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Current Developments in the Commercial Divisions of the
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Posted: August 7, 2017

Intermediary Was Not Agent With Authority to Bind Trust

On August 1, 2017, Justice Friedman of the New York County Commercial Division issued a decision in Arnon Ltd (IOM) v. Beierwaltes, 2017 NY Slip Op. 31605(U), holding that an intermediary was not an agent with authority to bind a trust with respect to the purchase of artwork.

First, the court discussed the principles of actual and apparent authority, explaining:

Agency may be based on actual or apparent authority of the agent to act on behalf of the principal. Actual authority, in turn, may be based on an express or direct grant of authority to the agent or may be implied based on the principal’s manifestations which, though indirect, would support a reasonable inference of an intent to confer such authority. Implied actual authority must be based on a showing that the principal performed verbal or other acts that gave the agent the reasonable impression that he had authority to enter into the contract. Apparent authority must be based on 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. Moreover, a third party with whom the agent deals may rely on an appearance of authority only to the extent that such reliance is reasonable.

Next, the court examined the question of whether the alleged principal’s failure to respond to an e-mail that implied that the intermediary was the principal’s agent created authority in the intermediary:

In discussing the effect of Ms. de Carte’s silence in response to the email, Amon does not distinguish between implied actual authority and apparent authority, and does not cite legal authority on the effect of such silence on these separate bases for authority. There is case law that silence may, under appropriate circumstances, manifest authority, although New York law on this issue does not appear to be extensive.

Here, however, the silence of Ms. de Carte in response to the January 12 email is insufficient as a matter of law to manifest either implied actual or apparent authority. Ms. de Carte is neither directly addressed in the email, nor identified as a representative of Amon. The email address used for Ms. de Carte is a Trident, not Amon, address, and there is no indication in the email that Trident and Amon are interrelated entities. As defendants correctly point out, there is nothing on the face of the email to connect Ms. de Carte with Amon. Further, the email does not detail the terms of the sale of the Kore, and it affirmatively states that Arnon is part of Mr. Sofer’s trust and is managed by independent directors. Ms. de Carte’s failure to respond, within a very short time frame, to such an email could not have led a reasonable person in defendants’ position to conclude that Ms. de Carte, and through her, Amon, bestowed on Mr. Sofor the authority to bind Amon to a $650,000 contract.

Ms. de Carte’s silence in response to the January 12 email thus fails to raise a triable issue of fact as to apparent authority. Ms. de Carte’s silence in response to this email similarly fails to raise a triable issue of fact as to Amon’s claim that Amon bestowed implied actual authority on Mr. Sofer for the one Kore transaction. . . . Mr. Sofer and Ms. de Carte repeatedly testified that Mr. Sofer recommended purchases but that only Amon had the power to contract for them, and that formal approval was required. In the face of this testimony, Ms. de Carte’s non-response to the January 12 email could not have given Mr. Sofer the reasonable impression that he had authority to enter into this one contract. At most, Ms. de Carte’s silence could be interpreted as manifesting agreement that Mr. Sofer was authorized to engage in intermediary discussions or negotiations, but that the independent directors referred to in the January 12, 2013 email must still make the final decision as to whether to bind Amon to the purchase and must approve a formal written contract.

Amon’s reliance on prior dealings is also insufficient to raise a triable issue of fact as to Mr. Sofer’s apparent authority to bind Amon to the one Kore transaction. As a general rule, the mere creation of an agency for some purpose does not automatically invest the agent with apparent authority to bind the principal without limitation. An agent’s power to bind his principal is coextensive with the principal’s grant of authority. Further, the existence of apparent authority depends upon a factual showing that the third party relied upon the misrepresentations of the agent because of some misleading conduct on the part of the principal not the agent.

(Internal quotations and citations omitted).

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