52 N.E.3d 186
Mass. App. Ct.2016Background
- Fergus sought hard-money financing to complete renovations on a Roxbury property; could not get conventional financing and was introduced to broker Bernard Laverty, Jr.
- Laverty arranged for Attorney Steven A. Ross (GMR) to make a $260,000 loan; Ross dealt with Laverty exclusively and prepared all loan paperwork; Fergus never communicated directly with Ross.
- Laverty pressured Fergus to include a $120,000 short-term “side loan” to Laverty out of the Ross loan proceeds, promising a deed‑in‑lieu on a Marshfield property as security; closing documents did not reflect or protect that side loan.
- Fergus repaid the $260,000 to Ross’s trust but Laverty did not repay the $120,000 and later went bankrupt; Fergus sued Ross and others; after a bench trial the judge found for Fergus on negligence against Ross individually.
- The judge found (1) Laverty functioned as Ross’s agent in arranging the Ross loan, (2) Ross’s conduct (communicating solely through Laverty, setting an inflated loan amount, permitting Laverty’s role at closing) gave rise to Laverty’s apparent authority to bind Ross with respect to the side loan, and (3) Laverty’s knowledge and conduct were imputable to Ross, so Ross was liable to Fergus.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Laverty had apparent authority to bind Ross as closing agent for the side loan | Fergus: Ross’s words/conduct (using Laverty as sole conduit, preparing documents, setting inflated loan, allowing Laverty at closing) created reasonable belief Laverty could bind Ross for the side loan | Ross: He lacked actual knowledge; Laverty concealed the side loan; inflated loan amount and missing referral fee do not show authority to bind Ross for an undisclosed side loan | Held for Fergus: evidence supported apparent authority extending to the side loan; Ross’s conduct reasonably caused Fergus to rely on Laverty’s authority |
| Whether Laverty’s knowledge is imputable to Ross despite alleged fraud | Fergus: Laverty’s knowledge is imputable because Ross’s conduct created apparent authority and the side loan benefited Ross/GMR; Fergus acted in good faith | Ross: Laverty acted fraudulently and independently, so his knowledge should not be imputed to Ross | Held for Fergus: judge credited Laverty’s testimony as not intentionally fraudulent; side loan not against Ross’s interest and imputation appropriate to protect innocent third party |
| Whether Ross had duty to document/protect the side loan as closing attorney | Fergus: As closing agent for both loans (by apparent authority), Ross owed a duty to document/protect Fergus’s interest in the side loan | Ross: He did not know of side loan and therefore had no duty regarding it | Held for Fergus: duty arose from apparent authority; Ross could and should have ensured documentation protecting Fergus |
| Whether judge’s findings were clearly erroneous | Fergus: findings supported by record and inferences; appellate court should not substitute its view | Ross: findings rest on speculation (inflated amount, no referral fee); insufficient to infer Ross knew or should have known of side loan | Held for Fergus: appellate review defers to trial judge; findings not clearly erroneous given the evidence |
Key Cases Cited
- Weiler v. Portfolio-Scope, Inc., 469 Mass. 75 (standard for appellate review of bench findings)
- J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789 (definition of clearly erroneous standard)
- Theos & Sons, Inc. v. Mack Trucks, Inc., 431 Mass. 736 (agency requires consent and control)
- Haufler v. Zotos, 446 Mass. 489 (apparent authority and agency liability principles)
- Licata v. GGNSC Malden Dexter LLC, 466 Mass. 793 (only principal’s words/conduct govern apparent authority inquiry)
- DeVaux v. American Home Assur. Co., 387 Mass. 814 (apparent authority and reasonable reliance by third party)
- Linkage Corp. v. Trustees of Boston Univ., 425 Mass. 1 (apparent authority and imputation to protect innocent third parties)
- Kansallis Fin. Ltd. v. Fern, 421 Mass. 659 (principal may bear loss when business transacted only through agent)