JMK, Inc. v. McAllister Commercial Construction Co. (Lawyers Weekly No. 11-16-1130, 12 pp.) (Robert N. Hunter Jr., J.) Appealed from Mecklenburg County Superior Court. (Timothy S. Kincaid, J.) N.C. App. Unpub. Click here for the full-text opinion.
Holding: The defendant-construction company spun off its residential division into a new company. Even if the plaintiff-supplier knew that Jacob Phelps, one of defendant’s principals, went to work for the new residential construction company, this did not mean that Phelps lost his authority as an agent for defendant. Defendant is responsible for supplies that Phelps bought for the new company on defendant’s account with plaintiff.
We affirm summary judgment for plaintiff.
The defendant-construction company had an account with the plaintiff-supplier that allowed defendant to buy labor and materials from plaintiff. According to the parties’ credit agreement, three individuals, including Jacob Phelps, were “agents authorized to sign” on behalf of defendant.
The year after the parties entered into the credit agreement, defendant spun off its residential construction division into a new company. Phelps went to work for the new company. Defendant did not notify plaintiff that Phelps was no longer authorized to act on defendant’s behalf pursuant to the credit agreement.
Phelps made purchases for the benefit of the new company and charged them to defendant under the credit agreement. The new company failed to pay for the items purchased from plaintiff. Ultimately, the new company filed for dissolution.
Plaintiff seeks payment under the credit agreement. Defendant denies responsibility for the debt, alleging it received none of the goods or services at issue. The trial court granted summary judgment for plaintiff.
A principal is bound by a contract executed by its agent in three situations: when the agent has actual authority, when the agent acts in the scope of his apparent authority, and when the principal ratifies the contract.
The credit agreement executed by defendant expressly authorized Phelps to “sign for” defendant. This vested Phelps with actual authority to place orders for materials and labor with plaintiff on defendant’s behalf.
Viewing the evidence in the light most favorable to defendant, we must find (1) plaintiff knew that Lawrence McAllister had incorporated defendant’s residential division as a separate entity, McAllister Group, and (2) Phelps was employed by McAllister Group at the time he ordered labor and materials for the residential projects at issue.
The formation of McAllister Group and plaintiff’s knowledge thereof are immaterial to the question of whether Phelps retained authority pursuant to the credit agreement. The fact that Phelps worked as a project manager for the new company, McAllister Group, does not signify that defendant terminated Phelps’s employment and/or deprived Phelps of his authority under the credit agreement.
Defendant emphasizes that Phelps worked as a project manager for McAllister Group but offers no evidence indicating that Phelps no longer worked for defendant. We cannot conclude that Phelps was not employed by defendant simply because he was employed by McAllister Group.
Even assuming defendant was aware of Phelps’s employment with McAllister Group, this evidence fails to address the issue of whether Phelps retained his actual authority under the credit agreement. Construing the evidence in the light most favorable to defendant does not require this court to pile inference upon inference to find support for defendant’s conclusory assertions.
Furthermore, this court’s exhaustive review of the record indicates that the incorporation of McAllister Group was a change in form, not in substance. As Lawrence McAllister explained in his sworn affidavit, McAllister Group consisted of the same personnel and performed the same functions as defendant’s former residential division and was created “due to  growth of [of defendant’s] residential division.”
Absent evidence to the contrary, it would be unreasonable for this court to assume that this change in form deprived Phelps of his authority to act pursuant to the credit agreement. Defendant has failed to present such evidence.
Quite the opposite, defendant concedes that the credit agreement is still valid and in effect. The only reasonable inference that can be drawn from this evidence is that Phelps’s actual authority to act pursuant to the credit agreement was not terminated.