S055609, Opinion — Taylor v. Ramsay-Gerding Construction Co.

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Argued and submitted September 18, decision of Court of Appeals reversed, and
case remanded to Court of Appeals for further proceedings November 6, 2008

H. H. TAYLOR,
C. A. Taylor,
Petitioners on Review,
and
TAYLOR & TAYLOR, INC.,
an Oregon corporation,
Cross-Respondent,
v.
RAMSAY-GERDING CONSTRUCTION COMPANY,
an Oregon corporation,
Defendant,
and
CHEMREX, INC.,
a foreign corporation,
Respondent on Review.

RAMSAY-GERDING CONSTRUCTION COMPANY,
an Oregon corporation,
Third-Party Plaintiff,
v.
TFC ENTERPRISES, INC.,
an Oregon corporation,
dba Finishers Drywall;
ChemRex, Inc.,
a foreign corporation;
Century West Engineering Corporation,
an Oregon corporation;
Wyatt Architects and Associates, P. S .;
and Donald Trail,
Third-Party Defendants.
(CC 015188; CA A127434; SC S055609)
196 P3d 532

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CJS, Agency § 539.

# En Banc On review from the Court of Appeals .*

\* Appeal from Lincoln County Circuit Court, Robert J. Huckleberry, Judge.
215 Or App 670, 172 P3d 251 (2007).

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James N. Westwood, Stoel Rives LLP, Portland, argued
the cause and filed the briefs for petitioners on review
H. H. Taylor and C. A. Taylor. With him on the briefs was
David Hilgemann, Salem.

Todd S. Baran, Todd S. Baran PC, Portland, argued the
cause and filed the briefs for respondent on review ChemRex,
Inc.

Ralph C. Spooner, Spooner Much & Ammann PC, Salem,
argued the cause and filed the briefs for amicus curiae
Ramsay-Gerding Construction Company.

BALMER, J.

The decision of the Court of Appeals is reversed, and the
case is remanded to the Court of Appeals for further
proceedings.

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# BALMER, J.

This breach of warranty action requires us to deter-
mine when an agent has apparent authority to bind a prin-
cipal under Oregon law. Apparent authority arises when
actions of a principal cause a third party reasonably to
believe that an agent has authority to act for the principal on
some particular matter. While constructing a hotel, plaintiffs
became concerned about the possibility that their new stucco
system might rust, and their contractor organized a meeting
with the stucco installer and an agent of the stucco manufac-
turer, among others. At that meeting, the agent made a num-
ber of representations to plaintiffs, including that they had a
five-year warranty, which he later confirmed in writing. A
jury found that the agent had apparent authority to provide
the warranty and that the principal had breached that war-
ranty, and the trial court entered judgment for plaintiffs. The
Court of Appeals reversed, holding that the agent did not
have apparent authority to bind the principal. Taylor v.
Ramsay-Gerding Construction Co., 215 Or App 670, 172 P3d
251 (2007). For the reasons set out below, we reverse and
remand to the Court of Appeals.

We state the facts in the light most favorable to
plaintiffs, because they prevailed before the jury. Jensen v.
Medley, 336 Or 222, 226, 82 P3d 149 (2003). In 1998,
plaintiffs, H. H. (Todd) Taylor and his wife, C. A. Taylor,
began construction of a hotel in Lincoln City. They hired
Ramsay-Gerding Construction Company as their general
contractor. In turn, Ramsay-Gerding hired a subcontractor to
install stucco plaster exterior siding and accompanying
accessories. Pursuant to the stucco installer's recommenda-
tion, Ramsay-Gerding proposed using a stucco system called
"SonoWall," manufactured by ChemRex, Inc., and plaintiffs
approved that proposal.

During construction, plaintiff Todd Taylor grew
concerned about possible rusting of the galvanized fittings
that were included in the stucco system. In September 1998,
Ramsay-Gerding halted construction until the problem could
be solved and organized a meeting to discuss the situation.

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Among those present at the meeting were Taylor, a represen-
tative of Ramsay-Gerding, and a representative of the stucco
installer. Additionally, Ramsay-Gerding's representative,
pursuant to communications with the stucco installer,
brought Mike McDonald, ChemRex's territory manager for
Oregon, to the meeting as a ChemRex "representative." In
response to Taylor's concerns, McDonald asserted that the
SonoWall system was "bullet-proof" against rust but noted
that a corrosion inhibitor would provide further protection.
When Taylor was still unconvinced, McDonald stated,
"Mr. Taylor, did you know you're getting a five-year war-
ranty?" By the end of that meeting, Taylor agreed to go for-
ward, with the addition of the corrosion inhibitor.

In July 1999, after construction had been completed,
but before all construction funds had been disbursed,
McDonald sent a letter to the stucco installer on ChemRex
letterhead. The letter stated, in part, "This letter is to confirm
that [ChemRex] will warrantee the Sonowall stucco system
for five years covering the material and labor on this project
starting in March of 1999," and was signed "Mike McDonald,
Territory Manager OR." The stucco installer eventually sent
that letter to Ramsay-Gerding, who sent it to plaintiffs, and
McDonald stated at trial that he had intended the warranty
to extend to plaintiffs.

At some point in late 1999, an employee of plaintiffs'
company noticed discoloration on the exterior walls of the
hotel. By the spring of 2000, the employee had realized that
the discoloration was rust and contacted Taylor. In the sum-
mer of 2000, Taylor informed Ramsay-Gerding of the prob-
lem, and representatives from ChemRex and the stucco
installer came to the hotel to examine the stucco system.
However, no one ever fixed the problem.

In 2001, plaintiffs initiated this action against
Ramsay-Gerding for breach of the construction contract. In
April 2002, Ramsay-Gerding filed a third-party complaint
against ChemRex, alleging, among other things, that
ChemRex had breached its warranty of the stucco system.
Ramsay-Gerding also sought indemnity and contribution
from ChemRex for any damages that plaintiffs might recover

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from them. In August 2003, plaintiffs amended their com-
plaint to add a claim against ChemRex for breach of express
warranty.1

In 2004, plaintiffs and Ramsay-Gerding moved to
bifurcate their breach of express warranty claims against
ChemRex from the other claims and defenses in the case. The
trial court granted that motion, and, in July 2004, the
express warranty claims were tried to a jury. At the close of
the evidence, ChemRex moved for a directed verdict, arguing
that there was insufficient evidence for the jury to find that
McDonald had authority to act for ChemRex in giving the
warranty. The trial court determined that the evidence did
not support a finding of actual authority but allowed the jury
to determine whether McDonald had apparent authority.
The jury found for plaintiffs on the breach of warranty claim,
which necessarily included a determination that McDonald
had apparent authority to provide the warranty. The jury
found that plaintiffs had suffered damages in the amount of
$775,000. However, the jury also found that plaintiffs, as well
as ChemRex, had been negligent and that plaintiffs were
49 percent at fault for the damages that they suffered. Thus,
the trial court reduced the damages by 49 percent and
entered a judgment in favor of plaintiffs in the amount of
$395,250.2

Plaintiffs appealed the trial court's submission of
ChemRex's comparative fault defense to the jury. ChemRex
cross-appealed, arguing, inter alia, that the trial court had
erred in denying its motion for a directed verdict on the issue
of apparent authority. The Court of Appeals agreed with
ChemRex that its motion for a directed verdict should have

1 In April 2004, the individual plaintiffs joined their development company,
which operates the hotel, as a plaintiff on the breach of warranty claim. The jury
found that the development company did not file its claim within the time required
by law. On appeal, plaintiffs argued that the statute of limitations defense should
not have been submitted to the jury, but the Court of Appeals rejected that argu-
ment as unpreserved. Taylor v. Ramsay-Gerding Construction Co., 215 Or App
670, 690-94, 172 P3d 251 (2007). Plaintiffs did not petition for review of that issue,
and we do not address it. References to "plaintiffs" in this opinion are to the indi-
vidual plaintiffs.

2 From the record, it appears that plaintiffs have not pursued the other claims
in the case, including their negligence claims against Ramsay-Gerding and
ChemRex.

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been granted and remanded for entry of judgment in favor of
ChemRex. Taylor, 215 Or App at 694. Because it reversed the
judgment in favor of plaintiffs, the court did not reach the
comparative fault issue. Id. As to the apparent authority
issue, the Court of Appeals applied this court's decision in
Badger v. Paulson Investment Co., Inc., 311 Or 14, 803 P2d
1178 (1991), reasoning that McDonald's role as selling agent
and his title of territory manager were insufficient to estab-
lish apparent authority to provide a warranty on ChemRex's
behalf. Instead, to establish apparent authority, the Court of
Appeals concluded that plaintiffs were required to offer
evidence

"(1) [of] further conduct by ChemRex conferring on
[McDonald] the authority to perform the specific function at
issue here-warranting the product sold-or (2) that per-
sons in McDonald's position customarily have such author-
ity and that plaintiffs knew that McDonald was a person in
that position."

Taylor, 215 Or App at 685 (emphasis in original). Finding no
such evidence in the record, the Court of Appeals held that
the trial court had erred in denying ChemRex's motion for a
directed verdict. Id. at 690. We allowed plaintiffs' petition for
review.

At the outset, we note that ChemRex does not dis-
pute that the trial court properly instructed the jury on the
legal standard for determining whether an agent has appar-
ent authority to bind a principal. Instead, ChemRex argues
only that there was insufficient evidence under that standard
for the jury to have found apparent authority here. We are
mindful that, in such a case, we "cannot set aside a jury's ver-
dict unless there was no evidence from which the jury could
have found the facts necessary to establish the elements of
plaintiff's cause of action." Woodbury v. CH2M Hill, Inc., 335
Or 154, 159, 61 P3d 918 (2003). Moreover, because the jury
found for plaintiffs, we construe all reasonable inferences
from the evidence in their favor. Id.

We begin with a review of some basic principles of
agency law. Generally speaking, an agent can bind a princi-
pal only when that agent acts with actual or apparent
authority. Restatement (Second) of Agency § 140 (1958); see

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also Jensen, 336 Or at 231 (principal is liable for acts of non-
servant agent only when agent acts with actual or apparent
authority). Actual authority may be express or implied.
When a principal explicitly authorizes the agent to perform
certain acts, the agent has express authority. However, most
actual authority is implied: a principal implicitly permits the
agent to do those things that are "reasonably necessary" for
carrying out the agent's express authority. Wiggins v. Barrett
& Associates, Inc., 295 Or 679, 686-87, 669 P2d 1132 (1983).
In contrast, a principal also may be bound by actions taken
that are "completely outside" of the agent's actual authority,
if the principal allows the agent to appear to have the author-
ity to bind the principal. Such a circumstance is called
"apparent authority." Id. at 687.

For a principal to be bound by an agent's action, the
principal must take some affirmative step, either to grant the
agent authority or to create the appearance of authority. An
agent's actions, standing alone and without some action by
the principal, cannot create authority to bind the principal.
Thus,

" "[a]pparent authority to do any particular act can be cre-
ated only by some conduct of the principal which, when
reasonably interpreted, causes a third party to believe that
the principal consents to have the apparent agent act for
him on that matter.'"

Id. at 687-88 (quoting Jones v. Nunley, 274 Or 591, 595, 547
P2d 616 (1976)). Additionally, the third party must " 'rely on
that belief " when dealing with the agent. Wiggins, 295 Or at
688 (quoting Jones, 274 Or at 595).

Here, the key issue is whether the principal-
ChemRex-took sufficient action to create the appearance of
authority on the part of McDonald. Apparent authority
requires that the principal engage in some conduct that the
principal " 'should realize' " is likely to cause a third person to
believe that the agent has authority to act on the principal's
behalf. Badger, 311 Or at 24-25 n 9 (quoting Restatement at
§ 27 comment a). Although the focus of that inquiry is on the
principal's conduct, the third party need not receive infor-
mation respecting either the nature or the extent of that con-
duct directly from the principal:

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" "The information received by the third person may come
directly from the principal by letter or word of mouth, from
authorized statements of the agent, from documents or
other indicia of authority given by the principal to the
agent, or from third persons who have heard of the agent's
authority through authorized or permitted channels of com-
munication.' "

Id. Thus, information that has been channeled through other
sources can be used to support apparent authority, as long as
that information can be traced back to the principal.

A principal can create the appearance of authority
"by written or spoken words or any other conduct * * *. "
Restatement at § 27. For example, when a principal clothes
an agent with actual authority to perform certain tasks, the
principal might create apparent authority to perform other,
related tasks. See Badger, 311 Or at 26 (principal's allowance
of sales presentation on principal's property lent weight to
apparent authority to sell). Additionally, by appointing an
agent to a position that carries "'generally recognized
duties[,]'" a principal can create apparent authority to per-
form those duties. Id. at 24-25 n 9 (quoting Restatement at
§ 27 comment a). Similarly, when a distant principal places
an agent "in charge of a geographically distinct unit or
branch[,]" that may lend weight to a finding of apparent
authority, depending on the circumstances. Restatement
(Third) of Agency § 3.03 comment d (2006). For example, if
the principal structures its organization so that the "branch
manager"-or territory manager-"makes decisions and
directs activity without checking elsewhere in the organiza-
tion[,]" that may create apparent authority to commit the
principal to similar transactions. Id.

We turn to the application of those principles to the
actions of ChemRex at issue here. Using the standards dis-
cussed above, we conclude that there is sufficient evidence in
the record to support the jury's finding that McDonald acted
with apparent authority when he warranted the stucco sys-
tem to plaintiffs. The first issue is whether ChemRex took
sufficient steps to create the apparent authority to provide a
warranty. Significantly, ChemRex gave McDonald actual
authority to help in processing warranties and to communi-
cate with customers-about warranties-using ChemRex

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letterhead. Indeed, McDonald used that authority to confirm,
in his July 1999 letter, that plaintiffs had a five-year war-
ranty. Furthermore, ChemRex clothed McDonald with the
title of "territory manager" and gave him the actual authority
to visit job sites and to solve problems, such as plaintiffs' rust
problem, that he found there. McDonald also had the author-
ity to sell an additional product intended to address the very
performance at issue here and to answer plaintiffs' questions
about the system, which he did in response to plaintiffs'
stated concerns.

The next issue is whether there was evidence from
which the jury could have concluded that those actions by
ChemRex reasonably led plaintiffs to believe that McDonald
was authorized to provide the warranty. ChemRex argues
that McDonald's title could not have led plaintiffs to believe
that McDonald was so authorized, because plaintiffs were
unaware of that title until after construction was completed.
However, Taylor testified that he believed that McDonald
"was the person that was in charge of or supervising this
area, the coastal area. He was the guy that you had to get
your answers from." He also stated that he knew that
McDonald "represented" ChemRex. It is not necessary that
plaintiffs knew McDonald's exact title; they knew generally
that McDonald was in charge of the geographical area in
which their project was located and that he represented
ChemRex. In any event, McDonald used his title of territory
manager for Oregon when signing the July 1999 letter con-
firming the five-year warranty. Because, as discussed below,
the jury was permitted to find that plaintiffs relied on that
letter, it is further evidence that plaintiffs knew of
McDonald's position.

ChemRex also implies that McDonald's position is
irrelevant because ChemRex did not directly inform plain-
tiffs of that position. But it was not necessary that plaintiffs
learn of McDonald's position directly from ChemRex; receiv-
ing that information through an intermediary, such as a con-
tractor, would be sufficient. The general contractor knew
that McDonald was the territory manager for Oregon, or
"[ChemRex] for Oregon, so to speak," and the stucco installer
knew that he was in charge of the "Oregon area." It was
permissible for the jury to infer that plaintiffs learned the

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information from the general contractor and the stucco
installer.

Because of McDonald's position and his actual
authority to help allay plaintiffs' concerns about rust, it was
reasonable for plaintiffs to infer that one of the ways in which
McDonald had authority to allay their concerns was by war-
ranting the system for five years. See Badger, 311 Or at 26
(finding apparent authority in part based on similarity of the
task at issue to tasks within agents' actual authority). That is
particularly true here, because there was evidence in the rec-
ord that five years was a reasonable length of time for such a
warranty.

The third issue is whether plaintiffs reasonably
relied on McDonald's apparent authority to provide the war-
ranty. ChemRex does not dispute that plaintiffs relied on
McDonald's statements and conduct at the September 1998
meeting in moving forward with the construction project.
However, ChemRex argues that the evidence was insuffi-
cient to show that plaintiffs had relied on the 1999 letter,
because construction already had been completed when
plaintiffs received the letter. We disagree. Plaintiffs' general
contractor testified that it was customary to obtain all war-
ranties in writing before completing the "close-out" process
and paying the retainage. Although he could not recall spe-
cifically whether that had happened here, he was confident
that that procedure had been followed. Further, plaintiffs'
stucco installer testified that he had asked for the warranty
in writing because of plaintiffs' concerns, and Taylor testified
that obtaining the warranty in writing was "important" to
him. Although the evidence does not conclusively demon-
strate that plaintiffs relied on the letter from McDonald, the
jury was entitled to find, from the evidence discussed above,
that plaintiffs did so rely.3

3 We also reject ChemRex's argument that, for use of ChemRex letterhead to
support apparent authority for McDonald to act on its behalf, plaintiffs had to
prove that, within the ChemRex organization, "(1) * * * a person who uses company
letterhead customarily has warranty authority, and (2) that [plaintiffs] knew
that[.]" Such an analysis would essentially require us to find actual authority
before considering the letterhead among the facts and circumstances lending
weight to apparent authority and would be inconsistent with the well-established
elements of apparent authority discussed in the text above.

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In sum, plaintiffs presented sufficient evidence for
the jury to find that McDonald had apparent authority to pro-
vide the warranty on ChemRex's behalf. We therefore
reverse the Court of Appeals decision on that issue. As noted,
because the Court of Appeals concluded that ChemRex's
motion for a directed verdict should have been granted, it did
not address ChemRex's other assignments of error or plain-
tiffs' argument that the trial court erred in submitting
ChemRex's comparative fault defense to the jury. We there-
fore remand to the Court of Appeals so that it may consider
those issues.4

The decision of the Court of Appeals is reversed, and
the case is remanded to the Court of Appeals for further
proceedings.

4 At oral argument, counsel for plaintiffs suggested that this case might be
more promptly resolved if this court were to decide at least the comparative fault
issue, rather than remand the entire case to the Court of Appeals. We have consid-
ered that request, and we conclude that the remaining assignments of error are
best addressed in the Court of Appeals in the first instance.