## Facts

- Nylon yarn was in short supply, and a profitable “secondary” resale market developed.
- William Shetzline operated in the hosiery business and bought nylon from various suppliers for use in his own mills.
- Bangor Mills, Inc. (Bangor) was a large hosiery producer that frequently needed additional nylon beyond its regular allocations.
- Bangor occasionally asked Shetzline to help locate nylon for Bangor’s use, but only on a request-by-request basis; there was no general, ongoing agency relationship.
- Under Bangor’s arrangement with Shetzline, Shetzline was to:
  - buy no more nylon than Bangor needed,
  - pay no more than $10 per pound,
  - obtain Bangor’s consent from time to time for specific purchases (including price and quantity),
  - deliver the nylon to Bangor, and
  - initially pay cash himself and then reimburse himself from a Peoples Bank account Bangor established and funded for that limited purpose (an account set up so Shetzline could draw without using Bangor’s name in dealing with sellers).
- Without any request from Bangor and without Bangor’s authorization, Shetzline contracted to buy a batch of nylon from Senor at $11.35 per pound.
- As Shetzline directed, Senor delivered the nylon to one of Shetzline’s mills, not to Bangor.
- Shetzline paid Senor with a check drawn on the Peoples Bank account Bangor had set up; the check was dishonored.
- Without Senor’s knowledge, Shetzline forwarded the nylon to Bangor and invoiced Bangor at $10 per pound; Bangor received and used the nylon as it had in prior, authorized transactions routed through Shetzline.
- Only after the check was dishonored did Senor learn of Shetzline’s occasional dealings with Bangor and the bank account connection.
- Senor sued Bangor in federal court (diversity) seeking to recover the price of the nylon and/or to hold Bangor responsible based on the check and the Bangor–Shetzline arrangement.

## Issues

1. Whether Bangor was liable for the purchase price of the nylon on the theory that Shetzline had actual or apparent authority to buy from Senor on Bangor’s behalf.
2. Whether Bangor became liable because it ultimately received and used the nylon (ratification and related theories).
3. Whether Bangor was liable to Senor on the dishonored check drawn on the bank account Bangor created and funded when the check was issued by Shetzline.

## Decision

- The Third Circuit affirmed judgment for Bangor.
- Bangor was not liable for the nylon purchase because Shetzline lacked authority to make that particular purchase for Bangor, and Bangor made no manifestation to Senor that could support apparent authority.
- Bangor was not liable on the dishonored check on the facts presented, and the banking arrangement did not, by itself, make Bangor responsible to Senor for Shetzline’s unauthorized transaction.
- Bangor’s receipt and use of the nylon did not make Bangor liable to Senor where Bangor did not knowingly affirm Shetzline’s unauthorized, over-limit purchase from Senor.

## Legal Principles

- An agent with only transaction-specific authority cannot bind the principal on a purchase the principal did not authorize and that exceeds express limits (such as a price cap).
- Apparent authority requires a manifestation by the principal to the third party and reasonable reliance by the third party; a third party who did not know of the principal’s role at the time of contracting generally cannot claim reliance on the principal’s manifestations.
- A principal does not ratify an unauthorized transaction unless, with knowledge of the material facts (including the nature of the obligation being imposed), the principal affirms the transaction; mere receipt of goods routed through an intermediary is not enough when the principal lacks knowledge of the intermediary’s unauthorized purchase terms.
- A bank account funded by a party for a limited internal purpose does not automatically make that party liable to every payee of a check drawn by another person when the draw is outside the scope of authority.

## Conclusion

Because Shetzline’s authority to buy for Bangor was limited to purchases Bangor specifically approved within a $10-per-pound cap, and because Senor dealt only with Shetzline without any Bangor manifestation to Senor before contracting, Bangor was not bound on an actual- or apparent-authority theory; nor did Bangor’s later receipt and use of the nylon amount to a knowing affirmation of Shetzline’s unauthorized, higher-priced purchase, and Bangor was not held responsible to Senor for the dishonored check issued by Shetzline.


Senor v. Bangor Mills, Inc., 211 F.2d 685 (1954)