Opinion
November 19, 1951.
December 27, 1951.
Principal and agent — Agent — Authority — Sale of business — Corporate assets — Sale of corporate stock — Restrictive covenant.
In a suit for specific performance of a contract to sell to plaintiffs all shares of stock of the corporate defendant, owned by the individual defendants, in which it appeared that the individual defendants by written agreement with a business broker authorized him to sell the license, fixtures, good will and stock of a taproom owned by the corporate defendant, and that the broker contracted with plaintiffs to sell them the entire corporate stock of the corporation, to deliver the corporate records and seal and to provide for the resignation of all officers and directors of the corporation, and further provided that the individual defendants would not engage in the taproom business within a prescribed area for a specified time; it was Held that (1) the broker had no authority to sell the corporate stock owned by the individual defendants or to restrict them from entering the taproom business and (2) plaintiffs were not entitled to specific performance.
Before DREW, C. J., STERN, STEARNE, LADNER and CHIDSEY, JJ.
Appeal, No. 186, Jan. T., 1951, from judgment of Court of Common Pleas No. 5 of Philadelphia County, June T., 1950, No. 6877, in case of Samuel Fishman and Abraham Fishman v. Allen S. Davidson et ux., Pennsylvania Liquor Control Board and Allen's Bar, Inc. Judgment affirmed.
Bill in equity.
The facts are stated in the opinion, by SMITH, P.J., of the court below, as follows:
This matter comes before the court on plaintiffs' exceptions to the adjudication, findings of fact, conclusions of law, and decree nisi of ALESSANDRONI, J., sitting as Chancellor.
The bill in equity was filed to restrain Allen S. Davidson and Rose Davidson from selling, transferring, and assigning the shares of stock owned by them in Allen's Bar, Inc., the corporate defendant, to any person other than the plaintiffs. The bill in equity also seeks the decree of specific performance of a contract for the purchase of shares of stock by the plaintiffs as well as a conveyance of all the assets of the defendant corporation.
The facts show that on March 3, 1950, the individual defendants, Allen S. Davidson and Rose Davidson, entered into a written agreement with a business broker named Joseph Abrams wherein they gave him exclusive authority to sell inter alia ". . . my taproom for a period of six months and agree to pay him a commission of 10 percent on stock fixtures, equipment, and good will or the sales of the business." At the bottom of the said agreement there was typed the following: "Mr. A. clear for himself plus stock. Any amount over $11,000 will be paid to Jos. Abrams for services rendered. Signed: A. S.D." At the time that this agency agreement was entered into, said defendants, Allen S. Davidson and Rose Davidson, were the sole owners of all the corporate stock of Allen's Bar, Inc., a corporation. There was no further extension of the agent's powers either in writing or in parol.
On August 11, 1950, said Abrams, acting under his agency agreement, procured the plaintiffs as purchasers for the sum of $12,500, and on the same day he entered into a written agreement with the said plaintiffs wherein he agreed to sell to them 207 shares of the capital stock of Allen's Bar, Inc., being the entire capital stock of the said corporation issued and outstanding at the price of $12,500, plus an additional sum equal to the cost price of the liquor on the premises. He also agreed to deliver the minute books, the stock certificate, the transfer book, the corporate seal of the said corporation, and to provide for the resignation of all officers and directors of the corporation. In paragraph 8 of the said agreement with the said plaintiffs, it also provided that the sellers expressly agreed that "They will not engage in the taproom business within a radius of five city blocks of the present establishment for a period of no less than five years from the date of final settlement."
An examination of the agency agreement discloses that there was no authority granted to Abrams as agent to sell the corporate stock owned by the individual defendants nor was there any authority given to said Abrams to restrict the individual defendants from entering the taproom business within a certain distance or a certain period of time. The said individual defendants refused to ratify such an agreement and an action in equity was therefore brought against them by the plaintiffs for the specific performance of this contract made with the agent.
In Reifsnyder v. Dougherty, 301 Pa. 328, 333, it was held: "The liability of a principal to third parties for the acts of an agent may rest on the following grounds: (1) express authority, or that which is directly granted; (2) implied authority, to do all that is proper, usual and necessary to the exercise of the authority actually granted; (3) apparent authority, as where the principal holds one out as agent by words or conduct; and (4) agency by estoppel, which arises where the principal, by his culpable negligence in failing to supervise the affairs of his agent, allows him to exercise powers not granted to him, and so justifies others in believing he possesses the requisite authority."
Thus the defendants are bound by the acts of their agent within the scope of his authority. Here the scope of the special written authority was expressly limited to the sale of the taproom, the stock, fixtures, good will and sales of the business. In the same agreement it is also provided that the individuals agreed to accept the sum of $11,000 clear, plus the stock on the premises. That the agent had the right to sell and if that is all the agent had done, the principal would have been bound by the act of the agent. In order to carry out the intentions of the sellers the agent is presumed to have the power to take all usual steps to effect the sale: Peck v. Harriott, 6 S. R. 145; Williams v. Getty, 31 Pa. 461, within the validity of his contract. The primary purpose of the agency agreement was to sell Allen's Bar, Inc., with its license, fixtures, and good will. The taproom license was owned by the corporation, Allen's Bar, Inc. In order to effect the sale of the business the agent could have called upon the stockholders of the corporation, the individual defendants, to see that proper action was taken by its officers and directors by proper corporate resolution to consummate the sale. But the agent went beyond the powers given him. He agreed to sell the corporate stock, together with the minute book, the stock certificate, the corporate seal, and provided for the resignation of all the officers and directors of the corporation. That he had no power to do under his agency agreement and it is apparent that these things were not necessary to carry the agreement into effect. There is a substantial difference between the corporate entity and the personal property owned by the corporation. This the plaintiffs have failed to see.
Then again the agent placed a restrictive clause in the agreement that he made with the plaintiffs. He had no power to so bind his principal and even though counsel stated at the time of argument that his client would waive this restriction, the harm has been done and the Court is without authority to reform this agreement. Before the agent could bind his principal to this restriction he first had to have approval from the principal. This he never had. This agency agreement was for the sale of this particular personalty. Since the powers of Abrams are prima facie limited to those expressly given or granted by implication, the burden of proof lies on him who asserts that the powers have been enlarged by the acts of the principal. The plaintiffs have failed in this burden of proof.
He who relies upon an act of an agent must show his authority to do the thing relied upon: Moore's Executors v. Patterson, 28 Pa. 505; in Davidsville National Bank v. St. John's Church, 296 Pa. 467, 472 it is said: "A person dealing with an agent must not act negligently, but must use reasonable diligence to ascertain whether the agent acts within the scope of his power. He is not authorized under any circumstances blindly to trust the agent's statements as to the extent of his powers": 21 R. C. L. 853.
In Reifsnyder v. Dougherty, supra, Mr. Justice KEPHART said: "Where one assumes to act as the agent of another, the burden of showing authority to so act lies on the person who avails himself of such acts in order to charge a third person as principal."
We therefore conclude that the plaintiffs have failed to meet their burden of proof. The written contract of agency speaks for itself. It did not lie within the power of the agent to enlarge the scope of his authority. Plaintiffs appealed.
Bernard R. Cohn, for appellants.
Morris H. Vernick, for appellees.
We are all of the opinion that President Judge SMITH of the court below adequately and correctly disposes of the questions raised on this appeal.
Judgment affirmed.