Opinion ID: 475770
Heading Depth: 2
Heading Rank: 2

Heading: Authority of Alteri

Text: 21 Before the District Court, Capital Dredge submitted affidavits to the effect that its representatives specifically instructed Alteri not to compromise any of Capital Dredge's claims for extra work and delay. Capital Dredge argues that even if the Minutes of Settlement constitute an unambiguous release of Capital Dredge's claims, Capital Dredge should not be bound by this release because, to the extent the Minutes constitute a release, they were executed by Alteri without authority from Capital Dredge. Even if Alteri had no express authority to release the claims, the city would prevail if it could be shown that Capital Dredge ratified the release or that Alteri had apparent authority to release the claims. 2
22 Judge Joiner held that Capital Dredge's acceptance of the benefits of the Minutes while failing to challenge the Minutes for a period of at least four years after receiving them amounted to a ratification of the release by Capital Dredge. Failure to repudiate an unauthorized agreement and accepting the benefits of such an agreement can constitute a ratification. See Restatement (Second) of Agency Secs. 94, 98 (1958). However, one essential prerequisite to a principal's ratification of an unauthorized act is that at the time of the ratification the principal have knowledge of all material facts. Langel v. Boscaglia, 330 Mich. 655, 48 N.W.2d 119 (1951); Restatement (Second) of Agency Secs. 91, 98. 23 Genuine issues of material fact exist as to when Capital Dredge learned that the Minutes of Settlement arguably constituted a release of its claims. Therefore, the District Court's grant of summary judgment on the release issue was improper in so far as it relied on Capital Dredge's alleged ratification of the release. Fed.R.Civ.P. 56.
24 According to the Restatement of Agency, 25 [a]pparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other's manifestations to such third persons. 26 Restatement (Second) of Agency Sec. 8. Michigan courts accept this definition of apparent authority. See Grosberg v. Michigan National Bank-Oakland, 420 Mich. 707, 362 N.W.2d 715 (1984). If a third party, based on a principal's manifestations, reasonably believes that the supposed agent is authorized to enter into a transaction or agreement, the principal will not be allowed to deny liability under the agreement even if the agent had no actual authority to act for the principal. Apparent authority is created by the principal's manifestations to the third party; the principal's communications with the supposed agent are not relevant to the question of apparent authority. Michigan National Bank of Detroit v. Kellam, 107 Mich.App. 669, 309 N.W.2d 700 (1981). 27 Generally, when a client hires an attorney and holds him out as counsel representing him in a matter, the client clothes the attorney with apparent authority to settle claims connected with the matter. See Terrain Enterprises, Inc. v. Western Casualty & Surety Co., 774 F.2d 1320 (5th Cir.1985); Bergstrom v. Sears, Roebuck & Co., 532 F.Supp. 923 (D.Minn.1982); Walker v. Stephens, 3 Ark.App. 205, 626 S.W.2d 200 (1981); Hutzler v. Hertz Corp., 39 N.Y.2d 209, 383 N.Y.S.2d 266, 347 N.E.2d 627 (1976); cf. Sustrik v. Jones & Laughlin Steel Corp., 189 Pa.Super. 47, 149 A.2d 498 (1959); Rader v. Campbell, 134 W.Va. 485, 61 S.E.2d 228 (1949). But see Blanton v. Womancare, Inc., 38 Cal.3d 396, 696 P.2d 645, 212 Cal.Rptr. 151 (1985). Thus, a third party who reaches a settlement agreement with an attorney employed to represent his client in regard to the settled claim is generally entitled to enforcement of the settlement agreement even if the attorney was acting contrary to the client's express instructions. In such a situation, the client's remedy is to sue his attorney for professional malpractice. The third party may rely on the attorney's apparent authority unless he has reason to believe that the attorney has no authority to negotiate a settlement. 28 But for this rule of law, prudent litigants could not rely on opposing counsel's representation of authorization to settle. Fear of a later claim that counsel lacked authority to settle would require litigants to go behind counsel to the opposing party in order to verify authorization for every settlement offer. The courts of Michigan have evidently not specifically addressed the apparent authority question in the attorney-client context. In Michigan National Bank v. Kellam, supra, the Michigan Court of Appeals held that an attorney had no apparent authority to bind a partnership (whose partnership agreement the attorney had written) in dealings with third parties. However, the court noted that the attorney worked for one of the partners individually and was not hired by the partnership to handle the matter that the third parties presented. In Wells v. United Savings Bank, 286 Mich. 619, 282 N.W. 844 (1938) and Peoples State Bank v. Bloch, 249 Mich. 99, 227 N.W. 778 (1929), the Michigan Supreme Court held that an attorney has no implied authority to settle or compromise a matter, but the court did not reach the question of apparent authority. We believe that Michigan courts would adopt the general rule stated above on apparent authority arising from the attorney client relationship; in the absence of Michigan precedent to the contrary, we will apply this rule. 29 Capital Dredge has not argued that Alteri lacked authority to negotiate a settlement of any controversies arising from the explosion. To the contrary, Alteri was employed to represent Capital Dredge regarding certain claims arising from the explosion. Capital Dredge held Alteri out as having authority to represent it in not only the personal injury claims but also certain related claims against the city, such as the bonding capacity and reputation suit which Alteri filed on behalf of Capital Dredge. In these circumstances, the city could reasonably believe that Alteri had authority to release Capital Dredge's extra work and delay claims arising from the explosion. Alteri therefore had apparent authority to release these claims. Consequently, we affirm the District Court's ruling that, by the Minutes of Settlement, Capital Dredge released certain claims from the 1980 action, although we do so on slightly different grounds than were used by Judge Joiner.