Court Opinion

ID: 9883717
Source: CourtListenerOpinion
Date Created: 2023-10-06 02:14:25.451772+00
Date Added: 2024-06-11T07:48:29.653303
License: Public Domain

OPINION
NIERENGARTEN, Judge.
Appellant Lyman Lumber Company (Lyman) sued respondent Three Rivers Company (Three Rivers), a Minnesota partnership consisting of Duane R. Jones, Bernard R. Jones and George W. Bunn, for payment of a credit account. The trial court found that Three Rivers was not responsible because Lyman failed to establish that the person using the account was an agent of Three Rivers. Lyman appeals. We affirm.
FACTS
In the spring of 1988, respondents Duane R. Jones, Bernard R. Jones and George W. Bunn planned to form a partnership known as the Three Rivers Company for home building, remodeling, and other related activities. They applied for a line of credit with Lyman Lumber Company while they were employed as officers of Accent Home and Kitchen Center. Charles Moerke was also employed by Accent. Bunn claims that he notified Lyman in June or July of 1983 that they decided not to form the partnership or go ahead with their new venture.
Moerke then decided to form his own company for building and remodeling and asked respondents if there were any objections to his using the “Three Rivers Company” name for his business. There were no objections, and in the fall of 1983 Moerke organized a corporation called Three Rivers Company, Inc., with himself as sole director. Between July 1983 and May 15,1984, Moerke purchased $54,584.89 worth of building materials from Lyman. Lyman charged these materials to the account they had established for respondents following a credit check.
Lyman's previous business dealings with Moerke had not been good and Lyman testified that they would not have extended credit to Moerke. They supplied the material only because they believed it was going to respondents’ partnership. When Moerke came to the lumber yard to purchase material he told Lyman’s yard supervisor that the materials were for Three Rivers Company. The supervisor checked with Lyman’s business office and based on respondents’ approved credit application allowed Moerke to make his purchases.
The bills for materials were sent to Accent’s address in Anoka, Minnesota and respondents forwarded the bills to Charles Moerke. Respondents claim to have made a phone call to Lyman’s and told someone that statements should be sent directly to Moerke. There was no written communication to Lyman from respondents denying responsibility for the statements or correcting the mailing address.
Lyman received payments by checks signed by Moerke as President of Three Rivers Company, Inc. The checks included the corporate name and address of Moerke’s company with an address different from that used by respondents on their credit application.
No one at Lyman’s sales or credit office ever checked with any of the respondents to see if Moerke was authorized in any way to use respondents’ credit account or act as their agent. The Lyman salesman who dealt with Moerke testified that he based his understanding that Moerke was backed by Three Rivers on what Moerke told him. The salesman also relied on Lyman’s own credit department which indicated Three Rivers Company had satisfactory credit. At some point Lyman became aware that *813Moerke was behind Three Rivers Company and that he was in financial difficulties. They stopped extending credit and attempted to collect the balance of $11,547.02 on the account.
The trial court found that although B. Jones, D. Jones and Bunn never formed a legal partnership, they were partners by estoppel pursuant to Minn.Stat. § 323.15. The court found that Moerke had no apparent authority to act for the partnership. The court also found that respondents did not ratify Moerke’s activities and were not estopped from denying he was their agent. No motions for amended findings, conclusions of law or a new trial were made. Judgment was entered in favor of respondents and Lyman appeals.
ISSUES
1. Did Charles W. Moerke have apparent authority to act as an agent for respondents?
2. Are respondents estopped from denying Moerke’s authority?
3. Did respondents ratify Moerke’s activities?
ANALYSIS
Scope of Review
In the absence of motions for amended findings or a new trial the scope of review on appeal is limited. The only question is whether the evidence sustains the findings of fact and if the findings of fact support the conclusions of law. Sauter v. Wasemiller, 364 N.W.2d 833, 834 (Minn.Ct.App.1985), aff'd, 389 N.W.2d 200 (Minn.1986). Findings of the court will not be set aside unless clearly erroneous. Minn.R.Civ.P. 52.01; City of Minnetonka v. Carlson, 298 N.W.2d 763, 766 (Minn.1980).
I.
The sole question is whether Moerke’s activities are chargeable to the partnership of B. Jones, D. Jones and Bunn. Lyman seeks to impose liability on the partnership based on an agency relationship. No one argues that Moerke was actually an agent for respondents but Lyman contends that Moerke had apparent authority to act on behalf of respondents.
The elements of apparent authority include:
1. A manifestation by the principal that another is his agent;
2. The person who deals with the supposed agent must know of these manifestations at the time of dealing;
3. The manifestation of apparent authority must be by the principal’s actions, not the agent’s.
See Restatement (Second) of Agency § 8 (1958); Truck Crane Service Co. v. Barr-Nelson, Inc., 329 N.W.2d 824, 826 (Minn.1983); Hockemeyer v. Pooler, 268 Minn. 551, 562, 130 N.W.2d 367, 375 (1964).
Respondents never made any overt manifestation that Moerke was acting as their agent. Moerke’s name was not on the credit application. Moerke was never named by respondents as an agent for them. Lyman’s credit supervisor and salesperson both testified that they never received any communication from respondents indicating that Moerke could act as their agent in purchasing materials.
Apparent authority is usually based on an affirmative action of the principal. Vaciera v. Haar’s Equipment, Inc., 364 N.W.2d 387, 391 (Minn.1985). The court can also find authority “when the agent has regularly exercised some power not expressly given to it and the principal, knowing of the practice, tacitly sanctions its continuance.” Id. Here, respondents were unaware that the materials Moerke purchased were being charged to their account. One cannot sanction what one does not know.
But respondents could be liable as principal for Moerke’s conduct if they should have known what was happening. McGee v. Breezy Point Estates, 283 Minn. 10, 22, 166 N.W.2d 81, 89 (1969). Lyman suggests respondents should have known because respondents were aware that the account being charged with Moerke’s pur*814chases was their account. However, respondents were only aware that Moerke had formed his own Three Rivers Company and could properly assume the bills were for him and merely had been sent to the wrong address. Even though the trial court did find that respondents failed to reasonably notify Lyman that their partnership did not exist, the trial court made no finding that the respondents had knowledge of Moerke’s activities and were intentionally silent.
Finally, apparent authority must be founded on the principal’s actions, not those of the agent, “since no agent by his own act can create evidence of authority * * West Concord Conservation Club, Inc. v. Chilson, 306 N.W.2d 893, 897 (Minn.1981). The record indicates that the salesman who dealt with Moerke relied on what Moerke told him and assumed Moerke had authority to charge on the respondents’ account.
II.
Lyman’s second theory for establishing liability on the part of respondents is one of estoppel. Estoppel is a principle in the field of tort law developed to prevent losses to an innocent third person. Restatement (Second) of Agency § 8 comment d. Estoppel usually applies when a recognized agent exceeds his or her authority and the principal, either knowingly or negligently, fails to notify the third party. See Dispatch Printing Co. v. National Bank of Commerce, 109 Minn. 440, 450, 124 N.W. 236, 240 (1910); Restatement (Second) of Agency § 8B(b). There is no evidence or claim that Moerke was ever actually the agent of respondents or that they ever held him out as their agent. One cannot exceed authority never possessed.
Finally, estoppel can be used only by an innocent party. “Negligence by the party invoking it may deprive him of its protection.” West Concord Conservation Club, Inc., 306 N.W.2d at 896. It is well established that one who deals with an agent is under a duty to determine whether the agent has the authority to act. Truck Crane Service Co., 329 N.W.2d at 827. Lyman, given its past bad experience with Moerke, was clearly negligent in not taking any steps to confirm Moerke’s authority to charge on respondents’ account.
III.
Lyman’s third argument is that respondents ratified Moerke’s authority by failing to notify Lyman’s that Moerke was not their agent after receiving Lyman’s bills at their business address.
Ratification occurs when one, having full knowledge of all the material facts, confirms, approves, or sanctions, by affirmative act or acquiescence, the originally unauthorized act of another, thereby creating an agency relationship and binding the principal by the act of his agent as though that act had been done with prior authority.
Anderson v. First National Bank of Pine City, 303 Minn. 408, 410, 228 N.W.2d 257, 259 (1975) (citations omitted; emphasis added). The record shows that respondents did not have knowledge of all the material facts. They did not know that Lyman assumed that Moerke was their agent and they did not know that it was their account which was being charged with Moerke’s purchases. They did know that Moerke had incorporated under the name of Three Rivers Company, Inc. and they were not remiss in assuming he would be responsible for his own charges. The record does not support ratification.
DECISION
The record supports the trial court’s finding of fact and the facts support the conclusions of law.
Affirmed.