Story Case

Andrew Williams was the general manager for Mead & Company, bond brokers, at their Chicago office. Williams was under written instructions never to sign any negotiable notes for the company, without first securing the consent of the president. Nevertheless, within a week after accepting the position, Williams did negotiate notes, signing the name of the company, and made away with the money. When suit was brought on the notes, Mead & Company set up as defense the written instructions given to Williams. It is the usual custom of general managers of bond companies to sign negotiable paper. Is the defense set up by Mead & Company good?

Ruling Court Case. Montgomery Furniture Co. Vs. Hardaway, Volume 101 Alabama Reports, Page 69

Hardaway and Covington, as partners, owned a furniture business in Montgomery. They lived in Baltimore, Maryland, and the business in Montgomery was carried on by a general manager, Burk.

The Montgomery Company had a pair of horses and a wagon which they wished to sell. They offered the outfit to Burk on behalf of his principal for $400. Burk made a counter offer that he would give $300 and a mule worth $65 for the outfit, provided his principal would approve the transaction. Later on, Burk notified the Montgomery Furniture Company that they would take the outfit. A later day was set for delivery. When the day came Burk refused, and a still later day was set. Before that day one horse died, Burk thereupon refused to accept delivery of the team and wagon.

The Montgomery Company sued Hardaway and Covington, Burk's principals. They defended on the ground that the contract was not binding because Burk was without authority. They said that they had expressly denied him the power to bind them by contract, without first getting their approval.

Justice Weinkoop gave the opinion:

Burk was a general agent. General authority naturally goes with this office. The agent's authority as to third persons is what it appears to be, and must be determined by the nature of his business. It is prima facie co-extensive with the requirements. Under the circumstances of the case under consideration, it seems fair to conclude that this contract came within the general scope of powers ordinarily exercised by general managers of furniture stores. The Court said in part: "The principal of a special agent is only bound by acts of the agent, which are in accordance with his authority, and a third party is bound at his peril to ascertain the extent of the agent's authority. But a very important distinction is made, and must always be observed in the application of this rule, between 'special' and 'general' agents. This court has carefully drawn this distinction. As was said in Wheeler vs. McQuire - 86 Ala 402 - , and before and since held to the same effect: 'A general agent may exceed his express authority, and the principal nevertheless be bound. The scope and character of the business which he is employed to transact, is, as to third persons, the extent and measure of his authority. When the general agent transacts the business intrusted to him, within the usual and ordinary scope of such business, he acts within the extent of his authority. The principal is bound, provided the party dealing with the agent acts in good faith and is not guilty of negligence, which proximately contributes to his loss.'" In this case Burk was doing what a general manager might be expected to do in buying the horses and therefore his principles are liable on the contract.

Ruling Law. Story Case Answer

General authority includes the power to do everything reasonably necessary for the carrying on of a given business, or for completing a given transaction, or the doing of a given act. Consequently, the scope of general authority will depend upon the nature of the business. However, all known limitations which third persons are led to suspect, are binding upon them, although the agent may have general authority.

In the Story Case, the defense by Mead & Company would not be good. They would be bound because the general manager of a bond brokerage business has apparent authority, from custom and usage, to sign negotiable paper.