The doctrine of apparent authority is grounded on the theory of estoppel. Apparent authority of an agent is such authority as the principal knowingly permits the agent to assume or which he holds the agent out as possessing; such authority as he appears to have by reason of the actual authority that he has; such authority as a reasonably prudent man using diligence and discretion in view of the principal's conduct naturally supposes the agent to possess. In order for a principal to be bound by his agent's act under the theory that the act comes within the scope of the agent's apparent authority, it is essential that two important facts be clearly established that the principal held the agent out to the public as possessing sufficient authority to embrace the particular act in question, or knowingly permitted him to act as having such authority and that the third person dealing with the agent know of such conduct by the principal and has reason to believe, does believe, and acts in reliance on the belief that the agent possesses the necessary authority.
Appellant Bradford White, landowner, had employed Betty Simpson on a part-time basis for nearly two years. The employee answered the landowner's telephone, watched his house when he was out of town, did some typing, and "fixed up" two houses. She had once signed, on the landowner's behalf and under a power of attorney, the closing papers on a piece of property he was purchasing. She also had brought the landowner information about other properties for sale, but had never negotiated sales or purchases of land for the landowner and had never before gone to an auction to buy property. In December 1988, the landowner instructed the employee to attend a land auction and bid, on his behalf, up to $ 250,000.00 on an entire 220-acre farm, except for the three acres on which a house sat. He signed a blank check for her to use in depositing the required ten percent of the bid. The employee was given no other instructions, and the landowner left for a trip to Europe before the sale was held. The employee bid more than she was authorized. Upon realizing the mistake, she agreed to sell a portion of the land to appellee buyers. The landowner later closed on the property and paid the full amount of the bid, but refused to sell a portion of the land to the buyers. The parties agreed that the employee did not have the authority to sell any land. The buyers then began this action against the landowner seeking specific performance of the contract and a release from appellant bank of the purchase money mortgage lien against that portion of the property that buyers sought to purchase. The trial court found that the employee had told the buyers that she had a power of attorney, which the buyers had relied on, that the employee had apparent authority to sell the land, and that it would be inequitable to allow the landowner to affirm the purchase but not the sale.
Did the employee have apparent authority to sell the property?
The Court held that it is undisputed that the employee was not expressly authorized to sell the landowner's property. She was expressly authorized only to purchase a 217-acre tract of land for her principal if she could do so for no more than $ 250,000.00. The Court further held that the employee did not have the implied authority to contract to sell to appellees a portion of the property that she had purchased, as that act was not necessary to accomplish her assigned task of purchasing the entire tract. Therefore, in order for appellant landowner to be liable for the employee's actions in entering into the offer and acceptance with appellees, her actions must have fallen within the scope of her apparent authority. Thus, the Court held that (1) the trial court's decision was clearly erroneous; (2) the employee was not authorized to sell any land; (3) the buyers had not investigated the terms of the power of attorney; (4) the landowner did not know or have reason to know of the employee's statements; and (5) the landowner had not ratified the sale.