SW Legal studies in Business

Company President Has Apparent Authority to Enter into Most Contracts
Description Appeals court affirmed a trial court decision that a company president had apparent authority to buy a significant amount of stock from a shareholder. The company denied the president had such authority after he was fired. The shareholder had the right to assume the president had the authority to enter into such a contract.
Topic Agency
Key Words Apparent Authority; Contract
C A S E   S U M M A R Y
Facts Powell was CEO of CAIRE and was also a shareholder. CAIRE was a subsidiary of MVE. MVE was bought by a group of investors, who became majority shareholders. Powell retained his stock and was kept as CEO of CAIRE by the new owners. Later, O'Halloran, the president of MVE, decided to replace Powell, who resigned in exchange for a severance package. Soon after, O'Halloran was fired and MVE was merged into another company. Powell contended that at the time of his resignation, O'Halloran promised Powell that MVE would pay $3.45 million for Powell's stock, far greater than the market value. MVE refused to pay, so Powell sued. The trial court found that a contract to buy the stock existed and ordered MVE to pay Powell the money. MVE appealed, contending that O'Halloran did not have authority to enter into such a contract.
Decision Affirmed. A principal is bound not only by an agent's actual authority but also by authority that the principal has apparently delegated to the agent. To find apparent authority for an agent's actions, (1) the principal must have held the agent out as having authority, or must have knowingly permitted the agent to act on its behalf, (2) third parties must have had actual knowledge that the agent was held out by the principal as having such authority or had been permitted by the principal to act on its behalf, and (3) proof of the agent's apparent authority must be found in the conduct of the principal, not the agent. The court, reviewing the evidence here, found that O'Halloran had apparent authority to enter into a contract with Powell on behalf of MVE to redeem Powell's stock at a specific price. Powell could reasonably believe that O'Halloran had authority to make such an offer given past activities. Unless there is contrary evidence, contracts made by a corporation's president in the ordinary course of business are presumed to be within the president's authority.
Citation Powell v. MVE Holdings, Inc., 626 N.W.2d 451 (Ct. App., Minn., 2001)

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