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SJC-12231

                JOSEPH FERGUS   vs.   STEVEN A. ROSS.1



            Suffolk.     April 4, 2017. - August 2, 2017.

 Present:    Gants, C.J., Lenk, Hines, Gaziano, Lowy, & Budd, JJ.



Agency, Scope of authority or employment.     Attorney at Law,
     Attorney-client relationship.



     Civil action commenced in the Superior Court Department on
August 31, 2010.

     The case was heard by Frances A. McIntyre, J.

     After review by the Appeals Court, the Supreme Judicial
Court granted leave to obtain further appellate review.


     Arnold E. Cohen for the defendant.
     Gordon E. Feener (Danielle F. Wehrli also present) for the
plaintiff.


     LOWY, J.    In a jury-waived trial, a Superior Court judge

determined that the defendant, Attorney Steven A. Ross, was

negligent for his part in financing a real estate loan to the

     1
       Individually and as trustee of the Wisconsin Avenue
Lending Trust.
                                                                     2


plaintiff, Joseph Fergus.    The judge found that the defendant

had conferred apparent authority on an individual, Bernard

Laverty, Jr., to act as his agent for the loan.     In the course

of arranging the loan, unbeknownst to the defendant, Laverty

asked the plaintiff to use a portion of the loan from the

defendant to make a secured "side loan" to Laverty.    The

plaintiff agreed.   Ultimately, however, the side loan was

unsecured and Laverty defaulted.     Relying on the rule that

imputes the knowledge of an agent to the principal, the judge

found that the defendant was negligent for failing to inform the

plaintiff prior to the closing that the side loan was not

secured.   We now reverse, concluding that the facts found by the

trial judge failed to establish that Laverty had the apparent

authority to bind the defendant with respect to the side loan.

    Background.     The judge made the following factual findings,

which the parties do not dispute on appeal.

    The plaintiff, a regular purchaser and seller of real

estate, needed between $75,000 and $100,000 to complete

renovations of a property in the Dorchester section of Boston.

Unable to acquire conventional financing for the project, he

inquired about private financing through a mortgage broker, who

referred the plaintiff to Laverty.

    Laverty had an existing relationship with the defendant,

who operated a private lending operation through his law firm.
                                                                    3


Laverty had received five or six loans from the defendant and

had previously referred potential borrowers to the defendant.

Laverty informed the defendant of the plaintiff's desire for a

loan.   Although the defendant had paid Laverty referral fees on

other occasions, he did not do so for the plaintiff's loan.

    When the plaintiff and Laverty met, Laverty implored the

plaintiff to seek more money than he needed for the renovations,

so that the plaintiff could make a side loan to Laverty.

Laverty needed $120,000 to close on a residential property in

Marshfield.    Laverty offered to provide the plaintiff "a deed-

in-lieu" of a mortgage to secure the side loan.    The plaintiff

agreed.   Notwithstanding his ultimate failure to do so, Laverty

intended to provide the deed-in-lieu and to repay the $120,000.

    Prior to the closing, the plaintiff had no direct contact

with the defendant.    Rather, all discussions with the defendant

and the law firm regarding the loan were conducted by Laverty,

outside of the plaintiff's presence.    Although the defendant

insulated himself from any direct contact with the plaintiff,

the parties arranged, through Laverty, for the defendant's wife

to inspect the Dorchester property, on the law firm's behalf.

She was told that the proceeds of the loan would be used for the

renovations.

    The law firm set the value of the loan to the plaintiff at

$260,000, which included the costs of the loan itself such as
                                                                   4


prepaid interest, origination fees, and appraisal and legal

fees.   This amount provided sufficient funds for the plaintiff

to spend the necessary $75,000 to $100,000 on renovations at the

Dorchester property and make the $120,000 side loan to the

defendant.   The law firm created an entity for the sole purpose

of providing the loan, as had apparently been its practice for

other loans, called the Wisconsin Avenue Lending Trust (trust).

The trustee for this entity was an apparently fictitious

individual named "Ronald Williams," although it was not clear

that the entire trust was built of straw.

     The trust formally communicated its offer for the $260,000

loan (Dorchester loan) by way of a commitment letter, signed by

the defendant on behalf of the trust.   On September 10, 2007,

Laverty brought the commitment letter specifying the terms to

the plaintiff, who accepted that day.   The plaintiff also agreed

to pay the $2,500 legal fees of the lender.   The letter did not

mention the side loan.   Nevertheless, the plaintiff signed the

letter and gave it to Laverty to give to the law firm, relying

on Laverty's representations that the defendant would serve as

the closing agent for both the Dorchester loan and the side

loan.

     On the same day, the plaintiff also handwrote a letter to

the defendant, explaining that Laverty was to receive a $120,000

loan from the plaintiff, drawn from the proceeds of the
                                                                    5


Dorchester loan.   The letter authorized the defendant to arrange

the requisite paperwork for the side loan.     Laverty also took

this letter, representing to the plaintiff that he would deliver

it to the defendant.   He never did so.

    The next day, Laverty drove the plaintiff to the

defendant's office for the closing, where the plaintiff and the

defendant met for the first time.   The plaintiff signed all of

the loan documents, without reading them, but with an

understanding of the fundamental requirements:     he would be

obligated to pay back the principal within ninety days and he

was granting a mortgage.   The side loan, however, was not

mentioned at the closing or referenced in any of the documents.

Nor did Laverty have title to the Marshfield property such that

he could provide the plaintiff a deed-in-lieu of a mortgage.

The plaintiff signed the documents with a willingness to be

bound by them.   The next day, the plaintiff obtained a bank

check in the amount of $120,000, payable to Laverty.     Laverty

subsequently declared bankruptcy and did not repay the

plaintiff.

    The judge concluded that the defendant had a duty as the

"closing agent" for the transaction to advise the plaintiff

regarding the deficiencies of the side loan.    Although the

defendant did not have actual knowledge of the side loan or its

terms, the defendant was deemed to have constructive knowledge
                                                                      6


through his agent, Laverty.     The defendant did not inform the

plaintiff that Laverty lacked title to the property that was to

serve as security for the side loan, and thus, the judge found,

the defendant committed a breach of this duty.     The judge

credited the plaintiff's testimony that he would not have

proceeded with the side loan if he had known it was unsecured.

     The defendant timely appealed, and the Appeals Court

affirmed.     Fergus v. Ross, 89 Mass. App. Ct. 528, 535-536

(2016).     We granted the defendant's application for further

appellate review and now reverse.

     Discussion.     On appeal, the defendant argues that the judge

erred in two key respects.     First, the defendant argues that the

judge lacked an adequate basis to find that the defendant had

conferred apparent authority on Laverty with respect to the side

loan.   Second, the defendant claims that he owed no duty to the

plaintiff regarding the side loan as the "closing agent" for the

Dorchester loan.

     We agree that there was an insufficient basis to conclude

that the defendant conferred apparent authority on Laverty for

the side loan.     As a result, the defendant lacked constructive

knowledge of the side loan, which was essential to the breach of

the alleged duty.     Thus, the finding of negligence must be

reversed.
                                                                       7


    1.   Agency.   "[T]he question of agency is usually an issue

for the fact finder."     Theos & Sons, Inc. v. Mack Trucks, Inc.,

431 Mass. 736, 742 (2000) (Theos).     Thus, the question before us

is whether there was an adequate basis for the judge to conclude

that an agency relationship existed, pursuant to Laverty's

apparent authority.

    Generally, an agency relationship is created by express or

implied mutual consent that an agent will "act on behalf and for

the benefit of the principal, and subject to the principal's

control."   Theos, 431 Mass. at 742.    See Restatement (Third) of

Agency § 1.01 (2006).     See also Haufler v. Zotos, 446 Mass. 489,

498 (2006) (judge's finding of agency not clearly erroneous).

The agent may impose legal obligations or otherwise bind the

principal, based on the agent's either actual or apparent

authority to do so.     Theos, supra at 743.   A principal is liable

for the agent's conduct when the agent acts with "the actual or

apparent authority of the principal in that transaction."        Id.

In this case, the judge found an agency relationship between the

defendant and Laverty based exclusively on apparent authority.

    Apparent authority exists when the principal, by his or her

words or conduct, causes a third person to reasonably believe

that the principal consents to the agent acting on the

principal's behalf.     Licata v. GGNSC Malden Dexter LLC, 466

Mass. 793, 801 (2014).    Critically, "[o]nly the words and
                                                                      8


conduct of the principal, . . . and not those of the agent, are

considered in determining the existence of apparent authority."

Id.   The principal's manifestation of apparent authority does

not need to be direct communication with the third party.    See

Restatement (Third) of Agency, supra at §§ 2.03, 3.03.     See also

Menard & Co. Masonry Bldg. Contractors v. Marshall Bldg. Sys.,

Inc., 539 A.2d 523, 526 (R.I. 1988).   The principal can also

ratify an agent's conduct after the fact, by "acquiesc[ing] in

the agent's action, or fail[ing] promptly to disavow the

unauthorized conduct after disclosure of material facts"

(citation omitted).   Licata, supra at 802.

      The judge found that the defendant's conduct allowed the

plaintiff reasonably to conclude that Laverty had the authority

to act on the defendant's behalf with respect to the side loan,

relying primarily on four facts.   First, the defendant had no

contact with the plaintiff until the closing.   All communication

from the defendant to the plaintiff, and vice versa, went

through Laverty.   Thus, it was through Laverty that the

defendant's wife inspected the property on behalf of the law

firm.   Second, the plaintiff never requested a specific amount

for the loan, but rather the terms in the commitment letter were

set by the law firm, ostensibly pursuant to Laverty's

representations.   Third, Laverty had, in the past, referred

borrowers to the defendant in exchange for a fee, although no
                                                                      9


such fee was paid in this case.   Fourth, the closing took place

in the law firm's office, where Laverty brought the plaintiff.

Laverty remained there throughout the closing, urging the

plaintiff to sign the papers.

     These facts may well have been sufficient to conclude that

Laverty was the defendant's agent with respect to the Dorchester

loan.    See DeVaux v. American Home Assur. Co., 387 Mass. 814,

816-817, 819 (1983) (fact finder could conclude that attorney's

secretary, who answered telephone, gave advice to prospective

client, and misfiled client's letter requesting service, had

apparent authority to bind attorney who lacked actual

knowledge).   As such, the defendant could have been liable for

any fraudulent, negligent, or deceitful conduct by Laverty.     The

judge, however, specifically found that Laverty lacked any

fraudulent intent, and she did not make any finding that Laverty

was negligent.2




     2
       We note also that, although the judge found that the
defendant "entirely insulated himself" from direct contact with
the plaintiff, the judge did not find that the defendant was
wilfully ignorant of the side loan. See Licata v. GGNSC Malden
Dexter LLC, 466 Mass. 793, 802 (2014) (there may be ratification
of agent's conduct "when [the principal] shuts his eyes to means
of information within his own possession and control, and
ratifies an act deliberately" [citation omitted]). Furthermore,
the judge rejected the plaintiff's claims pursuant to G. L.
c. 93A, for breach of contract, and for fraudulent
misrepresentation, and the plaintiff does not appeal from those
rulings.
                                                                    10


    Instead, the defendant's liability was premised on

Laverty's theoretical apparent authority to bind the defendant

to assume some form of responsibility for the side loan.     Yet,

the judge did not find any conduct of the defendant that related

specifically to his acquiescence to, or ratification of,

Laverty's conduct regarding the side loan.

    Although the judge identified facts suggesting that Laverty

was, in some capacity, the defendant's agent, they do not

connect any manifestation of acquiescence by the defendant to

the side loan.   See Licata, 466 Mass. at 801-802 (alleged

agent's signature as authorized representative did not establish

apparent authority in absence of manifestation of assent by

principal).   To the contrary, the plaintiff knew from the outset

that he was receiving a loan from the trust, through the

defendant and his law firm, and the judge did not find that the

plaintiff believed that Laverty was the defendant's employee.

Contrast DeVaux, 387 Mass. at 819 & n.10 (factual question

whether attorney's secretary had actual or apparent authority to

establish attorney-client relationship).   Only the words and

conduct of the would-be agent, Laverty, connected the defendant

to the side loan, and they are insufficient to create apparent

authority as to the side loan.   See Licata, supra at 801; Theos,

431 Mass. at 745.
                                                                  11


     Nor do the findings of the judge support a conclusion that

the defendant ratified Laverty's representations after the fact.

Where authority is premised on ratification by the principal,

the "[r]atification must be based upon full knowledge of all

material facts," or evidence of wilful ignorance.   Licata, 466

Mass. at 802, quoting Kidder v. Greenman, 283 Mass. 601, 615

(1933).   By the same token, a principal does not have an

obligation to disavow the agent's conduct, in the absence of

actual knowledge.   Licata, supra at 803, citing See v. Norris,

234 Mass. 345, 348 (1920).   The judge did not find that the

defendant knew about the side loan, and specifically found that

the defendant did not know that Laverty lacked the title for the

property intended to serve as security for the side loan.3




     3
       The Appeals Court and the parties have made much of the
judge's "belie[f]" that the defendant "may well have known"
about the side loan, based on the amount by which the Dorchester
loan exceeded the cost of the renovations. See Fergus v. Ross,
89 Mass. App. Ct. 528, 533-534 (2016). Whether this constitutes
a finding that the defendant knew generally of the side loan is
not clear. The judge's findings, however, are clear that the
defendant did not actually know the details of the side loan
that he failed to disclose (i.e., that the side loan was not
secured). Instead, the defendant's liability was premised
exclusively on constructive knowledge pursuant to his agency
relationship with Laverty. Therefore, anything that the
defendant might -- or should -- have known about the side loan
or Laverty's lack of title is irrelevant to the theory of
negligence for which the defendant was ultimately found liable.
We make no ruling as to whether the defendant could have been
found liable using a different theory of negligence on these
facts.
                                                                    12


Further, the judge did not find that the defendant was wilfully

ignorant of these facts.

     Moreover, the commitment letter and loan documents prepared

by the defendant made no mention of the side loan.    Thus, if the

plaintiff had read the documents, he would have seen that the

defendant was not contemplating the side loan to Laverty as part

of the Dorchester loan to the plaintiff.    See Licata, 466 Mass.

at 802.   See also Haufler, 446 Mass. at 501 ("The general rule

is, that, in the absence of fraud, one who signs a written

agreement is bound by its terms whether he reads and understands

it or not" [citation omitted]).    Based on these findings by the

judge, it was not reasonable for the plaintiff to rely "on

everything that was told [to him by Laverty] about getting this

loan," instead of the contents of the loan documents.4    See

Licata, supra.

     2.   Duty of care.   The defendant also argues that he could

not owe a duty to the plaintiff as a "closing agent" for the

transaction, where the judge found that the defendant and

plaintiff did not form an attorney-client relationship.     We need


     4
       The judge found that the plaintiff expected to receive the
deed-in-lieu of a mortgage for the Marshfield property at some
later point in time. The judge's findings do not specify
whether the plaintiff understood that he was not signing any
documents related to the side loan at the closing. The judge's
findings, however, appear to reflect that the plaintiff did not
understand the documents he was signing, and also that he did
not read them.
                                                                   13


not examine whether a duty would have been owed if Laverty had

possessed the apparent authority to impose a duty of care upon

the defendant, or whether Laverty's representation that the

defendant would "take care of everything" constituted an

enforceable promise on these facts.    See Robertson v. Gaston

Snow & Ely Bartlett, 404 Mass. 515, 524, cert. denied, 493 U.S.

894 (1989) ("[A]n attorney owes a duty to nonclients who the

attorney knows will rely on the services rendered").

    In this case, the theory of negligence was premised on

imputing Laverty's knowledge of the side loan to the defendant,

as a result of their agency relationship.    See Sunrise Props.,

Inc. v. Bacon, Wilson, Ratner, Cohen, Salvage, Fialky &

Fitzgerald, P.C., 425 Mass. 63, 66-67 (1997) (agent's knowledge

imputed to principal in absence of fraud by agent that does not

benefit principal).    Because Laverty lacked the requisite

apparent authority, Laverty's knowledge is not imputable to the

defendant.   See id.   Therefore, the defendant cannot be

negligent for failing to disclose or disavow that which he did

not know, either actually or constructively.

    Conclusion.    The facts found by the judge are insufficient

to conclude that Laverty had apparent authority from the

defendant to bind the defendant as a closing agent for the side

loan.   No conduct of the defendant manifested acquiescence to

participation in the side loan.   Nor did the defendant ratify
                                                                14


Laverty's conduct after the fact, because the loan documents

drafted by the defendant contained no reference to the side

loan.   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.

                                    Judgment reversed.
