Apparent authority binds property owner to lease they did not authorize
In this case our clients were sued by a property owner in a declaratory judgment action. The property owner said our clients' lease was invalid because the owner did not know it had been entered into.
What happened was, one of our clients was offered a rental of a large space in the South Loop for only $500 a month. The offer was made at a pub by one of the patrons, "Al." Our client arranged to go visit the property with Al.
At the property Al had keys to all of the premises, not just the space that was proposed for rental. Al offered a lease to our client for 3 years at the same rent, with Al's name as lessor, and Al's phone number. Our client and his wife signed the lease and gave it, and the first month's rent, and a security deposit, to Al.
Our clients moved in, put their names on the mailboxes, and lived in the space a year or more, paying rent monthly to Al. Until Al disappeared.
More than a year after moving in, our Client's got a letter from "Owen" claiming to be the real owner of the property, and stating that he had been defrauded by "Al". It turns out Owen was the real owner, and Al was not.
Shortly before meeting our clients, Al had approached Owen and claimed he would buy the property from Owen. In connection with the expected sale, Owen gave the keys to Al and let Al start looking for his own renters for the property. But Al never paid, and there never was any sale.
“Apparent authority in an agent is the authority which the principal knowingly permits the agent to assume, or the authority which the principal holds the agent out as possessing. It is the authority which a reasonably prudent person, exercising diligence and discretion, in view of the principal's conduct, would naturally suppose the agent to possess. [Citations.] Where the principal creates the appearance of authority, the principal ‘will not be heard to deny the agency to the prejudice of an innocent party, who has been led to rely upon the appearance of authority in the agent.’”
York v. Rush-Presbyterian-St. Luke's Med. Ctr., 222 Ill. 2d 147, 183 (2006).
Through discovery, we were able to show the judge that:
Plaintiff admits it “authorized [Al] to enter into a lease for the Unit in February, 2009.”
Plaintiff “gave [Al] the master keys to the Building and its elevators.”
Plaintiff “knew that [Al] was holding himself out as authorized to rent the Unit in February” 2009.
Nevertheless, Plaintiff disclosed to Defendants no limitation upon the authority of [Al] to enter into leases at the Building until June, 2009.
Plaintiff “never attempted to meet [Defendants] before [Al] entered into a lease with [Defendants].”
Defendants admit Plaintiff “never had a written agreement with [Al].”
The judge granted our motion for summary judgment holding that the lease was binding upon Owen, even though he did not know Al entered into it.