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Defendant’s Employee Had “Apparent Authority” to Act on Behalf of Defendant Insurance Agency—Plaintiff Justifiably Relied on the Apparent Authority When It Purchased a Fake Policy from Defendant’s Employee–Plaintiff Entitled to Partial Summary Judgment on the Fraud Cause of Action

The Fourth Department, over a two-justice dissent, determined plaintiff was entitled to summary judgment on its fraud cause of action against defendant insurance agency.  An employee of the insurance agency issued a fake workers’ compensation policy to the plaintiff. The Fourth Department found that the actions of the insurance agency provided the employee with “apparent authority” to issue the policy and the plaintiff justifiably relied on that apparent authority.  The relevant law was succinctly explained:

“In an action to recover damages for fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by [the maker], made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” … . It is undisputed that the insurance policy purportedly issued by AIG was false, and thus plaintiff established that a false representation was made that was known to be false by defendant’s employee. Defendant contends, however, that the justifiable reliance element was not met because it cannot be liable for the acts of its employee, and plaintiff’s reliance on the alleged “apparent authority” of defendant’s employee was not reasonable.

It is axiomatic that “[t]he mere creation of an agency for some purpose does not automatically invest the agent with apparent authority’ to bind the principle without limitation . . . An agent’s power to bind his [or her] principal is coextensive with the principal’s grant of authority” … . “Essential to the creation of apparent authority are words or conduct of the principal, communicated to the third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction. The agent cannot by his [or her] own acts imbue himself [or herself] with apparent authority. Rather, the existence of “apparent authority” depends upon a factual showing that the third party relied upon the misrepresentation of the agent because of some misleading conduct on the part of the principal — not the agent’ . . . Morever, a third party with whom the agent deals may rely on an appearance of authority only to the extent that such reliance is reasonable” … . Here, plaintiff contacted defendant seeking workers’ compensation coverage, and defendant assigned its employee who specialized in plaintiff’s type of business to assist plaintiff. We therefore conclude that plaintiff established that it reasonably relied upon the authority of defendant’s employee to act for defendant. Regency Oaks Corp. v Norman-Spencer McKernan, Inc., 2015 NY Slip Op 04959, 4th Dept 6-12-15

 

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Adverse Interest Exception to In Pari Delicto Defense May Apply—The Two Concepts Are Briefly Explained

In an accounting malpractice action, the Second Department determined the defendants’ motion to dismiss based upon the defense of in pari delicto defense was properly denied because the adverse interest exception may apply.  The court explained the two concepts:

The defendants contend that [the accounting malpractice] cause of action is barred by the doctrine of in pari delicto, “which mandates that the courts will not intercede to resolve a dispute between two wrongdoers” … . However, the adverse interest exception to the doctrine of in pari delicto provides that “when an agent is engaged in a scheme to defraud his principal, either for his own benefit or that of a third person, the presumption that knowledge held by the agent was disclosed to the principal fails because he cannot be presumed to have disclosed that which would expose and defeat his fraudulent purpose” … . Here, the documentary evidence submitted by the defendants did not conclusively foreclose the application of the adverse interest exception to the in pari delicto defense … . Schwartz v Leaf Salzman Mangenelli Pfiel, & Tendler LLP, 2014 NY Slip Op 08823, 2nd Dept 12-17-14

 

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Evidence Did Not “Utterly Refute” Plaintiff’s Allegation He Had No Notice Individual Defendant Was Acting as an Agent for a Disclosed Corporate Principal—Motion to Dismiss Action Against Individual Defendant Pursuant to CPLR 3211 Should Not Have Been Granted

The Third Department determined Supreme Court should not have granted individual defendant’s (Valentino’s) motion to dismiss pursuant to CPLR 3211 because the evidence did not “utterly refute” plaintiff’s claim he had no notice Valentino was acting as an agent of a disclosed corporate principal when a building contract was executed:

“It is well settled that an individual who signs a contract as an agent for an entity will be held personally liable on the contract if the agency relationship is not disclosed” … . Whether or not a principal is disclosed depends upon whether, at the time of the underlying transaction, the other party to the contract had notice that the agent was acting for a principal and knew of the principal’s identity … .

Here, the contract identified J & J Enterprises as the builder, but there is no reference in the contract or in the accompanying specifications sheet to the status of J & J Enterprises as the trade name of a corporation or to Valentino’s status as an officer or representative of any such corporation.  Winer v Valentino, 2014 NY Slip Op 07050, 3rd Dept 10-16-14

 

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Criteria for “Apparent Authority” to Enter a Binding Contract, Including the “Apparent Authority” of a Member of a Limited Liability Corporation, Explained

In determining the criteria for apparent authority, including apparent authority under the Limited Liability Corporation Law, had been met, the Fourth Department held that member of the defendant limited liability corporation (Sultan) entered into a binding contract on behalf of the defendant corporation:

“Essential to the creation of apparent authority are words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction. The agent cannot by his own acts imbue himself with apparent authority. Rather, the existence of apparent authority depends upon a factual showing that the third party relied upon the misrepresentation of the agent because of some misleading conduct on the part of the principal — not the agent” … . Here, we conclude that plaintiffs reasonably relied on, inter alia, their prior course of dealing with Sultan in his capacity as president, principal and manager of defendant … . * * *

…[W]e note that Limited Liability Company Law § 412 (a) provides that, “[u]nless the articles of organization of a limited liability company provide that management shall be vested in a manager or managers, every member is an agent of the limited liability company for the purpose of its business, and the act of every member, including the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business of the limited liability company, binds the limited liability company, unless (i) the member so acting has in fact no authority to act for the limited liability company in the particular matter and (ii) the person with whom he or she is dealing has knowledge of the fact that the member has no such authority.” A nearly identical subsection provides that, where management of an LLC is vested in a manager, the acts of the manager are binding upon the LLC unless the manager at issue has in fact no authority to act for the LLC, and the person with whom he or she is dealing knows that the manager lacks such authority (§ 412 [b] [2] [A], [B]). Thus, regardless whether Sultan was acting as a manager of defendant, as reflected by his signature on the contract, or as a member of defendant, as he and defendant’s attorney previously had indicated to plaintiffs, he had apparent authority to act and his acts were binding upon defendant unless, inter alia, plaintiffs had “knowledge of the fact that [Sultan] ha[d] no such authority” … . Pasquarella v 1525 William St LLC, 2014 NY Slip Op 05745, 4th Dept 8-8-14

 

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In the Absence of an Express Agreement that the Plaintiff Was Entitled to a Commission Upon the Sale of Assets by the Principal, the Agreement Created an Exclusive Agency, which Merely Precluded the Principal from Hiring Another Agent, but Did Not Create, in the Agent, an Exclusive Right to Sell

The Court of Appeals, in a full-fledged opinion by Judge Lippman, over a dissent, in another case arising from the “toxic debts” crisis, determined that the plaintiff was an exclusive agent for the sale of assets, and was not granted an exclusive right to sell the assets. If plaintiff had been granted an exclusive right to sell, it may have been entitled to a commission when the assets were sold by the principal.  But, since the contract was silent about the plaintiff's right to a commission when the principal sells the assets, plaintiff was granted only an exclusive agency for the sale of the assets and the principal could sell the assets without any obligation to pay a commission to the plaintiff.  The exclusive agency agreement only precluded the principal from hiring another agent:

The distinction between an exclusive agency and an exclusive right to sell is well established in a body of Appellate Division case law … . As stated nearly a century ago, “The general rule is that where an exclusive right of sale is given a broker, the principal cannot make a sale [herself] without becoming liable for the commissions. But where the contract is merely to make the broker the sole agent, the principal may make a sale [herself] without the broker's aid, if such sale is made in good faith and to some purchaser not procured by the broker”… .

Put differently, “[a] broker is entitled to a commission upon the sale of the property by the owner only where the broker has been given the exclusive right to sell; an exclusive agency merely precludes the owner from retaining another broker in the making of the sale” … . We have endorsed this dichotomy implicitly in the past …, and now do so explicitly.

Furthermore, we agree with the case law of the lower courts holding that a contract giving rise to an exclusive right of sale must “clearly and expressly provide[] that a commission is due upon sale by the owner or exclude[] the owner from independently negotiating a sale” … . Requiring an affirmative and unequivocal statement to establish a broker's exclusive right to sell is consistent with the general principle that an owner's freedom to dispose of her own property should not be infringed upon by mere implication. Morpheus Capital Advisors LLC v UBS AG, 2014 NY Slip Op 04112, CtApp 6-10-14

 

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A Gallery, as Agent for an Artist, Was Obligated to Disclose All Material Facts Within the Scope of the Agency/The Failure to Disclose the Gallery’s Intention to Treat Prints Made from the Artist’s Originals as Belonging to the Gallery Precluded Any Claim of Ownership by the Gallery

In a full-fledged opinion by Justice Friedman, the First Department determined the terms of the contract between a gallery and an artist (Scher) designated the gallery as the artist’s agent with respect to prints created from the artist’s original works. Therefore, the artist was the owner of the prints.  In addition, the court determined, under the General Obligations Law, the terms of a written contract were not changed by an alleged oral agreement:

…[S]ection 1 of the 2005 agreement (“Scope of Agency”) expressly provides that Scher was appointing the Gallery “to act as [her] exclusive agent . . . for the exhibition and sales of . . . limited edition prints published exclusively by [the] [G]allery,” among other kinds of artwork, for the duration of the agreement. Thus, when the Gallery commissioned the printer to produce the prints, paid the printer for the prints, and took delivery of the prints, it did so as Scher’s agent and, hence, fiduciary … . Accordingly, the prints must be deemed to be Scher’s property… . …

As Scher’s fiduciary, the Gallery was obligated to disclose to her in plain terms all material facts within the scope of the agency, obviously including any understanding the Gallery had, upon entering with Scher into the oral print deal, that it would own the prints and any intention it entertained to treat the prints as its own property … . If the Gallery did not wish to finance the production of prints that it would not own, it could have sought to reach an agreement with Scher specifying that prints made at the Gallery’s expense would be the Gallery’s property. Alternatively, if the Gallery merely wished to protect itself from being abruptly terminated as Scher’s agent before it had a fair chance to sell the prints, it could have sought to reach an agreement with her on a minimum time-period it would have to sell each batch of prints during which the agency could not be terminated without cause. Instead, the Gallery left itself exposed by going forward with the print deal based on only a vague, unwritten agreement that left nearly all of the terms up in the air except for the basic 90/10 split of sales revenue (and even as to that, there is a dispute as to whether Scher’s cut is calculated based on gross or net sales). We see no reason to relieve a fiduciary, such as this professional art merchant, of the consequences of its own carelessness in dealing with its principal.  Scher v Stendhal Gallery Inc, 2014 NY Slip Op 02154, 1st Dept 3-27-14

 

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Agent for Partially Disclosed Principal Is Personally Liable on the Contract

In finding the agent (Sussman) liable for a contract because the principal was not fully disclosed, the Second Department wrote:

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…[The evidence] indicates at best that Sussman was acting as an agent for a “partially disclosed principal,” in that the agency relationship was known, but the identity of the principal remained undisclosed (Restatement [Second] of Agency § 4[2]…). As an agent for an undisclosed principal, Sussman became personally liable under the contract (…Restatement [Second] of Agency § 321). Stonhard v Blue Ridge Farms, LLC, 2014 NY Slip Op 00985, 2nd Dept 2-13-14

 

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Garagekeeper’s Lien Ineffective Against Owner of Leased Vehicle/Lessee Did Not Have Apparent Authority to Consent to Vehicle Repair and Storage on Owner’s Behalf

A leased vehicle was damaged by hail and the lessee brought the car to respondent’s garage for repairs.  When no one picked up the car or paid for the repairs, the garage served a garagekeeper’s lien on the owner (lessor) of the vehicle.  The Third Department determined the lien was not effective against the owner, who never consented to the repairs or storage of the vehicle, and the lessee did not have apparent authority to consent on the owner’s behalf:

Supreme Court properly held that respondent failed to establish the validity of its garagekeeper’s lien.  A garage owner is entitled to such a lien if he or she establishes that the garage is duly registered as a repair shop as required by statute, is the bailee of a motor vehicle, performed garage services or storage with the vehicle owner’s consent, and the parties had agreed upon a price or – absent such agreement – the charges were reasonable … .  The dispositive issue here is whether respondent provided repair services and storage with the owner’s consent.  It is undisputed that respondent never had any communication with petitioner, the title owner, until well after the repairs were performed.  …

While a lessee may be considered an owner for purposes of Lien Law § 184 if he or she has apparent authority …, “[a]pparent authority will only be found where words or conduct of the principal – not the agent – are communicated to a third party, which give rise to a reasonable belief and appearance that the agent possesses authority to enter into the specific transaction at issue” … .  Respondent does not indicate that it undertook any steps to determine the scope of the [lessee’s]  authority… .  Petitioner’s actions in allowing [lessee] to register the vehicle in New Jersey and … to obtain insurance on the vehicle do not constitute permission to enter into a transaction that would allow a lien to attach to the vehicle.  Respondent does not point to any other words or actions of petitioner…that could create a reasonable belief that [the lessee] had authority to enter into a transaction as an owner, so as to permit the creation of a garagekeeper’s lien.  Matter of Daimler Trust…v SG Autobody LLC, 516792, 3rd Dept 12-12-13

 

 

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No Need for Proof of Agent’s Authority—Five-Day Notice Demanding Rent Valid

The Second Department determined a five-day notice demanding unpaid rent under a lease was not invalid because it was signed by a purported agent of the landlord without proof of the agent’s authority to act for the landlord.  In so finding, the Second Department distinguished a case relied upon by the tenant:

…[T]he Appellate Term properly distinguished this Court’s decision in Siegel v Kentucky Fried Chicken of Long Is. (108 AD2d at 221). … Siegel is limited to the “factual peculiarities” of the lease in that case. The lease in Siegel, unlike the lease in the case at bar, designated certain rights that were to be exercised by “the Landlord or Landlord’s agent[ ]” and designated the landlord’s attorney by name, while the three-day forfeiture notice that was the subject of that dispute was sent by another attorney, who was unknown to the tenant …. The relevant provision of the lease herein (hereinafter the notice provision), provided that the “Landlord shall give Tenant written notice of default stating the type of default,” and, unlike the lease in Siegel, did not expressly obligate [landlord] to act only personally or through an identified agent. Consequently, although the notice indicated that it was signed by [landlord’s] previously unidentified agent, the failure to include evidence of the agent’s authority to bind the landlord, which we found necessary in Siegel, did not render [landlord] noncompliant with the requirements of the notice provision (see RPAPL 711[2]), and did not render the notice invalid. Matter of QPII-143-45 Sanford Ave, LLC v Spinner, 2013 NY Slip Op 05083, 2nd Dept 7-3-13

 

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Hospital Can Be Vicariously Liable for Actions of Non-employee Physician Under Apparent or Ostensible Agency Theory

The Second Department explained when a hospital can be held vicariously responsible, under a theory of apparent or ostensible agency, for the actions of non-employee physicians who provide medical services at the hospital:

“A hospital [is] responsible to a patient who sought medical care at the hospital, . . . rather than from any particular physician although the physician whose malpractice caused injury to the patient was not an employee of the hospital”… . To create an apparent or ostensible agency, the plaintiff must reasonably rely on the appearance of authority, based on some misleading words or conduct by the principal, not the agent. Moreover, the plaintiff must accept the services of the agent in reliance upon the perceived relationship between the agent and the principal, and not on reliance on the agent’s skill…. In the context of a medical malpractice action, the patient must have reasonably believed that the physicians treating her were provided by the hospital or acted on the hospital’s… . In evaluating whether a doctor is the apparent agent of a hospital, a court should consider all attendant circumstances to determine whether the patient could properly have believed that the physician was provided by the hospital… .  Loaiza v Lam, 2013 NY Slip Op 04780, 2nd Dept 6-26-13

 

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