Essco Geometric v. Harvard Industries
1995 WL 23672, 46 F.3d 718 (1995)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An agent has apparent authority to bind a principal when the principal's conduct, such as placing the agent in a position of authority and failing to notify third parties of internal limitations, causes the third party to reasonably believe the agent is authorized. A requirements contract is enforceable under the UCC, even without explicit terms for exclusivity or quantity, if extrinsic evidence shows the parties intended to form a contract and provides a reasonably certain basis for a remedy.
Facts:
- For over thirty years, Diversified supplied foam to Harvard Industries, a chair manufacturer.
- Harvard's longtime purchasing manager, Frank Best, had a close business relationship with Diversified's president, Edsel Safron.
- In 1988, Michael Gray replaced Best as purchasing manager and Ed Kruske became Harvard's new president.
- Kruske implemented internal cost-cutting measures, including memos requiring his own approval for purchase orders, but Harvard never communicated these new restrictions to outside vendors like Diversified.
- After negotiations in late 1989, Gray concluded that Diversified offered better prices and quality than competitors for Harvard's 1990-1992 foam needs.
- On January 9, 1990, Gray and Safron signed a letter memorializing an agreement for Diversified to supply the 'Lions share' of Harvard's foam needs for a two-year period at fixed prices.
- For several months, Diversified received purchase orders and worked with Harvard under the new arrangement.
- After a competitor, American Excelsior, submitted an unsolicited, slightly lower bid, Kruske put a hold on orders to Diversified and ultimately made American Excelsior the primary supplier.
Procedural Posture:
- Diversified sued Harvard in the U.S. District Court for the Eastern District of Missouri, alleging breach of an oral contract and a written contract.
- The district court granted Harvard's motion for summary judgment on the oral contract claim, finding it barred by the Statute of Frauds.
- The written contract claim proceeded to trial, where a jury returned a verdict for Diversified, awarding $400,000 in damages.
- The district court denied Harvard's motions for judgment as a matter of law and entered judgment on the jury's verdict.
- Harvard appealed the $400,000 judgment to the U.S. Court of Appeals for the Eighth Circuit, and Diversified cross-appealed the summary judgment dismissal of its oral contract claim.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a purchasing manager have actual or apparent authority to bind his company to a two-year, exclusive requirements contract when the company has not communicated internal purchasing restrictions to the supplier and the manager's predecessor historically held broad authority to select vendors?
Opinions:
Majority - Bright, Senior Circuit Judge
Yes, there was sufficient evidence for a jury to find that the purchasing manager had both actual and apparent authority to bind Harvard to the contract. Actual authority can be implied from the agent's responsibilities and company custom; Gray's actions in securing a lower-cost, higher-quality supplier were consistent with his express objective to reduce costs, and he was following the long-standing company practice of purchasing managers selecting vendors. Apparent authority was created by Harvard's conduct of placing Gray in a position that, according to industry custom and prior dealings, carried the authority to select vendors. Harvard failed to notify Diversified of any new internal limitations on that authority, making it reasonable for Diversified to believe Gray was authorized to make the agreement. The contract itself was not too indefinite to be enforced, as extrinsic evidence, including testimony and the letter's reference to supplying the 'entire projectile' and 'Lions share,' established the parties' intent to create an exclusive requirements contract. Regarding the cross-appeal, a former employee's deposition testimony does not satisfy the Statute of Frauds' 'admission by a party' exception, as a former employee is not a 'party' who can make a binding admission for their past employer.
Analysis:
This case demonstrates the critical importance of a principal communicating limitations on an agent's authority to third parties. It establishes that internal, uncommunicated policies are insufficient to defeat an agent's apparent authority created by the agent's position and the principal's past course of dealing. The decision also reinforces the UCC's flexible standard for contract formation, where courts can look to extrinsic evidence to ascertain the parties' intent and enforce requirements contracts that may lack explicit terms like 'exclusive' or a specific quantity. The ruling solidifies the principle that a third party's reasonable reliance on an agent's authority, created by the principal, will be protected.
