Facts
- Three-Seventy Leasing Corporation (370) bought computer hardware and leased it to end users; Joyce was 370’s sole active employee.
- Ampex Corporation (Ampex) manufactured and sold computer equipment, including computer “core memory” units.
- Joyce met with Ampex salesman Kays and Kays’s supervisor Mueller to discuss 370 purchasing core memory units from Ampex.
- After negotiations, Kays provided Joyce with a written document setting out the terms for 370’s purchase of memory units from Ampex; the document contained signature blocks for both 370 and Ampex.
- Joyce signed the document on behalf of 370, but no Ampex representative signed it.
- Shortly after Joyce signed, Mueller circulated an internal memorandum stating that Ampex had reached an agreement with 370 for the purchase of core memories and that, at Joyce’s request, all communications regarding the sale would go through Kays.
- A few days later, Kays sent Joyce a letter confirming delivery dates and providing installation-related instructions for the memory units.
- Ampex later took the position that no contract existed because only Ampex’s contract manager or supervisor (not salespeople) had authority to enter into a binding contract and because Ampex never signed the document.
- 370 sued Ampex for breach of contract.
- The district court held that an enforceable contract existed between 370 and Ampex.
Issues
- Whether Ampex was bound to a sales contract with 370 even though no Ampex representative signed the written terms, where Ampex’s salesman handled the transaction and Ampex’s subsequent communications and internal memorandum indicated agreement.
- Whether Kays had apparent authority to bind Ampex (or to communicate Ampex’s acceptance) notwithstanding Ampex’s internal claim that only certain employees could make contracts.
Decision
- Affirmed the district court’s conclusion that an enforceable contract existed between 370 and Ampex.
- Held that Ampex’s conduct—through Mueller’s internal memorandum treating the deal as an agreement and Kays’s subsequent confirmation letter—supported a finding that Ampex accepted the transaction.
- Concluded that Ampex could not avoid the contract by relying on internal limits on Kays’s authority when Ampex placed Kays in a position that reasonably signaled authority to a counterparty dealing with him.
Legal Principles
- Apparent authority exists when a principal’s manifestations would lead a reasonable person to believe the agent is authorized to act on the principal’s behalf; the principal may be bound even if the agent lacked actual authority.
- A principal’s undisclosed internal restrictions on an agent’s contracting authority generally do not defeat apparent authority as to third parties who reasonably rely on the agent’s role and the principal’s communications or conduct.
- Contract formation turns on objective manifestations of assent; a party’s signature is not always necessary if the party’s words and actions indicate acceptance.
- In a sales setting, confirmation letters, internal communications treating a deal as agreed, and the parties’ course of dealing may be used to show acceptance and the existence of a contract.
Conclusion
The Fifth Circuit held that 370 and Ampex formed an enforceable sales contract even though Ampex never signed the written terms, because Ampex’s actions after Joyce signed—including an internal memo describing an agreement and a follow-up letter confirming delivery details—objectively indicated assent, and Kays’s role created apparent authority that bound Ampex despite its internal claim that only certain employees could contract.