendered for defendant. Findings of f a c t and conclusions of law were entered on December 7, 1976. The court found that Roy Winslow did not have authority t o sign the compliance agreements on behalf of Elmo Road Corporation; that he did not believe the compliance agreements would bind the corpora- tion to a long term collective bargaining agreement; that the unions had not been certified as the exclusive bargaining repre- sentatives 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 Rela- tions 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 e i t h e r actual, implied, o r ostensible authority t o enter into contracts on behalf of the corporation. The general rule is stated i n t h i s language: "Unless h i s authority is specially restricted, a general o r managing officer o r agent may enter into any contract which is usual, proper o r necessary t o be made, i n the ordinary transaction of the company's business, o r which he is held out t o the public as having authority to make, or which, although beyond h i s general powers, he is expressly authorized t o make; and a third person who deals with such manager i s not affected by secret limitations upon such authority. * * *" 19 C.J.S. Corporation, §1043(f). This rule has been adopted i n Montana. Electrical Products Consolidated v. E l Campo, Inc., (1937), 105 Mont. 386, 73 P.2d 199. I n t h i s case the t r i a l court concluded Winslow, a s the general manager of Elmo Road Corporation, had no actual, implied, . o r ostensible authority t o sign the compliance agreements on behalf of the corporation. Plaintiff contends the evidence does not support t h i s conclusion. I n reviewing the findings and judgment of the D i s t r i c t Court, w e w i l l not disturb those findings i f they are supported by substantial evidence, Johnson v. J a r r e t t , (1976), 169 Mont. 408, 548 P.2d 144; Fautsch v. Fautsch, (1975), 166 Mont. 98, 530 P.2d 1172. The evidence must be viewed i n the l i g h t most favorable t o the prevailing party. Johnson v. J a r r e t t , supra; Luppold v.Lewis, (1977), Mont , , 563 P.2d 538, 34 St. Rep. Applying that standard t o t h i s case, the District Court's finding that Roy Winslow had no actual authority t o bind the cor- poration t o the compliance agreements i s supported by substantial evidence. The evidence supporting t h i s finding is that: (1) Roy winslow's employment contract limited h i s authority t o a c t on behalf of the corporation; (2) the authority of the general manager is s e t forth i n the by-laws and regulations of the cor- poration; and (3) the testimony of the president of the corpora- tion, A 1 Hewankorn, a s t o the authority of the general manager. The employment contract outlined the general manager's duties t o be: (1) procurement of contracts, obtaining financing and necessary equipment; (2) overall supervision of f i e l d work, office work, and equipment maintenance; and (3) hiring, f i r i n g , disciplining and assigning jobs t o a l l employees. The contract provided the defendant agreed t o h i r e Winslow as i t s general manager i n accordance with the authority and responsibilities outlined i n its regulations and by-laws. The regulations and by-laws s t a t e generally that the manager w i l l consult with the Board of Directors on a l l major questions of policy and be pre- pared t o submit such questions t o the shareholders for f i n a l decision. I n h i s testimony A 1 Hewankorn stated that Winslow had no authority t o bind the corporation t o any collective bargaining agreement and the corporation considered any relationship with a labor union to be a major question of policy that would have t o be decided by the shareholders and not the general manager. A general manager can have implied authority t o enter contracts on behalf of a corporation. Implied authority has been defined i n t h i s manner: "Implied authority is a form of actual authority derived by implication from the principal's words o r deeds. It is sometimes said that implied authority i s actual authority circumstantially proved. I n general, an agent has implied authority t o do those a c t s which are usual and incidental t o the authorized transaction and those which are reasonably necessary t o accomplish the principal's purposes, including the making of whatever contracts are needed." Sell, Agency, 540 (1975). The rule i n Montana on implied authority has been stated a s follows : "No principle of law is more clearly settled than that an agent t o whom is intrusted by a corporation the management of its local a f f a i r s , whether such agent be designated a s president, general manager, o r superintendent, may bind h i s principal by contracts which are necessary, proper, or usual- t o be made i n the ordinary prosecution of its business. * * * The f a c t t h a t he occupies, by the consent of the board of directors, the position of such an agent, implies, without further proof, the authority t o do anything which the corporation i t s e l f may do, so long a s the a c t done pertains t o the ordinary business of the company." Trent v. Sherlock, (1900), 24 Mont. 255, 263, 61 P. 650. I n t h i s case, the District Court found that Roy Winslow did not have implied authority t o sign the compliance agreements on behalf of Elmo Road Corporation. Specifically, the court found i n its finding of f a c t XVI: "The collective bargaining agreements, t o which the various compliance o r participating agreements executed by Roy Winslow purport t o bind the Elmo Road Corpora- tion, were not such contracts which were usual, proper or necessary t o be made i n the ordinary transaction of the Elmo Road Company' s business ." Plaintiff contends the evidence does not support t h i s finding. W e agree. The evidence indicates Roy Winslow signed the compliance agreements t o obtain the Polson school job subcontract from Sletten Construction. H e t e s t i f i e d that i f he had not signed the agreements, Elmo Road Corporation would not have obtained the contract. A t the t r i a l of t h i s case, i n i t s b r i e f , and i n o r a l 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 representa- tive 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 agree- ments 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 agree- ments 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 osten- sible 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), 1 0 9 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 o r described i n a writing, which is intended for h i s inspection, he is affected by limitations upon the authority contained i n the writing, unless misled by conduct of the principal ." Comment b. t o 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 t h i s Section ." Thus, under t h i s rule, the limitations on the general manager's authority contained i n the regulations and by-laws can have no effect a s notice t o third persons dealing with the manager, regardless of their being open for inspection o r not. The limitations i n those documents cannot l i m i t the general manager's ostensible authority. Therefore, w e hold Roy Winslow had both implied and ostensible authority a s general manager of Elmo Road Corporation t o a c t on behalf of the corporation and the District Court's conclusions to the contrary are i n error, In its second issue plaintiff raised the issue of r a t i f i - cation a t t r i a l and on appeal. Defendant a t t r i a l and on appeal argues t h a t the doctrine of ratification has no application t o t h i s case, The District Court made no findings of fact or con- clusions of law on the issue of ratification. Nor did the court make a finding of fact o r conclusion of law on why Elmo Road Corporation made the contributions to the t r u s t funds i n 1972, or what effect those contributions had regarding the rights and obligations of the parties t o t h i s action. The proper resolution of the issue of ratification is the rule s e t forth i n Freeman v. Withers, (1937), 104 Mont. 166, 65 P.2d 601. There, t h i s Court stated that where the principal, with knowledge of a l l the material facts, voluntarily makes p a r t i a l payment on an unauthorized contract, there i s strong evidence of ratification. Applying that rule here, w e find that Elmo Road's voluntary contributions t o the t r u s t funds during the months of April through October, 1972, r a t i f i e d insl low's a c t of signing the agreements requiring the contributions. The third issue, whether the District Court erred i n invali- dating the compliance agreement, is a dispute involving a collective bargaining agreement. Plaintiff claims the compliance agreements are valid. Defendant claims they are i l l e g a l and invalid. To resolve t h i s 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 i n an industry affecting commerce as defined i n t h i s chapter, or between any such labor organizations, may be brought i n any d i s t r i c t court of the United States having jurisdiction of the parties, without respect t o the amount i n controversy or without regard t o the citizenship of the parties. I I This section has been construed to mean that there i s concurrent jurisdiction in the s t a t e courts t o hear such disputes, but, i n exercising t h i s jurisdiction, s t a t e courts must apply federal labcr law. D o w d Box Co. v. Courtney, (1962), 368 U.S. 502, 82 S.Ct. 519, 7 L ed 2d 483. Montana has recognized t h i s principle. Lowe v. O'Connor, (1973), 163 Mont. 100, 515 P.2d 677. I n i t s findings of fact and conclusions of law, the District Court held that the compliance agreements were invalid and unen- forceable by the union t r u s t 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 t o 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, i n construing 29 U.S.C. and 5 158(a) /(b) , has held that the determina tion of an unfair labor practice i s 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 s t a t e court has the authority t o construe and enforce collective bargaining agreements, it does not have the authority t o invalidate a labor contract, proper on its face, because one of the parties has allegedly engaged i n an unfair labor practice. I n t h i s case, w e hold the District Court erred i n invalidating the compliance agreements which were proper on t h e i r face because the s t a t e courts lack the authority t o do so. A case i n point on t h i s issue i s Trust Fund Services v. Hey- man, (1977), 88 Wash.2d 698, 565 P.2d 805. I n that case, a collec- tion agency was attempting t o collect contributions from an employer who was obligated t o contribute to union t r u s t funds and had failed t o do so. The employer's defense was an allegation of unfair labor practices on the part of the union. H e further argued the issue of unfair labor practice was res judicata because the 9th c i r c u i t and the Federal District Court had rescinded the contract between the employer and the union, when the employer sued the union i n 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 t o 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 t o determine unfair labor practices and s t a t e courts a s well a s federal courts must defer t o the exclusive competence of the F.L.R.B. Thus, in t h i s 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 i s vacated. The cause is remanded t o the District Court for entry of judgment in accord with t h i s opinion, and for determination of reasonable attorney fees to be awarded t o plaintiff for the services of its attorneys a t t r i a l i n the District Court. That award s h a l l be added t o our award of $1,250 attorney fees for the services of i t s attorneys on appeal and both sumshall be incorporated into the judgment . Justice V W e Concur: