IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
November 7, 2001 Session
MILLIKEN GROUP, INC. v. HAYS NISSAN, INC.
Direct Appeal from the Chancery Court for Davidson County
No. 99-170-I Irvin H. Kilcrease, Jr., Chancellor
No. M2001-00506-COA-R3-CV - Filed December 13, 2001
This dispute arises from a contract for capital improvements entered into between the plaintiff and
the agent of the defendant. The primary issues on appeal are whether the agent had the authority to
bind the defendant to the contract, and whether the trial court erred in limiting the amount of
damages awarded to the plaintiff. We affirm in part and modify the judgment.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in part;
Modified in part; and Remanded.
DAVID R. FARMER , J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,
and ALAN E. HIGHERS, J., joined.
William P. Jones, Hendersonville, Tennessee, for the appellant, Milliken Group, Inc.
Todd E. Panther, Nashville, Tennessee, for the appellee, Hays Nissan, Inc.
OPINION
In the Fall of 1998, Mr. Barry Busby, the general manager of Hays Nissan in Madison,
Tennessee, entered into a contract with the Milliken Group, Inc. (“Milliken”) for land improvements
at the site of the dealership. This was an oral contract based upon a three part bid submitted by
Milliken. Part one of the bid quoted a price of $35,000. Parts two and three quoted unit prices based
on yardage and tonnage, respectively. Ultimately, the work necessary to complete the improvements
resulted in charges of over $130,000, including the cost of equipment and materials needed to fill-in
an area in back of the dealership referred to by the parties as “Jurassic Park.”
Hays Nissan does not dispute that the work was performed as charged, nor does it contend
that it was less than satisfactory. What is at dispute in this case is whether Mr. Busby had the
authority to bind Hays Nissan to the contract with Milliken, and, if so, the extent of that authority.
The chancellor found that while Mr. Busby had apparent authority to enter into the contract
with Milliken, his authority was limited to the $35,000 figure quoted in part one of the October bid.
Judgment was awarded against Hays Nissan in the amount of $35,000. On appeal, Milliken argues
that this limitation is in error in light of the finding of apparent authority. Hays Nissan, on the other
hand, argues that the finding of apparent authority was in error and, alternatively, that if Mr. Busby
did have the authority to enter into the contract, his authority was limited to the $35,000 figure.
Issues
The issues we are called upon to address, as we perceive them, are first: whether Mr. Busby
had authority to bind Hays Nissan in contract to Milliken; second: if so, whether that authority
extended to authorizing costs clearly exceeding those initially anticipated; third: if such authority is
found, whether the judgment award should be limited to $35,000.
Standard of Review
This was a nonjury trial, thus our standard of review is de novo upon the record. See Wright
v. City of Knoxville, 898 S.W.2d 177, 181 (Tenn. 1995). There is a presumption of correctness as
to the trial court’s findings, unless the preponderance of the evidence is otherwise. Tenn. R. App.
P. 13(d). With respect to the trial court’s legal conclusions, however, our review is de novo with no
presumption of correctness. See Bell ex rel. Snyder v. Icard, Merrill, Cullis, Timm, Furen and
Ginsburg, P.A., 986 S.W.2d 550, 554 (Tenn. 1999); Tenn. R. App. P. 13(d).
The threshold question in this case is whether Mr. Busby had authority to enter into the
contract with Milliken on behalf of Hays Nissan. At trial, Milliken argued that Mr. Busby had actual
authority, or at least apparent authority, to contract with Milliken for the work performed. The trial
court concluded that Mr. Busby had apparent authority to enter into the contract with Milliken. The
court based this finding on testimony by Mr. Busby regarding conversations which he had had with
Mr. Paul Spina, then the corporate secretary of Hays Automotive Group,1 its leading shareholder,
and an owner of the land on which the dealership is located. We agree to the extent that the trial
court found that Mr. Busby had authority to bind Hays Nissan to the contract in this case. Upon
review of the record, however, we believe that a preponderance of the evidence supports a finding
that Mr. Busby acted with actual rather than apparent authority to enter into the contract with
Milliken.
“An agent’s authority is composed of his actual authority, express or implied, together with
the apparent or ostensible authority which the principal by his conduct precludes himself from
denying . . . . Generally, an agent has such authority as the principal either actually or ostensibly
confers upon him . . . .” 2A C.J.S. Agency § 146 (1972). The actual authority of an agent “consists
of the powers which a principal directly confers upon an agent or causes or permits him to believe
himself to possess . . . .” Id. at § 147. Actual authority flows from the manifestations of the
1
Hays Automotive Group is the parent company of Hays N issan.
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principal to the agent. Id. If an agent acts with actual authority, then he may bind the principal in
contract regardless of whether the third party is actually aware of that authority at the time of the
transaction. See McConnico v. Third Nat’l Bank, 499 S.W.2d 874, 883 (Tenn. 1973).
At trial, Mr. Busby testified that during the Fall of 1998, he and Mr. Spina discussed
improvements to be made to an unimproved, densely over-grown area behind the dealership known
as “Jurassic Park.” The discussions centered on an area five to six feet deep, which Mr. Busby
wanted to clear to provide more space behind the body shop at the dealership. During the course of
these conversations, Mr. Busby obtained three bids for the work and was told by Mr. Spina to “[q]uit
trying to sell me, just get it done.” Mr. Busby further testified that he submitted the bids to Mr.
Spina, and that Mr. Spina chose Milliken to perform the work. Based upon his conversations with
Mr. Spina, Mr. Busby then told Milliken, “You got the job.”
Hays Nissan argues that Mr. Busby acted without authority when he contracted with
Milliken. Mr. Dan Bouchillon, vice president of Hays Automotive Group, testified that the corporate
officers were still in the process of deciding on a course of action when they received a bill for over
$130,000 for the work performed by Milliken. Mr. Bouchillon testified that general managers of its
dealerships do not have authority to make decisions or to enter into contracts regarding capital
expenditures. He testified that he personally took part in Mr. Busby’s training when Mr. Busby
became general manager of the dealership in the Spring of 1998, and that Mr. Busby was aware of
the corporate policy limiting the expenditures which could be authorized by general managers to
under $10,000. The Hays Group by-laws and several memos from corporate office to the dealerships
were placed into evidence to affirm this corporate policy.
Mr. Bouchillon’s testimony and our review of the record, including the by-laws of the Hays
Automotive Group, supports a finding that general managers generally do not have unlimited
authority to bind the Group or its dealerships to major contracts such as the one in question.
However, testimony at trial, including Mr. Bouchillon’s testimony, together with the Hays
Automotive Group documents entered into evidence, leave no doubt that whatever the general
corporate policy of the Hays Group, Mr. Spina, as a director and officer, had the power to approve
expenditures and to authorize the formation of contracts such as the one in this case. Mr. Busby,
moreover, testified that he knew he did not have authority to enter into the contract before speaking
with Mr. Spina, but that his authority stemmed from his conversations with Mr. Spina after he had
submitted the bids.
In reviewing the record, we find nothing to dispute or challenge Mr. Busby’s testimony
regarding his conversations with Mr. Spina, or the content of those conversations. Mr. Bouchillon,
the primary witness on behalf of the Hays Group, testified that he had no knowledge of what Mr.
Busby and Mr. Spina spoke about during their meetings in the Fall of 1998. He also testified that
after the work was complete and the bill received, Mr. Spina was the only one to meet with Mr.
Busby to discuss the charges. While Mr. Bouchillon testified that he had no notice that Mr. Spina
or anyone else had given Mr. Busby permission to proceed with the work in question, he also stated
that as of the time of trial he had never spoken with Mr. Busby about the matter, and that he did not
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in fact know whether Mr. Spina had. There is nothing in Mr. Bouchillon’s testimony to indicate that
he had any direct knowledge whatsoever as to whether Mr. Spina authorized Mr. Busby to enter into
the contract with Milliken. When asked at trial if he had any knowledge of whether or not Mr. Spina
authorized Mr. Busby to proceed with the contract, Mr. Bouchillon replied, “No.”
The only person who could contradict Mr. Busby’s testimony that Mr. Spina told him to
proceed with this contract is Mr. Spina himself, and we note that, as counsel for Milliken points out,
the Hays Group did not call Mr. Spina to testify at trial. A party’s failure to call a witness with
particular knowledge of the facts, who would naturally favor that party’s position, and who is not
unavailable, generally raises an inference that the testimony would have been unfavorable to the
party who failed to call that witness. See Neil P. Cohen et al, Tennessee Law of Evidence §
4.01[14][a] (4th ed. 2000); State v. Bigbee, 885 S.W.2d 797 (Tenn. 1994). Mr. Bouchillon testified
that Mr. Spina is 45 years old, in good health, and resides in Louisville, Kentucky, where the Hays
Group is headquartered and where Mr. Spina resided during his tenure with the Hays Group. There
is nothing in the record or offered by the Hays Group to indicate that Mr. Spina was unavailable or
unable to testify at trial. In fact, there is nothing in the record as a whole to contradict Mr. Busby’s
testimony that Mr. Spina authorized him to proceed with the contract with Milliken. Read as a
whole, we find the evidence preponderates to support a finding of actual authority for Mr. Busby to
contract with Milliken to perform the work as described in the bid submitted by Milliken in October
of 1998.
Having found that Mr. Busby had been given actual authority by Mr. Spina to enter into the
contract with Milliken, we find it unnecessary to address the arguments pertaining to apparent
authority insofar as they concern this threshold question. We must next consider, however, the
extent of Mr. Busby’s authority. The scope of an agent’s authority is determined from the facts and
circumstances in evidence. Sloan v. Hall, 673 S.W.2d 548, 551 (Tenn. Ct. App. 1984).
We first consider whether Mr. Busby had actual authority to approve extension of the work
performed by Milliken beyond the scope of what was initially anticipated. We find that Mr. Busby
did not have such actual authority. At trial, Mr. Busby testified that when he and Mr. Spina
discussed work to be performed to the “Jurassic Park” area, they discussed an area approximately
five to six feet deep. Mr. Busby further testified that he never discussed filling in the entire area with
Mr. Spina, and that he acted on his own in approving the increased amounts of work. Thus while
Mr. Spina gave Mr. Busby the actual authority to enter into the contract based upon the October bid
for work to a portion of the “Jurassic Park” area, it is clear to this Court that Mr. Busby did not have
actual authority to approve the extent of the work performed by Milliken.
We must therefore determine whether Mr. Busby was cloaked with apparent authority to
approve the work as performed. Apparent authority rests on principles of estoppel. 2A C.J.S.
Agency § 157(c) (1972). Apparent authority is “that authority which a principal holds his agent out
as possessing or permits him to exercise or to represent himself as possessing, under such
circumstances as to estop the principal from denying its existence.” Id. at § 157(a). Apparent
authority must be established through the acts of the principal, rather than those of the agent. Bells
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Banking Co. v. Jackson Centre Inc., 938 S.W.2d 421, 424 (Tenn. Ct. App. 1996). Apparent
authority is found where the principal, by his own acts or conduct, has clothed the agent with the
appearance of authority. Having cloaked the agent with authority, the principal is accordingly
estopped from denying liability for the acts of an agent acting within that authority. See id. at 425
(quoting Southern Ry. Co. v. Pickle, 197 S.W. 675 (1917)). In order to establish apparent authority,
the plaintiff must prove that “(1) the principal actually or negligently acquiesced in [the agent’s]
exercise of authority; (2) the third person had knowledge of the facts and a good faith belief that the
apparent agent possessed such authority; and (3) the third person relied on this apparent authority
to his or her detriment.” White v. Methodist Hosp. S., 844 S.W.2d 642, 646 (Tenn. Ct. App. 1992).
If a principal has cloaked an agent with apparent authority, then the principal is liable when
the agent exercises that authority.
The liability of the principal for the acts and contracts of his agent is not limited to
such acts and contracts of the agent as are expressly authorized, necessarily implied
from express authority, or otherwise actually conferred by implication from the acts
and conduct of the principal. So far as concerns a third person dealing with an agent,
the agent’s “scope of authority” includes not only the actual authorization conferred
upon the agent by the principal, but also that which has apparently been delegated to
him . . . . In effect, therefore, an agent’s apparent authority is, as to third persons
dealing in good faith with the subject of his agency and entitled to rely upon such
appearance, his real authority, and it may apply to a single transaction, or to a series
of transactions.
3 Am. Jur. 2d Agency § 78 (1986). See Taillie v Chedester, 600 S.W.2d 732, 734-35 (Tenn. Ct.
App. 1980).
The question thus becomes whether, by endowing Mr. Busby with actual authority to enter
into the contract with Milliken based upon the October bid, Mr. Spina cloaked Mr. Busby with the
apparent authority to authorize work in excess of the amount originally anticipated. It is undisputed
that Mr. Spina never had conversation or direct contact with anyone from the Milliken Group which
would lead Milliken to believe that Mr. Busby had such authority. Thus we must consider whether
the act of granting Mr. Busby the actual authority to contract in the first instance is sufficient to
warrant the belief by Milliken that Mr. Busby had the authority to authorize the work as performed.
In reviewing this issue, we are mindful of the fact that the bid for the work at issue was not
limited to a particular dollar figure or amount of work. Contrary to the finding of the trial court that
the original bid was for $35,000, the bid submitted by Milliken contains no exact dollar figure or
precise description of the amount of work to be done. Part one of the bid is for $35,000; part two
is for “miscellaneous repair” at $23.50 square yard; part three is for “[s]tone in place, grading and
compacting” at $12.50 per ton. It is parts one and three that are at issue here.
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It is clear that once the work at the Hays Nissan site began, the project became more
extensive than either Mr. Spina, Mr. Busby or Milliken had anticipated. Mr. Milliken, owner of the
Milliken Group, testified that he knew that Mr. Busby had to have approval from corporate
headquarters to enter into the contract, but that Mr. Busby never led him to believe that he did not
have authority to authorize the continuation of the work. Further, Milliken testified that he had
previously done work for another Hays Automotive Group dealership, and that he had dealt
exclusively with that dealership’s general manager. It is undisputed that Milliken advised Mr. Busby
when the project reached the $50,000 and $80,000 marks, and asked him if he should proceed. Mr.
Busby testified that he told Milliken to continue. Mr. Busby further testified that he believed he had
the authority to tell Milliken to continue.
Although Mr. Spina never approved or authorized the expenditure of over $130,000, there
is nothing in the record to indicate that Mr. Spina placed any limitations on Mr. Busby once he told
Mr. Busby to proceed and “just get the job done.” It is uncontradicted, moreover, that Mr. Busby
forwarded the bid to Mr. Spina, and that Mr. Spina was thus aware of the inexact nature of the bid.
It is also undisputed that at the time Mr. Busby and Mr. Spina discussed the work to be done to the
“Jurassic Park” area, neither they nor Milliken ever actually walked through the area or understood
exactly what the work would entail or the nature of the difficulties which might be encountered.
Nevertheless, Mr. Spina authorized Mr. Busby to proceed based on what was essentially an open
ended bid. Moreover, as noted, Mr. Busby testified that he believed that he had the authority to
approve the continued work, and assured Milliken that he in fact had such authority.
We therefore hold that Mr. Spina, having knowingly endowed Mr. Busby with actual
authority to enter into a contract based upon the bid submitted, cloaked him with the apparent
authority to authorize Milliken to continue working based on the terms of the bid. By failing to
communicate any limitations to either Mr. Busby or Milliken, Mr. Spina acquiesced in the exercise
of authority by Mr. Busby. Milliken acted in good faith, believing that Mr. Busby possessed the
authority to authorize the work to continue. This belief was rooted not only in Mr. Busby’s
statements, but in approval by Mr. Spina of the bid as submitted, and in Mr. Spina’s failure to
communicate any limitation to either Mr. Busby or Milliken. Milliken’s reliance on Mr. Busby’s
apparent authority was further justified by the fact that Milliken had previously performed work for
another dealership owned by the Hays Automotive Group, and at that time dealt exclusively with that
dealership’s general manager.2
2
Hays Nissan submits that the fact that it does not ow n, lease o r control the area known as “Jura ssic Pa rk” is
proof that it is not liable for work done to the property. Hays Nissan argues that, under the law of agency, in order to
hold Hays Nissan liable for work performed to property owned by a third party, JA S Re alty, Milliken would have to show
that Hays Nissan was the agent for an undisclosed princip al, JAS Realty. We find this argument unconvincing in light
of the fact that JAS Realty is owned in part by Mr. Paul Spina. Second, we note that while Hays Nissan leases
approximately four and one-half acres of the nine acre track owned by JAS Realty, the dealership does in fact use
additional areas. Finally, we note that Mr. Bouchillon testified that a general manager would not know who owns or
leases the property on which a dealership is situated. Given these facts, it does not seem unlikely that M r. Spina, an
owner of both the Hays Auto motive Group and J AS R ealty, would approve improvements to the “Jurassic Park” area
for the use and bene fit of the dealership .
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We finally turn to the issue of damages. The trial court limited the judgment awarded to
Milliken to $35,000. This amount was based on a finding that the bid was approved for $35,000.
The evidence reveals, however, that the bid was not limited to $35,000. After reviewing the bid
itself, we find that only the first part of the bid states the $35,000 amount. Part three of the bid,
which is the part at issue here, is based on a per ton amount. We therefore affirm the limit of
$35,000 as it pertains to part one of the bid, but modify the judgment as it pertains to part three. The
judgment award should include $35,000 for completion of part one, plus the unit price per tonnage
of stone as reflected in part three of the bid. We remand for recalculation of damages based upon
parts one and part three.
Conclusion
We hold that Mr. Busby had actual authority to enter into the contract with Milliken based
upon the bid submitted by Milliken and approved by Mr Spina. We further hold that in endowing
Mr. Busby with actual authority to contract with Milliken based upon a per unit price bid, and in
failing to communicate any limitations to either Mr. Busby or Milliken, Mr. Spina cloaked Mr.
Busby with the apparent authority to authorize Milliken to continue the work necessary to complete
the project. Finally, we hold that the trial court erred in limiting the judgment award to part one of
the bid. We therefore remand for a determination of damages consistent with this opinion.
Affirmed in part, modified in part, and remanded. Costs of this appeal are taxed to the
appellee, Hays Nissan, Inc.
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DAVID R. FARMER, JUDGE
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