Zummach v. Polasek
227 N.W. 33, 1929 Wisc. LEXIS 305, 199 Wis. 529 (1929)
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Rule of Law:
A principal is bound by the acts of its agent under the doctrine of apparent authority if the principal's manifestations to a third party would lead a reasonable person to believe the agent was authorized to perform those acts, even if the agent lacked express authority.
Facts:
- The plaintiff company employed Biersach as an agent with responsibilities that included making contracts, setting prices, and overseeing installations.
- Biersach's express authority for collections was limited to accounts that were overdue.
- The plaintiff told the defendants, a customer, that Biersach would 'take care of them'.
- Over a six-year period, the defendants' dealings with the plaintiff were conducted almost exclusively through Biersach.
- Biersach took the defendants' orders, and the plaintiff's company would then manufacture and deliver the goods.
- The defendants made payments for non-overdue accounts directly to Biersach.
- Some payments were made by checks payable to Biersach's order, which he subsequently cashed.
Procedural Posture:
- The plaintiff (principal) filed a lawsuit against the defendants (customers) in a trial court to recover money owed for goods.
- The defendants raised the affirmative defense of payment, arguing they had already paid the plaintiff's agent, Biersach.
- A jury returned a special verdict, answering a first question that the defendants were justified in believing the agent had authority to receive payment.
- The jury answered a second question that the plaintiff was not bound by payments made via check to the agent's order.
- The trial court judge changed the jury's answer to the second question from 'No' to 'Yes' and entered a judgment in favor of the defendants.
- The plaintiff (appellant) appealed the trial court's judgment to this court.
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Issue:
Does an agent have the power to bind a principal by accepting payments from a customer when the agent was not expressly authorized to do so, but the principal's actions over a long course of dealing led the customer to reasonably believe the agent had such authority?
Opinions:
Majority - Rosenberry, C. J.
Yes. An agent has the power to bind a principal through apparent authority. Apparent authority arises when a principal's manifestations to a third party reasonably cause that third party to believe the agent has authority to act, even if the agent lacks express authority. The court reasoned that the distinction between actual and apparent authority is critical. Here, the plaintiff created apparent authority by placing Biersach in a highly responsible position, by telling the defendants that Biersach would 'take care of them,' and by allowing a six-year course of dealing where Biersach was the defendants' exclusive point of contact. These manifestations from the plaintiff made it reasonable for the defendants to believe Biersach was authorized to accept all payments on the plaintiff's behalf. Therefore, the payments made to Biersach, including those by check that he cashed, were valid, and the principal is bound by them.
Analysis:
This case provides a clear application of the apparent authority doctrine, emphasizing that a principal's liability is determined by the reasonable perceptions they create in third parties, not by secret limitations placed on an agent. The decision establishes that a long-standing course of dealing and broad, visible responsibilities can be sufficient manifestations to create apparent authority. It serves as a precedent underscoring that principals bear the risk if their conduct misleads third parties about the scope of their agent's power.
