IN THE SUPREME = COURT OF TEXAS

IN THE SUPREME COURT OF TEXAS

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No. 05-1092

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Russell=20 Gaines and Southwest Guaranty Mortgage Corp.,

Petitioners,

Roger Kelly,=20 Respondent

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On Petition for Review from = the

Court of Appeals for the Tenth = District of=20 Texas

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Argued December 5,=20 2006

&nbs= p;=20 Justice Medina delivered = the=20 opinion of the Court.

&nbs= p;=20 In this appeal from a no-evidence summary judgment, we must determine = whether=20 representations, allegedly made by a mortgage broker that a loan would = be=20 funded, may be attributed to a lender for purposes of a borrower=92s = fraud claim=20 against that lender. The court of appeals, with one justice dissenting,=20 concluded that there was evidence that the mortgage broker had apparent=20 authority to speak for the lender on this subject and, accordingly, = reversed the=20 trial court=92s summary judgment in the lender=92s favor. 181=20 S.W.3d 394. We, however, agree with the trial court=92s summary = judgment=20 because there is no evidence that the mortgage broker had apparent = authority=20 either to negotiate the terms of the loan or otherwise commit the = lender.=20 Accordingly, we reverse the court of appeals=92 judgment and render = judgment that=20 the borrower take nothing.

&nbs= p;=20 In December 1998, Roger Kelly signed an Advisory Fee Agreement with = Robert=20 Thompson, acting on behalf of Commercial Realty Advisors, Inc., to = assist him in=20 obtaining financing for a 31-acre tract in Burleson, Texas. In his agreement with = Thompson and=20 Commercial Realty, Kelly stated that he needed to obtain =93mortgage = financing for=20 the purpose of refinancing and developing=94 the property. Although = Kelly did not=20 own the property, he held a lease and an option to purchase, the result = of=20 previous litigation involving the property.

&nbs= p;=20 Thompson approached Russell Gaines, an officer of Southwest Guaranty = Mortgage=20 Corp., about a loan for Kelly, providing Gaines with preliminary = information=20 about the proposed transaction. Gaines in turn provided Thompson with a = loan=20 application that Thompson delivered to Kelly=92s attorneys. Kelly = completed the=20 application and returned it to Thompson, who delivered it to Gaines. A = few days=20 later, Thompson agreed to do the appraisal on the property at Gaines=92 = request=20 and withdrew as Kelly=92s mortgage broker, notifying Kelly of this in = writing on=20 December 11, 1998.

&nbs= p;=20 Kelly=92s attorneys, however, continued to press Gaines for a loan = commitment=20 because of the imminent expiration of Kelly=92s option on the property. = According=20 to Gaines, Kelly=92s attorneys represented, among other things, that = Kelly had an=20 ownership interest in the property, that Kelly needed the loan for = refinancing,=20 and that the property had already been platted and several lots = pre-sold. On=20 December 23, Southwest Guaranty issued a thirty-day loan commitment, = identifying=20 Kelly and his father-in-law as borrowers, conditioned upon receipt of = several=20 items, including a title report.

&nbs= p;=20 When the subsequent title report indicated that Kelly did not have an = ownership=20 interest in the 31-acre tract, Gaines asked for additional documentation = concerning Kelly=92s ownership and the pre-sold lots. Kelly=92s = attorneys, however,=20 insisted that Southwest Guaranty fund the loan, and, when Gaines = declined, Kelly=20 promptly filed suit.

&nbs= p;=20 Kelly named Gaines and Southwest Guaranty (hereafter =93Gaines=94) and = Thompson and=20 Commercial Realty (hereafter =93Thompson=94) as defendants, alleging = breach of=20 contract, fraud, and negligence. He claimed that Gaines=92 failure to = fund the=20 loan caused him financial loss because he had no time to seek = alternative=20 financing, but instead was forced to reduce his interest in the property = by=20 taking on additional partners. After the suit had been pending for three = years,=20 Gaines and Thompson filed separate no-evidence motions for summary = judgment.=20 Kelly thereafter amended his pleadings, and Gaines filed a second = no-evidence=20 motion, at which time the trial court granted Gaines=92 and Thompson=92s = respective=20 motions and rendered judgment for them. Kelly appealed.

&nbs= p;=20 The court of appeals affirmed the summary judgment[1] for Gaines in part, agreeing = that there=20 was no evidence of negligence or breach of contract, and reversed it in = part,=20 disagreeing that there was no evidence of fraud. 181 = S.W.3d at=20 408, 412. In his fraud claim, Kelly alleged that Thompson told = him during=20 the application process that the loan was a =93done deal=94 and that he = relied on=20 this false statement to his financial detriment. Id. at 412. The court of appeals concluded that the = summary=20 judgment was erroneous as to fraud because there was some evidence that = Thompson=20 was Gaines=92 agent and some dispute about whether Thompson=92s =93done = deal=94 comment=20 could be attributed to Gaines. Id.

&nbs= p;=20 In analyzing Gaines=92 potential responsibility for this comment, the = court of=20 appeals framed the issue as whether there was evidence that Thompson was = acting=20 as Gaines=92 agent =93for purposes of negotiating the loan.=94 = Id. at=20 408. The court then concluded that Thompson=92s agency remained = in dispute=20 and could not be determined by summary judgment because the = summary-judgment=20 evidence indicated that Thompson had authority to act =93as an = intermediary to=20 process [the] loan paperwork with Kelly and to explain to Kelly [the]=20 requirements for securing the loan.=94 Id. at 409. The court=92s analysis, however, omits the = connection=20 between this evidence and the agency issue previously framed; that is to = say,=20 the court fails to explain why evidence that Gaines used Thompson to = deliver and=20 explain the loan paperwork is also evidence of Thompson=92s apparent = authority to=20 negotiate the loan or commit Gaines to the transaction.

&nbs= p;=20 An agent=92s authority to act on behalf of a principal depends on some=20 communication by the principal either to the agent (actual or express = authority)=20 or to the third party (apparent or implied authority). Hester Int=92l Corp. v. Fed. Republic of = Nig., 879=20 F.2d 170, 181 (5th Cir. 1989). The summary-judgment evidence = clearly=20 substantiates Thompson=92s authority to deliver and explain the loan = documents to=20 Kelly. But the relevant question is whether Thompson=92s actual = authority to=20 deliver documents and facilitate the loan included the authority to = negotiate=20 terms and commit the lender. There is no summary-judgment evidence that = Thompson=20 had actual authority to negotiate, and thus the question is whether he = had=20 apparent or implied authority to do this.

&nbs= p;=20 Apparent authority, we have said, is based on estoppel, arising = =93either from a=20 principal knowingly permitting an agent to hold [himself] out as having=20 authority or by a principal=92s actions which lack such ordinary care as = to clothe=20 an agent with the indicia of authority, thus leading a reasonably = prudent person=20 to believe that the agent has the authority [he] purports to = exercise.=94=20 Baptist Mem. Hosp. Sys. v. Sampson, = 969 S.W.2d=20 945, 948 (Tex.=20 1998). We have further noted that the principal=92s full knowledge of = all material=20 facts is essential to establish a claim of apparent authority based on = estoppel.=20 Rourke v. Garza, 530 S.W.2d = 794, 803=20 (Tex. 1975)=20 (citing Hallmark v. United Fid. Life Ins. = Co., 286 S.W.2d 133 (Tex. 1956)). = Moreover, when=20 making that determination, only the conduct of the principal is = relevant. NationsBank, N.A. v. Dilling, 922=20 S.W.2d 950, 953 (Tex. 1996) (per curiam). = Finally, the=20 standard is that of a reasonably prudent person, using diligence and = discretion=20 to ascertain the agent=92s authority. Chastain v. = Cooper=20 & Reed, 257 S.W.2d 422, 427 (Tex. 1953). Thus, to = determine an=20 agent=92s apparent authority we examine the conduct of the principal and = the=20 reasonableness of the third party=92s assumptions about authority.

&nbs= p;=20 Kelly submits that he reasonably believed that Thompson possessed = apparent=20 authority in this case similar to that of the agent in Walker = Insurance=20 Services v. Bottle Rock Power Corp., 108 S.W.3d 538 (Tex. = App.=96Houston [14th=20 Dist.] 2003, no pet.), a special-appearance appeal that turned on the=20 apparent-authority issue. Walker sued = Bottle=20 Rock, a California power company, for an = incentive fee=20 that was to be paid if a decommissioning and reclamation bond was = acquired under=20 specific time constraints. Id. at=20 545. At issue was whether the alleged agent, Arlie Beane, had apparent authority to negotiate or = contract with=20 Walker on behalf=20 of the power company. Id. at=20 549. The court of appeals concluded that he did have the = authority,=20 noting that most of the negotiations were conducted through Beane, that he was actively involved in securing = the bond,=20 and that his efforts were =93accepted and ratified=94 by Bottle Rock. = Id. at=20 551-52. Moreover, Wilson testified that =93one of = Bottle Rock's=20 directors confirmed his understanding of Beane's=20 authority to act and negotiate on its behalf.=94 Id. at 551. On this evidence, the court of appeals = concluded=20 that Beane was no mere middleman but rather = Bottle=20 Rock=92s =93point man=94 for obtaining the bond on its behalf. = Id. Kelly=20 likewise suggests that Thompson was no mere middleman in his dealings = with=20 Gaines, but the evidence is otherwise.

&nbs= p;=20 Initially signing as Kelly=92s mortgage broker, Thompson located = Southwest=20 Guaranty as a possible lender, brought the parties together, and = facilitated the=20 paperwork for the loan. There is no summary-judgment evidence, however, = that=20 Thompson had any role in the negotiations. Instead, the evidence = indicates that=20 Thompson acted merely as a middleman after negotiations had been = completed.=20 See, e.g., Rauscher Pierce = Refsnes, Inc. v. Great Sw. Sav., F.A., 923 S.W.2d 112, 116 (Tex. = App.=96Houston [14th=20 Dist.] 1996, no writ) (where a broker acts as a =93matchmaker=94 that = brings parties=20 together for the purpose of negotiating, he is not an agent of either = party);=20 Chien v. Chen, 759 S.W.2d 484, = 495 n.7=20 (Tex. App.=96Austin 1988, no writ) (where a broker deals with both = parties at=20 arm=92s length, he is a =93middleman=94 and not an agent of either = party).

&nbs= p;=20 In further contrast to Walker Insurance Services, the = summary-judgment=20 evidence in this case consists almost entirely of acts or statements = attributed=20 to the alleged agent, Thompson, rather than to the putative principal, = Gaines.=20 See 181 S.W.3d at 408-09.[2] Declarations of the alleged = agent,=20 without more, are incompetent to establish either the existence of the = alleged=20 agency or the scope of the alleged agent=92s authority. Sw. Title Ins. = Co. v.=20 Northland Bldg. Corp., 552 S.W.2d 425, 428 (Tex. 1977). Instead, = =93apparent=20 authority must be based on the acts of the principal=94 and =93is = limited to the=20 scope of responsibility that is apparently authorized.=94 First Valley Bank of Los Fresnos v.=20 Martin, 144 S.W.3d 466, 471 (Tex. 2004).

&nbs= p;=20 Limiting our review to the acts of the principal, we note the following = relevant=20 summary-judgment evidence. First, Gaines testified that he gave loan = documents=20 to Thompson for delivery to Kelly because Thompson said that he =93would = be the=20 best bird dog to get it done.=94 Gaines also testified that Thompson = solicited the=20 loan on behalf of Southwest Guaranty. There were also blank loan forms = on=20 Southwest Guaranty letterhead in Thompson=92s office. Finally, Gaines = did not deny=20 that Thompson was Southwest Guaranty=92s agent when Kelly=92s attorney = told him that=20 he had returned the documents to =93your agent, Robert Thompson.=94

&nbs= p;=20 Gaines=92 testimony clearly indicates that Gaines used Thompson as an = intermediary=20 to deliver loan documents and facilitate the transaction. But evidence = that=20 Thompson brought the parties together, delivered the paperwork, and = assisted in=20 its completion is not evidence that Gaines authorized or acquiesced in=20 Thompson=92s representation that the loan was =93a done deal.=94 Nor is = the existence=20 of blank Southwest Guaranty loan forms in Thompson=92s office evidence = that=20 Thompson had authority to commit funds. The summary-judgment record does = not=20 explain the purpose of these forms or demonstrate that Gaines was aware = of them;=20 even if we assume Thompson was authorized to fill in the loan forms, that is no evidence he was authorized to = sign them on=20 Southwest Guaranty=92s behalf (thus rendering them "a done deal"). = Finally,=20 Gaines=92 failure to affirmatively deny any agency relationship when = Kelly=92s=20 attorney told him that he had returned the documents to =93your agent, = Robert=20 Thompson=94 is consistent with Thompson=92s authority to receive the = documents on=20 Gaines=92 behalf, but it is not conduct by which a person might = reasonably infer=20 that Thompson also possessed the authority to negotiate the terms of = those=20 documents. See Chastain, 257 S.W.2d at = 427=20 (applying reasonably prudent person standard).

&nbs= p;=20 The relevant issue then is not merely the existence of an agency = relationship,=20 but rather the scope of that agency. Kelly does not complain that = Thompson lost=20 the papers or failed to deliver them in a timely manner, matters that = were=20 clearly entrusted to him. Rather, Kelly complains that Thompson, acting = for=20 Gaines, fraudulently misled him into believing that the loan was =93a = done deal.=94=20 Thus, the relevant issue is whether Thompson=92s agency included the = authority to=20 alter the express requirements of the commitment letter and commit = Gaines and=20 Southwest Guaranty to the loan.

&nbs= p;=20 Because an agent=92s authority is presumed to be co-extensive with the = business=20 entrusted to his care, it includes only those contracts and acts = incidental to=20 the management of the particular business with which he is entrusted.[3] The summary-judgment evidence = here fails=20 to raise a fact issue about whether Thompson=92s agency included the = apparent=20 authority to commit the funds or obligate Gaines to terms other than = those=20 agreed to in the parties=92 contract, and thus Thompson=92s alleged = assurance that=20 the loan would close cannot be imputed to Gaines or Southwest Guaranty.=20 Accordingly, the court of appeals erred in reversing the trial court=92s = summary=20 judgment and in remanding the fraud claim for trial.

*=20 * *

= We reverse the court of appeals=92 judgment and render judgment that = Kelly take nothing.

=20 __________________________________________

=20 David M. Medina

=20 Justice

Opinion=20 delivered: August 24, = 2007

^[1]=20 The court of appeals also affirmed the summary judgment for Thompson = that Kelly=20 has not appealed. 181 S.W.3d at = 413-15.

^[2]=20 The court of appeals quoted as relevant the following from Kelly=92s=20 affidavit:

=B7 Thompson =93represented to me that he was = working for=20 Russell Gaines. Further, the loan application and associated paperwork = for the=20 loan was submitted by Mr. Thompson on Southwest Guaranty Mortgage = Corporation=20 letterhead=94;

=B7 =93Thompson called me and advised me that = Russell Gaines=20 required a $3,000.00 'good faith' deposit=94;

=B7 Thompson advised Bullard that the initial = paperwork=20 would need to be changed to reflect that the nature of the transaction = was a=20 refinance rather than a purchase;

=B7 Thompson advised Bullard that Gaines and = Southwest=20 Guaranty needed an appraisal done on the property; and

=B7 Thompson advised Kelly that Gaines would = have to=20 approve the appraiser chosen.

181 S.W.3d = 408-09.

And the following from the affidavit of = Bullard, who was=20 one of Kelly=92s attorneys:

=B7 he = =93personally relayed to Mr.=20 Thompson all facts surrounding Mr. Kelly's interest in [the]=20 property=94;

=B7 =93Thompson forwarded to [him], for = completion by Mr.=20 Kelly, loan paperwork and associated documents under the letterhead of = S.G.M.,=20 which stood for Southwest Guaranty Mortgage Corporation=94;

=B7 he assisted = Kelly in=20 completing the paperwork =93and returned all documents to Robert = Thompson for=20 forwarding on to Russell Gaines and Southwest Guaranty=94;

=B7 =93at all times during the loan = application process,=20 Robert Thompson represented to me that he was working for Russell = Gaines, and=20 all of the application paperwork was submitted on Southwest Guaranty = Mortgage=20 Corporation letterhead=94;

=B7 Thompson advised him that the initial = paperwork would=20 need to be changed to reflect that the nature of the transaction was a = refinance=20 rather than a purchase;

=B7 Thompson advised him that Gaines and = Southwest=20 Guaranty needed an appraisal done on the property;

=B7 Gaines advised him that he did not have = all the=20 necessary paperwork, to which Bullard replied that he had forwarded the=20 paperwork to Gaines's agent Thompson;

=B7 Gaines did not deny that Thompson was his = agent;=20 and

=B7 Bullard is =93personally familiar with the = fact that all=20 loan paperwork was sent directly to Russell Gaines.=94

Id. at = 409.

^[3]=20 See First Valley Bank of Los Fresnos,=20 144 S.W.3d at 471 (=93apparent authority is limited to the scope of = responsibility=20 that is apparently authorized=94); Texas Midland R.R. v. Monroe, = 216 S.W.=20 388, 388 (Tex. 1919) (noting general rule that principal will not be = charged=20 with liability to a third person for the acts of the agent outside the = scope of=20 his delegated authority); see also Wheaton Van Lines v. = Mason, 925=20 S.W.2d 722, 732 (Tex. App.-Fort Worth 1996, writ denied); Hartford = Cas. Ins. Co. v. Walker County = Agency,=20 Inc., 808 S.W.2d 681, 687 (Tex. = App.-Corpus=20 Christi 1991, no writ); Hedley Feedlot, Inc. v. Weatherly = Trust, 855 S.W.2d 826, 837 (Tex. App.-Amarillo = 1993, writ=20 denied); Longoria v. Atlantic Gulf Enterprises, Inc., 572 S.W.2d 71, 78 (Tex. Civ. App.-Corpus Christi 1978, writ ref=92d n.r.e.).