Bell Atlantic Tricon Leasing Corp. v. DRR, Inc.
114 N.C. App. 771, 1994 N.C. App. LEXIS 497, 443 S.E.2d 374 (1994)
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Rule of Law:
A corporate president, as a general agent, possesses apparent authority to bind the corporation to contracts that are incidental to its ordinary business, and a third party's reliance on this authority is justified unless the corporation can prove the third party had notice of a restriction on that authority.
Facts:
- Maylon H. Fowler, Inc. (MHF), a closely held hauling company, was primarily owned by Christine Fowler, with her sons Ricky, Dennis, and Ronald Fowler serving as corporate officers.
- In July 1990, the Fowler sons formed a separate corporation, DRR, Inc., to service MHF's fleet of trucks.
- DRR sought to lease computer equipment from Bell Atlantic Tricon Leasing Corporation, which required a corporate guaranty for the lease.
- Ricky Fowler, in his capacity as president of MHF, signed a guaranty on behalf of MHF for DRR's lease.
- Dennis Fowler, as MHF's secretary, also executed a secretary's certificate attesting that MHF's Board of Directors had passed a resolution authorizing the guaranty.
- DRR made lease payments from November 1990 until it ceased operations in May 1991.
- In August 1991, MHF made two payments to Bell Atlantic towards the defaulted lease agreement.
Procedural Posture:
- Plaintiff Bell Atlantic filed an action against defendants DRR and MHF in Wake County District Court (trial court) on March 31, 1992.
- Bell Atlantic alleged default on an equipment lease by DRR and default on a corporate guaranty by MHF.
- Bell Atlantic filed a motion for summary judgment on January 21, 1993.
- The trial court granted summary judgment in favor of Bell Atlantic against both DRR and MHF.
- Defendant MHF, as appellant, gave notice of appeal to the Court of Appeals of North Carolina.
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Issue:
Does a corporate president have the apparent authority to bind the corporation to a guaranty for a lease held by an affiliated company whose business is incidental to the corporation's business, thereby making the guaranty enforceable by a third party who reasonably relied on that authority?
Opinions:
Majority - Johnson, J.
Yes. A corporate president possesses the apparent authority to bind the corporation to a guaranty for an affiliate's lease under these circumstances. The court reasoned that a president is the general agent of a corporation and may act for it in matters within or incidental to its ordinary course of business. Here, guarantying a lease for DRR, an affiliate created solely to service MHF's vehicles, could be viewed as incidental to MHF’s business of transporting goods. Bell Atlantic’s reliance on the president's authority was further justified by the secretary's certificate, which represented that the board had expressly authorized the transaction. The burden was on MHF, the principal, to show that Bell Atlantic had notice of any restriction on the president's authority, and MHF failed to meet this burden. The court also found MHF was bound by the principles of estoppel, as it held its president out as having authority, and ratification, as MHF later made several payments on the lease, which was inconsistent with any position other than an intent to adopt the act.
Analysis:
This decision reinforces the broad apparent authority of a corporate president, especially in a closely held corporation, protecting third parties who rely on the president's status as a general agent. The court's broad interpretation of what is 'incidental' to a corporation's business means that supporting an affiliate can fall within the president's presumed power. The case significantly strengthens the legal weight of a secretary's certificate, making it difficult for a corporation to later disavow a transaction when such a document was provided. It firmly places the burden on the corporation to communicate any limitations on its officers' authority, rather than on third parties to discover them.
