Summary
The Supreme Judicial Court of Massachusetts reversed a negligence judgment against an attorney arising from a real estate loan and an unsecured side loan arranged by an intermediary. The court held that the intermediary lacked apparent authority to bind the attorney concerning the side loan, and therefore the intermediary's knowledge could not be imputed to the attorney. The court did not reach whether the attorney otherwise owed the plaintiff a duty as a closing agent.
Topics
Practice areas
Questions Presented
- Whether the trial judge had an adequate basis to find that Laverty possessed apparent authority from Ross to bind Ross with respect to the side loan.
- Whether Laverty's knowledge of the side loan and its lack of security could be imputed to Ross so as to support negligence liability.
- Whether Ross owed Fergus a duty as the closing agent for the transaction.
Holdings
- The factual findings were insufficient to establish that Ross manifested assent to Laverty's authority to bind him or act on his behalf concerning the side loan.
- Laverty's knowledge could not be imputed to Ross because Laverty lacked apparent authority concerning the side loan, and Ross had neither actual knowledge nor knowledge establishing ratification.
- On the theory pleaded and found by the trial judge, Ross could not be negligent for failing to disclose or disavow facts he did not know, either actually or constructively.
Key quotations
“Critically, "[o]nly the words and conduct of the principal, . . . and not those of the agent, are considered in determining the existence of apparent authority."” (477 Mass. at 8)
“Thus, the theory of negligence on which the defendant was found liable fails, because it was premised on the imputation of Laverty's knowledge to the defendant pursuant to the alleged agency relationship.” (477 Mass. at 14)
Factual background
Joseph Fergus sought private financing for renovations to a Dorchester property and was referred to Bernard Laverty, Jr., who had an existing relationship with Attorney Steven A. Ross and Ross's private lending operation. Laverty persuaded Fergus to borrow additional funds and make a $120,000 side loan to Laverty, supposedly secured by a deed in lieu of mortgage on property in Marshfield. Ross and his law firm prepared a $260,000 loan through the Wisconsin Avenue Lending Trust, but the commitment letter and closing documents did not mention the side loan, and Ross lacked actual knowledge that the side loan existed or that Laverty lacked title to the proposed collateral. Laverty defaulted, leaving the side loan unsecured.
Procedural history
Fergus commenced the civil action in the Suffolk County Superior Court on August 31, 2010. After a jury-waived trial, Judge Frances A. McIntyre found Ross negligent for failing to disclose that a side loan arranged during a real-estate-loan transaction was unsecured. The Appeals Court affirmed, and the Supreme Judicial Court granted Ross's application for further appellate review.