Commercial Division Blog

Posted: August 10, 2014 / Categories Commercial, Contracts, Principal and Agent

Company Bound by Apparent Authority it Created in Former Officer

On August 8, 2014, the Fourth Department issued a decision in Pasquarella v. 1525 William St., LLC, 2014 NY Slip Op. 05745, holding that the defendant was bound by the apparent authority it created in its former president.

In Pasquarella, the trial court granted the plaintiff summary judgment on its cause of action for specific performance of a contract for the sale of real estate. In doing so, the court rejected the defendant's argument that the person who signed the contract of sale--Sultan--lacked authority to do so, making the contract ineffective. The Fourth Department affirmed, explaining:

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. In addition, the record establishes that defendant allowed its attorney to act in a manner consistent with Sultan's continued authority, and that defendant accepted the deposit that plaintiffs provided to that attorney in conjunction with the signing of the contract, thus giving rise to the appearance and belief that Sultan possessed authority to enter into the transaction. Defendant therefore allowed Sultan to represent that he had the requisite authority, and it may not now be denied.

(Internal quotations and citations omitted).