TEDESCO, et ux.

v.

GENTRY DEVELOPMENT, INC., et al.

Supreme Court of Louisiana

March 13, 1989

This is an action against Gentry Development, Inc. to compel specific performance of a contract to sell immovable property executed by James Winford, Gentry’s president, without actual authority from the corporation.  The principal issue is whether the doctrine of apparent authority is applicable in a case involving a contract to sell immovable property. 

In 1979 Gentry purchased a tract of land containing several acres.  Gentry subdivided the tract in 1981 into several lots comprising the Gentry subdivision.  Lots 1 and 2, the latter being the property at issue in this litigation, faced U.S.  Highway No. 71, and Gentry’s directors intended to use these lots as a location for a branch bank.

On April 7, 1983, Winford, under authority given by Gentry’s board of directors, signed six month listing agreements with Montgomery Realty to sell Lots 2, 4, 5, 7, 8 and 9.  The listing on Lot 2 provided for a sale price of $50,700.00.[1]   When Montgomery placed a “For Sale” sign on the subdivided tract, the sign was located on Lot 2.

Winford renewed the listing agreements for additional six month periods on November 18, 1983 and June 18, 1984, but was not specifically authorized by the board of directors to extend the listing agreements beyond the original term. 

Montgomery eventually obtained a prospective purchaser for Lots 4 and 5.  Winford accepted an offer to purchase Lots 4 and 5 on June 18, 1984.  The acts of sale for these lots were executed by Winford as Gentry’s president on August 30, 1984, pursuant to a written resolution of Gentry’s board of directors, adopted at an August 21 meeting, which authorized Winford to execute the particular sales. 

In the meantime plaintiffs had contacted Montgomery Realty on July 23, 1984, and had signed an offer to purchase Lot 2 for $45,000.  Winford rejected the offer, but indicated he would accept $50,700.

On August 25, plaintiffs executed a written offer to purchase Lot 2 for $50,700. Winford signed the acceptance on August 30 after making certain modifications which were subsequently approved by Plaintiffs.[2]

Gentry informed plaintiffs’ agent that Winford had not been authorized to extend the listing agreement or to accept the offer to purchase.  Gentry accordingly declined to sell the property. Hence this action for specific performance. 

After a trial on the merits the district court rendered a judgment ordering specific performance. The court found that Winford was Gentry’s agent and that he acted with apparent authority for Gentry when he accepted plaintiffs’ offer on Lot 2 on August 30, 1984. The court further found that plaintiffs were third parties who totally relied on Winford’s apparent authority as a result of Gentry’s manifestations.[3]

The court of appeal reversed.  The court concluded that Winford, as president of Gentry, could only be empowered to sell the corporation’s immovable property by an express grant of power in writing. Since Winford was not authorized in writing to sell the immovable property belonging to Gentry, he had no authority to bind Gentry to the contract with plaintiffs. The court concluded that the doctrine of apparent authority is inapplicable in the area of real estate sales.

We granted certiorari to address the issue of the applicability of the doctrine of apparent authority in contracts involving the sale of immovable property. 

Apparent authority is a doctrine by which an agent is empowered to bind his principal in a transaction with a third person when the principal has made a manifestation to the third person, or to the community of which the third person is a member, that the agent is authorized to engage in the particular transaction, although the principal has not actually delegated this authority to the agent.  Restatement (Second) of Agency § 8 (1958); W. Seavey, Law of Agency § 8(D) (1968); F. Mechem, Law of Agency § 84 (4th ed. 1952); Comment, Agency Power in Louisiana, 40 Tul.L.Rev. 110 (1965) [hereinafter cited as Comment, Agency Power]. In an actual authority situation the principal makes the manifestation first to the agent; in an apparent authority situation the principal makes this manifestation to a third person. However, the third person has the same rights in relation to the principal under either actual or apparent authority. Further, apparent authority operates only when it is reasonable for the third person to believe the agent is authorized and the third person actually believes this. Restatement, supra § 8, comments a and c. 

[***discussion of the vitality of the various doctrines of apparent authority in Louisiana omitted]

In the present case, it is not necessary for this court to consider adopting a distinction between the doctrines of apparent authority, because of the absence of the formal requirement of written authorization.  Just as testimonial proof cannot be used to prove the sale of immovable property (or the agreement to sell such property), testimonial proof cannot be used to prove the agent’s authority to execute the apparent authority and agency by estoppel.  Even if plaintiffs proved the elements normally necessary for enforcement of a contract on the basis of apparent authority, the absence of Gentry’s written authorization for Winford’s signing the executory contract renders the contract unenforceable.  Furthermore, plaintiffs are not entitled to relief under the doctrine of agency by estoppel (or under the estoppel theory of apparent authority) because they did not change their position in any manner in reliance on Gentry’s conduct.  They do not claim that they suffered any loss or detriment, expended any money or labor, or incurred any legal liability before Gentry’s prompt repudiation of Winford’s authority.  Plaintiffs simply seek to require performance by Gentry so that they may obtain an apparent “bargain.”  There is no loss which would justify this court’s reliance on equitable principles to make whole.