Apparent Authority. Red River Commodities, Inc (RRC), entered into a contract with Kelby Eidsness under which RRC agreed to purchase 250,000 pounds of sunflowers. Because of a drought, Kelby was only able to deliver 75,084 pounds. The contract contained

Question

a clause stating that if Kelby could not deliver the promised 250,000 pounds because of an event unanticipated at the time the contract was formed, Kelby would be excused from performance only if he seasonably notified RRC of his inability to perform. Kelby orally notified RRC's contracting representative, Richard Frith, who Kelby assumed was RRC's agent, about his poor crop in September before the harvest. RRC insisted that Frith was not a contracting agent and had no authority to bind RRC in any way. The RRC-Kelby contract included the following statement: "The contracting representative identified below

Answer 1

Apparent authority
The Supreme Court of North Dakota reversed the decision of the trial court (which had directed a verdict for RRC, holding, among other things, that Kelby failed to give notice of his inability to perform because Frith was "an independent sales representative" and "not an agent . . . insofar as production, acts of God, waivers, and the like are concerned"). The state supreme court explained that how a principal and agent describe their relationship between themselves does not determine what their relationship is to others. The court pointed out that agency is apparent when "the conduct of the supposed agent is consistent with an agency, and where, in a particular transaction, someone is justified in dealing with the supposed agent." An apparent agency "must rest upon conduct or communications of the principal which, reasonably interpreted, causes a third person to believe that the agent has authority to act for and on behalf of the principal." Noting evidence that Frith knew of Kelby's production problems, the court stated that "[n]otice to an agent is ordinarily notice to the principal." The court remanded the case for further proceedings consistent with its opinion, telling the trial court to reconsider Kelby's notice to Frith "with a correct understanding of the law of agency."