No. 38 June 16, 2016 715

IN THE SUPREME COURT OF THE

STATE OF OREGON

John HARKNESS

and Sherri Harkness,

Petitioners on Review,

v.

Jack R. PLATTEN,

Respondent on Review.

(CC C092970CV; CA A147439; SC S063222)

On review from the Court of Appeals.*

Argued and submitted March 4, 2016.

Emil R. Berg, Boise, Idaho, argued the cause and filed 

the brief for petitioners on review. With him on the brief was 

Leonard D. DuBoff, The Duboff Law Group, Portland.

James M. Callahan, Callahan & Shears, P.C., Portland, 

argued the cause and filed the brief for respondent on review.

Scott A. Shorr, Stoll Stoll Berne Lokting & Shlachter 

PC, Portland, filed the brief for amicus curiae Oregon Trial 

Lawyers Association.

Before Balmer, Chief Justice, Kistler, Walters, Landau, 

Baldwin, Brewer, Justices, and DeVore, Justice pro tempore.**

BALDWIN, J.

The decision of the Court of Appeals is reversed. The 

judgment of the circuit court is reversed, and the case is 

remanded to the circuit court for further proceedings.

______________

** Appeal from Washington County Circuit Court, Charles D. Bailey, Judge. 

270 Or App 260, 348 P3d 1145 (2015)

** Nakamoto, J., did not participate in the consideration or decision of this 

case.
716 Harkness v. Platten

Case Summary: A loan officer employed successively by two mortgage companies defrauded plaintiffs by means of an investment and loan scheme. Plaintiffs 

filed suit against the loan officer and the mortgage companies and, with the 

advice of defendant—their attorney—settled the case. Plaintiffs then filed this 

legal malpractice and negligent misrepresentation action against defendant, 

alleging, among other things, that, but for defendant’s legal malpractice or negligent misrepresentation, they would have gone to trial in the underlying action 

against the loan officer and mortgage companies, prevailed, and been awarded 

more than the amount that they had received in the settlement. Defendant moved 

for a directed verdict on the ground that plaintiffs could not have prevailed in 

the underlying action because they failed to present sufficient evidence of the 

loan officer’s apparent authority to act on behalf of the mortgage companies. The 

trial court granted the directed verdict, and the Court of Appeals affirmed. Held: 

The plaintiffs presented sufficient evidence for a reasonable factfinder to infer 

that the loan officer had apparent authority to bind the mortgage companies to 

the loan transactions arranged by the loan officer between plaintiffs and third 

parties.

The decision of the Court of Appeals is reversed. The judgment of the circuit court is reversed, and the case is remanded to the circuit court for further 

proceedings.
Cite as 359 Or 715 (2016) 717

BALDWIN, J.

This is a legal malpractice and negligent misrepresentation case where we review a trial court judgment 

directing a verdict in favor of Platten (defendant). In an 

earlier lawsuit, defendant had represented the Harknesses 

(plaintiffs) against Kantor, a loan officer, and her successive employers, Sunset Mortgage (Sunset) and Directors 

Mortgage, Inc. (Directors), as the result of a fraudulent 

investment and loan scheme directed at plaintiffs by Kantor. 

That case did not settle to plaintiffs’ satisfaction, and plaintiffs sought to recover their remaining loss from defendant. 

In this case, the trial court granted defendant’s motion for a 

directed verdict based on the conclusion that plaintiffs’ liability theories of apparent authority and respondeat superior

asserted against Sunset and Directors were not supported 

by sufficient evidence in the record and could not have led 

to a result more favorable than the settlement. Plaintiffs 

appealed the trial court ruling, and the Court of Appeals 

affirmed. Harkness v. Platten, 270 Or App 260, 348 P3d 1145 

(2015). For the reasons explained below, we reverse the decisions of the trial court and the Court of Appeals.

The facts as stated by the Court of Appeals, which 

we adopt, are as follows:1

“Plaintiffs ** * were interested in using the equity in 

their home to invest when [Mr. Harkness] saw a homemade 

flyer for various businesses at work. The flyer included a 

photocopy of Kantor’s business card that indicated Kantor 

was a loan officer with Sunset. After [Mr. Harkness] spoke 

with a coworker who had worked with Kantor to purchase 

an apartment complex, plaintiffs set up and attended a 

meeting with Kantor at her Sunset office. Kantor proposed 

that plaintiffs borrow money from Sunset, using the equity 

in their house as collateral, and then she would invest those 

proceeds in short-term, high-interest loans to developers 

and building contractors (hard-money loans). She told 

plaintiffs that those hard-money loans would be secured 

1 In its review of the grant of defendant’s motion for a directed verdict, the 

Court of Appeals properly viewed the evidence and all reasonable inferences in 

the light most favorable to plaintiffs. Trees v. Ordonez, 354 Or 197, 200, 311 P3d 

848 (2013). We omit part of the factual statement relating to plaintiffs’ allegations of malpractice, because those facts are not relevant to our review.
718 Harkness v. Platten

by first or second liens on real property with ‘lots’ of equity. 

Kantor explained that she and Sunset would get paid from 

the commission on plaintiffs’ conventional loan on their 

house and from the conventional construction loans that 

Sunset would do for the builders.

“After meeting with Kantor at Sunset again, plaintiffs agreed to the proposal, took out a conventional loan 

from Sunset, and turned over the loan proceeds to Kantor. 

Kantor did use those proceeds to make hard-money loans 

to several people and prepared certain documentation on 

Sunset letterhead. For the first of those loans, which was 

not funded from the Sunset loan proceeds turned over to 

Kantor, [Mrs. Harkness] gave Kantor a cashier’s check 

made out to Sunset. [Mrs. Harkness] always met with 

Kantor at her Sunset office to learn about additional hardmoney loan opportunities and to receive copies of notes for 

the loans Kantor made, which were always closed outside of 

plaintiffs’ presence.

“Kantor later went to work as a loan officer at Directors. 

Plaintiffs continued their same investment relationship 

with Kantor at Directors and met with her at her Directors’ 

office in the same manner as when Kantor was at Sunset. 

Plaintiffs also took out an additional loan from Directors, 

using their rental house as collateral, the proceeds of which 

were paid directly to Kantor to make hard-money loans to 

people Kantor found. Kantor’s assistant at Directors was 

knowledgeable about all of plaintiffs’ hard-money loans and 

would assist plaintiffs with information on those matters.

“Plaintiffs did not get loan payments directly from borrowers and did not know how borrowers made payments, 

but Kantor arranged deposits into plaintiffs’ bank account 

to service plaintiffs’ personal loans. [Mrs. Harkness] testified that certain notes directed payments to be made at 

addresses that corresponded to Sunset’s or Directors’ office 

address. Plaintiffs did not receive the proceeds from some 

of the note payoffs; instead, when a note was paid off or 

came due but not paid off, Kantor would recommend that 

plaintiffs immediately invest payoffs into new loans or roll 

over unpaid loans into a new loan to the same borrower, 

which plaintiffs would then do.

“[Mrs. Harkness] testified that she would not have 

dealt with Kantor if she were not working through Sunset. 

She also testified that she would not have continued 
Cite as 359 Or 715 (2016) 719

working with Kantor if Kantor had not been at Directors. 

[Mrs. Harkness] believed that Kantor was a representative 

of Sunset, and then Directors, and was acting within the 

scope of her employment in all her dealings with plaintiffs. 

However, it was undisputed that Kantor, in fact, was not 

performing duties for which she was hired as a loan officer 

with regard to the investment scheme and hard-money loan 

arrangements—that type of transaction was not part of the 

business of either Sunset or Directors—and neither Sunset 

nor Directors received any fees or commissions from the 

hard-money loans. There also was no evidence that the control persons at Sunset or Directors were aware of Kantor’s 

arrangement with plaintiffs.

“After about two years of investing with Kantor, plaintiffs were contacted by an attorney for one of the borrowers on a hard-money loan financed by plaintiffs. Kantor 

told [Mrs. Harkness] that she just had forgotten to record 

a lien, so [Mrs. Harkness] accompanied Kantor to record 

the lien. The borrower then sued plaintiffs. At the end of 

that lawsuit, plaintiffs learned that Kantor had forged 

the documents for at least that loan, and, for other loans, 

Kantor had not recorded any liens, or had recorded a lien 

in third position behind a lien Kantor had placed in favor 

of Directors on the property. Kantor also had been running 

all the money through her personal accounts. At the conclusion of that lawsuit, plaintiffs held notes to five outstanding 

loans, including the one deemed a forgery by the court, that 

totaled approximately $980,000, and at least one of the borrowers had already filed bankruptcy.

“Plaintiffs then retained attorney Flaherty to represent 

them in a suit against Kantor, Sunset, and Directors (the 

underlying action). Sometime after filing the underlying 

action, Flaherty contacted defendant to be a securities law 

expert in the case, but, instead, defendant fully associated 

with Flaherty as co-counsel in the case to assist with securities law issues. * **

“*****

“At the end of [a] two-day mediation, the parties settled the underlying action for $600,000. Plaintiffs testified 

that that amount could not make them whole because it 

would leave them with significant amounts owing on their 

residential mortgage. Plaintiffs’ expert in the malpractice 

case testified that, on the date of the settlement, the total 
720 Harkness v. Platten

amount owing to plaintiffs on the five outstanding loans was 

$998,149. Plaintiffs believed at the time of the settlement 

that their total damages were approximately $1.15 million. 

Plaintiffs initially were prepared to reject a $600,000 settlement and go to trial because they were led to believe by 

their attorneys that they had a strong case. After learning 

about their exposure to attorney fees and that Flaherty 

and defendant were not prepared for trial, and relying on 

defendant’s assurance that they could get money from borrowers, plaintiffs decided to settle for $600,000.

“After the settlement, plaintiffs contacted defendant to 

pursue the big borrower. Defendant declined to take the 

case and told plaintiffs that ‘you’d be better off to take your 

money and take it to Vegas and put it in a slot machine.’ 

Plaintiffs would not have accepted the settlement if defendant had not told them that there were ways to collect from 

the borrowers. Plaintiffs hired another attorney to sue that 

borrower, but the borrower filed bankruptcy.

“Plaintiffs then brought a legal malpractice case against 

Flaherty, which was dismissed for reasons not disclosed in 

the record. Following that dismissal, plaintiffs brought this 

legal malpractice and negligent misrepresentation case 

against defendant.”

Harkness, 270 Or App at 262-67 (footnotes omitted).

To prevail on their legal malpractice and negligent misrepresentation claims against defendant, plaintiffs 

needed to prove a “case within a case”—that is, they were 

required to show, among other things, that, but for defendant’s legal malpractice or negligent misrepresentation, 

they would have gone to trial in the underlying action, prevailed, and been awarded more than the amount that they 

had received in the settlement. See Chocktoot v. Smith, 280 

Or 567, 570-71, 571 P2d 1255 (1977) (explaining case-withina-case methodology). Plaintiffs’ underlying action involved 

both contract and noncontract claims. For their case within 

a case on their contract claims, plaintiffs proceeded on a 

theory that Kantor had apparent authority from Sunset 

and Directors to bind those companies to the oral contract 

that was the basis for Kantor’s investment scheme with

plaintiffs—loaning funds to plaintiffs based on the equity in 

their different properties and then facilitating the lending 

of those funds to other borrowers for plaintiffs’ investment 
Cite as 359 Or 715 (2016) 721

purposes. For their case within a case on their noncontract 

claims, plaintiffs pursued a respondeat superior theory that 

Sunset and Directors were vicariously liable as her employers for Kantor’s actions, because Kantor had appeared to 

be acting within the scope of her employment.2

 Plaintiffs’ 

apparent authority and respondeat superior theories were 

ultimately based on the same argument and evidence—i.e., 

that Sunset and Directors had clothed Kantor with apparent 

authority to engage in the investment scheme with plaintiffs on behalf of the companies as part of her employment 

as a loan officer.

At the close of plaintiffs’ case, defendant moved 

for a directed verdict on several grounds, including that 

plaintiffs could not have prevailed in the underlying action 

against Sunset and Directors. The trial court agreed, concluding that plaintiffs had failed to present any evidence of 

actual or apparent authority and, therefore, that they had 

not presented any evidence that would have allowed them 

to prevail at trial against Sunset or Directors. Based on 

that conclusion, the trial court granted a directed verdict to 

defendant.

On appeal, plaintiffs argued that they had presented sufficient evidence for a factfinder to draw an inference of apparent authority with respect to their contract 

claims and to draw an inference of respondeat superior

with respect to their noncontract claims. Plaintiffs principally relied on this court’s decision in Badger v. Paulson 

Investment Co., Inc., 311 Or 14, 803 P2d 1178 (1991), in which 

this court held that, even though sales representatives of an 

investment company had actual authority to sell investors 

only approved securities, the representatives had apparent 

authority to sell unregistered securities.

The Court of Appeals affirmed the trial court’s ruling that plaintiffs had not presented sufficient evidence of 

apparent authority to survive defendant’s directed-verdict 

motion: “Plaintiffs presented no evidence that Kantor had 

2 Plaintiffs’ noncontract claims were for negligence, conversion, fraud, violation of state mortgage brokerage laws, breach of fiduciary duty for any accounting, rescission, slander of title, and violation of state security laws. Harkness, 270 

Or App at 268.
722 Harkness v. Platten

the apparent authority to give investment advice on behalf of 

either company, engage in the proposed investment scheme, 

or, for the contract claim, bind Sunset or Directors to the 

oral terms of that scheme.” Harkness, 270 Or App at 272. 

In reaching that conclusion, the court disregarded the evidence related to Kantor arranging for plaintiffs to take out 

a conventional loan from Sunset and Directors and to those 

companies receiving a commission on those loans, “because 

those acts were within Kantor’s actual authority as a loan 

officer for Sunset and Directors and are not evidence that 

Kantor had apparent authority to do more than just that.” 

Id. The court then considered the remaining evidence and 

concluded that “[i]t was not objectively reasonable for plaintiffs to believe that that type of investment scheme [in which 

Kantor had engaged] was part of Kantor’s job as a ‘loan officer,’ nor did Sunset or Directors provide any information to 

plaintiffs, whether directly or indirectly, that such a scheme 

or financial advice was part of Kantor’s job.” Id. at 273. The 

court also concluded that “[p]laintiffs’ reliance on Badger to 

make their case is misplaced.” Id.

We allowed review to determine whether the Court 

of Appeals properly applied this court’s case law on apparent 

authority. More specifically, we allowed review to determine 

whether the Court of Appeals was correct that, in assessing 

whether a reasonable factfinder could infer that Kantor had 

apparent authority, the court was required to disregard all 

evidence relating to acts that were within Kantor’s actual 

authority as a loan officer for Sunset and Directors. Id. at 

272.

On review, plaintiffs argue that the Court of Appeals’ 

reasoning “was based on both an unduly circumscribed view 

of the evidence in this case and an unduly circumscribed 

interpretation” of this court’s decision in Badger. For his 

part, defendant argues that the Court of Appeals was correct in its view that the evidence in support of plaintiffs’ 

theories of apparent authority and respondeat superior was 

insufficient. In particular, defendant argues that “there was 

insufficient evidence that Sunset and Directors had said or 

done anything to create the appearance that Kantor was 

authorized to act on their behalf as a financial advisor and 
Cite as 359 Or 715 (2016) 723

propose, and then carry out, an investment scheme involving the placement of private loans.”

We begin with a brief discussion of Oregon law relating to the doctrine of apparent authority. This court recently 

summarized the legal principles applicable to a determination of when “a putative principal can be held responsible for 

the acts of another on an apparent agency theory” in Eads v. 

Borman, 351 Or 729, 277 P3d 503 (2012):

“Classically, an agency relationship ‘results from the 

manifestation of consent by one person to another that the 

other shall act on behalf and subject to his control, and consent by the other so to act.’ Vaughn v. First Transit, Inc., 

346 Or 128, 135, 206 P3d 181 (2009) (emphasis in Vaughn

omitted) ***. The agency relationship can arise either from 

actual consent (express or implied) or from the appearance 

of such consent. See generally Taylor v. Ramsay-Gerding

Construction Co., 345 Or 403, 410, 196 P3d 532 (2008) (so 

discussing). In either circumstance, the principal is bound 

by or otherwise responsible for the actual or apparent 

agent’s acts only if the acts are within the scope of what 

the agent is actually or apparently authorized to do. Id.; see 

also Beeson v. Hegsted, 199 Or 325, 330, 261 P2d 381 (1953) 

(one cannot hold principal liable for an act that does not 

fall within the scope of agent’s real or apparent authority).

“* ** Under this court’s settled cases, ‘[a]pparent authority to do any particular act can be created only by some conduct of the principal which, when reasonably interpreted, 

causes a third party to believe that the principal consents 

to have the apparent agent act for him on that matter.’ 

Jones v. Nunley, 274 Or 591, 595, 547 P2d 616 (1976). There 

accordingly are two keys to the analysis: (1) the principal’s 

representations; and (2) a third party’s reasonable reliance 

on those representations.”

Id. at 735-37 (internal quotation marks omitted).

This court also observed in Eads that the test in 

Oregon to determine when a principal is bound by an actor 

under an apparent authority theory is consistent with the 

rule stated in the Restatement (Third) of Agency section 2.03 

(2006):

“‘Apparent authority is the power held by an agent or 

other actor to affect a principal’s legal relations with third 
724 Harkness v. Platten

parties when a third party reasonably believes the actor 

has authority to act on behalf of the principal and that 

belief is traceable to the principal’s manifestations.’”

351 Or at 737 n 5 (quoting Restatement (Third) § 2.03). That 

test is applicable both “to determine when a principal is 

bound by actors who appear to be agents but are not, as well 

as actors who act beyond the scope of their actual authority.” 

Id. (citing Restatement (Third) § 2.03 comment a).

Regarding the first element of the apparent authority test—a putative principal’s representation that an agent 

is authorized to act on its behalf—an agent’s actions, standing alone, will not give rise to apparent authority. Id. at 

737 (citing Taylor, 345 Or at 410). Instead, the principal 

“must take some affirmative step in creating the appearance of authority, one that the principal either intended to 

cause or ‘should realize’ likely would cause a third party 

to believe that the putative agent has authority to act on 

the principal’s behalf.” Id. (ultimately quoting Restatement 

(Second) of Agency § 27 comment a (1958)). The principal’s 

words, conduct, or other representation need not be made 

directly to or witnessed directly by the third party for the 

principal to be liable under a theory of apparent authority; 

rather, the representation of authority need only be traceable to the principal. Id.; see Taylor, 345 Or at 411 (indirect 

information attributed to principal’s conduct “can be used 

to support apparent agency, as long as that information 

can be traced back to the principal”); see also Restatement 

(Third) § 1.03 comment b (although “the presence of actual 

authority depends upon whether the principal has made a 

manifestation to the agent,” by contrast, “a manifestation 

sufficient to establish apparent authority may, but need not 

necessarily be, directed toward an identified person as its 

audience”).3

3 The Restatement (Third) describes a “manifestation” of authority by a 

putative principal in similarly broad terms. Section 1.03 notes that “[a] person 

manifests assent or intention through written or spoken words or other conduct,” 

and the commentary to section 1.03 explains that “[a] manifestation is conduct 

by a person, observable by others, that expresses meaning. It is a broader concept than communication.” Id. § 1.03 comment b; see State v. Sines, 359 Or 41, 

55-56, ___ P3d ___ (2016) (citing section 1.03 and observing that “in determining 

whether agency exists, the emphasis is on ‘manifestations’ that can be assessed 

objectively”).
Cite as 359 Or 715 (2016) 725

Further, when a principal cloaks an agent with 

actual authority to perform certain tasks, that actual authority may create the appearance of authority to perform other, 

related tasks. Taylor, 345 Or at 411; see Badger, 311 Or at 

26 (sales representatives’ actual authority to sell approved 

securities lent weight to sales representatives’ apparent 

authority to sell unregistered securities). Additionally, when 

a principal appoints an agent to a position that carries “generally recognized duties,” a principal may create apparent 

authority to perform those duties. Badger, 311 Or at 24-25 

n 9 (quoting Restatement (Second) § 27 comment a).

Regarding the second element of the apparent 

authority test—the third party’s reasonable reliance—the 

third party must in fact rely on the principal’s representation in dealing with the apparent agent, and that reliance 

must be objectively reasonable. Eads, 351 Or at 737 (citing 

Jones, 274 Or at 595-96; Badger, 311 Or at 26). In assessing the reasonableness of the third part’s reliance, a court 

must consider what is customary and usual for certain positions or within certain professions. Eads, 351 Or at 737 n 5 

(“Apparent authority also includes concepts of ‘usual authority’ and ‘customary authority’ in determining whether ‘a 

substantial basis for a third party’s belief’ exists that the 

person with whom the third party dealt was acting as an 

agent for a principal in a particular circumstance.”) (quoting Restatement (Third) § 2.03 comment b).

The Restatement (Third) commentary further explains that “an organization 

manifests its assent to be bound by the acts of individuals through the observable 

connections between the individual and the organization. An organization manifests assent to an individual by appointing that person to a position defined by 

the organization.” Id. § 1.03 comment c. Moreover, the commentary emphasizes 

that the significance of manifestations by a putative principal must be understood in context:

“A manifestation does not occur in a vacuum, and the meaning that may 

reasonably be inferred from it will reflect the context in which the manifestation is made. Assent and intention may be expressed explicitly, but often they 

are inferred from surrounding facts and circumstances. For example, if an 

organization hires a person as its purchasing manager, the organization’s act 

expresses assent that the person undertake the manager’s role as defined by 

the organization.”

Id. at comment e; see Peoples Heritage Sav. Bank v. Pease, 2002 ME 82, ¶¶ 20-21, 

797 A2d 1270, 1276 (Me 2002) (genuine issue of material fact whether mortgagee’s employee acted within apparent authority in negotiating terms with mortgagors to pay off loans).
726 Harkness v. Platten

We now turn to the Court of Appeals’ analysis of 

whether a factfinder could reasonably infer that Kantor 

had apparent authority to bind Sunset and Directors to the 

loan transactions between plaintiffs and third parties. As 

noted, the court focused almost entirely on the nature of the 

“investment scheme”4

 perpetrated by Kantor as precluding 

a factfinder from drawing an inference of apparent authority, because “[i]t was not objectively reasonable for plaintiffs 

to believe that that type of investment scheme was part of 

Kantor’s job as a ‘loan officer[.]’” Harkness, 270 Or App at 

273. However, in so narrowing its inquiry, the court disregarded, as irrelevant, the evidence concerning the actual 

authority with which Sunset and Directors had cloaked 

Kantor. Having disregarded that evidence, the court readily 

distinguished Badger, a case in which this court concluded 

that—under the circumstances presented—sales representatives with actual authority to sell approved securities 

were apparent agents with authority to sell unregistered 

securities.

Because both parties rely on Badger—and the 

Court of Appeals found Badger inapposite—we discuss it 

in some detail. Badger was a civil case for damages arising from the sale of unregistered securities to investors by 

representatives of an investment company. The investment 

company (Paulson) had taken over the investment accounts 

from a prior company (Slanker) and had informed customers that it had taken over the Slanker accounts. 311 Or at 

17. Paulson’s sales representatives, Lambo and Kennedy, 

who had previously worked for Slanker, then made sales 

presentations to those investors, and other investors, at 

Paulson’s office and solicited sales of unregistered securities using Paulson’s letterhead. The unregistered securities “proved to be valueless.” Id. The investors brought 

claims against Paulson, Lambo, and Kennedy for securities fraud under ORS 59.115 and for common-law fraud. 

A jury entered a verdict against Paulson for damages on 

4 Although the court referred to Kantor’s fraudulent scheme as an “investment scheme,” we note that that scheme could just as accurately be referred to as 

a “loan scheme,” or an “investment and loan scheme.” Kantor advised plaintiffs 

that they could use the equity in their home to obtain “loans” from Sunset and 

Directors that could be “invested” by plaintiffs by making secure “loans” to developers and contractors.
Cite as 359 Or 715 (2016) 727

all claims based on a finding that the representatives had 

apparent authority to bind Paulson to the sales. The trial 

court set aside the verdict for the investors against Paulson 

on the securities claims and a verdict against Paulson for 

punitive damages on the common-law claim. Id. at 18. The 

Court of Appeals reversed the trial court’s judgment notwithstanding the verdict and reinstated those verdicts. Id.

at 18-19.

On review, this court concluded that common-law 

agency principles may be invoked “to impose liability as 

a seller against a principal for an agent’s violation” of the 

statutory requirements of ORS 59.115(1) and that “the evidence of an apparent agency relationship between Paulson 

and Kennedy and Lambo [was] sufficient to impose liability on Paulson” under that statute. Id. at 19. The court 

quoted from Wiggins v. Barrett & Associates, Inc., 295 Or 

679, 687, 669 P2d 1132 (1983), and cited the commentary 

to the Restatement (Second) section 27 for the principle that 

apparent authority may arise when an agent does not have 

actual or implied authority to act for a principal in a matter, but “the principal has clothed the agent with apparent 

authority to act for the principal in that particular. In other 

words, the principal permits the agent to appear to have the 

authority to bind the principal.” Badger, 311 Or at 24 & n 9 

(internal quotation marks omitted).

In reviewing whether the evidence was sufficient 

to support a finding that Kennedy and Lambo were “acting 

within the apparent authority of Paulson,” this court discussed the fact that Kennedy and Lambo “were employed 

by Paulson as registered representatives” and that Paulson 

made it known to its customers that Kennedy was associated with Paulson:

“When Kennedy went to work for Paulson, it sent its customers letters announcing Kennedy’s association with 

Paulson. A second letter was sent a short time later to 

announce the assignment of Kennedy to several ongoing 

customer accounts. With these announcements, Paulson, 

who did not inform its customers of any limitations on 

Kennedy’s authority to act for Paulson, conferred on 

Kennedy the authority to represent Paulson in securities 

sales and investment transactions.
728 Harkness v. Platten

“*****

“There is evidence that Paulson provided information 

intended to cause third persons to believe that Kennedy 

and Lambo were authorized to act for it in matters pertaining to the sale of securities, including meeting with 

customers, making sales presentations, sending mailings 

and handling paperwork. Although Paulson may have 

forbade its sales representatives to present or sell nonapproved securities, liability based on the agency principle of 

apparent authority may be imposed even though the principal expressly forbade the conduct in question. See McClure 

v. E.A. Blackshere Company, 231 F Supp 678, 685 (D Md 

1964).

“There is also evidence that from the information 

provided to them by Paulson, the plaintiffs reasonably 

believed that Kennedy and Lambo were authorized to act 

for Paulson concerning the securities sold by Kennedy and 

Lambo to the plaintiffs. The investors testified to their reliance on this apparent authority.”

Badger, 311 Or at 25-26. This court concluded that the 

evidence was sufficient “to support the jury’s verdict that 

Kennedy and Lambo conducted the illegal sales with the 

apparent authority of Paulson.” Id. at 26.

In this case, the Court of Appeals concluded that 

Badger did not aid plaintiffs. The court noted that, in 

Badger, the sales representatives had sold both authorized 

and unauthorized securities in the same manner and that 

the investment company had informed customers that the 

sales representatives were authorized to sell securities. 

Harkness, 270 Or App at 274. The court then contrasted 

those facts with this case, in which “neither Sunset nor 

Directors provided any information to plaintiffs from which 

they could reasonably conclude that Kantor was authorized 

by them to act as a financial advisor to, or engage in investment schemes with, its mortgage customers.” Id.

We conclude, however, that the Court of Appeals 

made two missteps in determining that Sunset and Directors 

had made no manifestations from which plaintiffs could reasonably have concluded that Kantor was authorized to perform the acts constituting the fraudulent scheme. First, the 

court disregarded evidence concerning the actual authority 
Cite as 359 Or 715 (2016) 729

with which Sunset and Directors clothed Kantor. Second, 

the court does not appear to have considered evidence in the 

record relating to the usual or customary authority of a loan 

officer for a mortgage company.

As to the first misstep, this court’s case law makes 

clear that the appearance of authority may, at least in part, 

be based on conduct relating to an agent’s actual authority. 

Taylor, 345 Or at 411 (“[W]hen a principal clothes an agent 

with actual authority to perform certain tasks, the principal 

might create apparent authority to perform other, related 

tasks.”); Badger, 311 Or at 26 (sales representatives had 

apparent authority to sell unregistered securities when they 

had actual authority to sell approved securities). That is so 

because, as noted, the rationale for the doctrine of apparent 

authority is that a principal must be held accountable for 

the results of reasonable third-party beliefs about an actor’s 

authority to act as an agent based on manifestations that 

are traceable to the principal. One such manifestation is the 

actual authority with which the principal has cloaked an 

agent. Indeed, much of the commentary to section 1.03 and 

section 2.03 of the Restatement (Third) contemplates situations where an actor for a putative principal is an agent 

for the principal for other purposes. See, e.g., Restatement 

(Third) § 2.03 comment d (“[A] third party should assess 

what is observed of the agent in light of the agent’s position 

as a fiduciary with a duty to use authority on behalf of the 

principal.”). Thus, evidence of an agent’s actual authority to 

perform certain tasks is relevant to determining whether 

the agent was apparently authorized to perform other, 

related tasks, and the Court of Appeals erred in disregarding that evidence in this case.

As to the second misstep, the Court of Appeals does 

not appear to have considered the evidence in the record 

concerning the role of a loan officer for a mortgage company in the local industry. That evidence included excerpts 

from a deposition of Todd Johnson, Sunset’s president, in 

which Johnson indicated that Sunset was a “mortgage 

finance provider” and a “mortgage broker” that used its 

own money and the money of others to make real estate 

loans and that Kantor was employed on a commission basis 

as a loan officer to originate loans. Johnson also testified 
730 Harkness v. Platten

that there could be “a time that a hard money loan would 

be a benefit” as part of his “creative approach” to making 

loans, that a good loan officer could tell clients to utilize the 

equity in their real property to make money, and that his 

loan officers were encouraged to go out and find business. 

As we stated in Eads, apparent authority “includes concepts 

of ‘usual authority’ and ‘customary authority’ in determining whether ‘a substantial basis for a third party’s belief’ 

exists that the person with whom the third party dealt was 

acting as an agent for a principal in a particular circumstance.” 351 Or at 738 n 5 (citing Restatement (Third) § 2.03 

comment b); see also Taylor, 345 Or at 413 (reasonable reliance on apparent authority where owner’s general contractor testified that it was customary to obtain warranties in 

writing). Accordingly, evidence relating to Kantor’s usual or 

customary role as a loan officer was relevant to the determination whether plaintiffs reasonably believed that Kantor 

had apparent authority, and that evidence should not have 

been disregarded by the Court of Appeals.

We now turn to the sufficiency of the evidence for 

a factfinder to infer that Kantor had apparent authority to 

bind Sunset and Directors to the loan transactions arranged 

by Kantor between plaintiffs and third parties. We review 

the grant of a directed verdict against a party in the light 

most favorable to that party—here, the plaintiffs—and we 

draw all inferences from the evidence in plaintiffs’ favor. 

Trees, 354 Or at 200.

The record in this case includes evidence that 

Kantor was employed successively by two mortgage companies, Sunset and Directors, as a “loan officer” during a period 

of time when Kantor defrauded plaintiffs by use of an investment or loan scheme. The scheme consisted of Kantor advising plaintiffs to take out conventional loans from Sunset and 

Directors using the equity in their home as collateral and 

using the proceeds to make hard-money loans to contractors and developers as arranged by Kantor. Unbeknownst 

to plaintiffs, and contrary to Kantor’s representations, those 

loans by plaintiffs were not secured, and Kantor retained 

some of the proceeds from those loans for her own benefit. 

Kantor used Sunset and Directors offices, letterhead, and 
Cite as 359 Or 715 (2016) 731

staff in the presence of plaintiffs during this period of time. 

Neither mortgage company informed plaintiffs of any limitations on Kantor’s authority as a “loan officer” to act for 

those companies in matters pertaining to loans or financial 

investment. As noted, Sunset’s president, Johnson, testified 

that Sunset was a “mortgage finance provider” and a “mortgage broker” and that Kantor was employed on a commission basis as a loan officer to originate loans. Johnson also 

testified that a good loan officer could tell clients to utilize 

the equity in their real property to make money and that his 

loan officers were encouraged to go out and find business. 

Finally, Mrs. Harkness testified that she would not have 

entered into the loan transactions if Kantor had not been 

working with Sunset and Directors and that she believed 

that Kantor had been acting within the scope of her employment in all of her dealings with plaintiffs.

Viewing that evidence in the light most favorable 

to plaintiffs, we conclude that a reasonable factfinder could 

infer that Sunset and Directors manifested their assent to be 

bound by the acts of Kantor through the observable connections between Kantor and those organizations. Restatement 

(Third) § 1.03 comment c. As we have explained, a factfinder 

in this case could consider all of the relevant conduct of 

Sunset and Directors in the context of those organizations 

having hired Kantor as a “loan officer,” given Kantor actual 

authority to perform the tasks of a loan officer, and placed 

her in their offices without notice to customers of any limitation on her authority or fiduciary duties as a loan officer. Under those circumstances, a factfinder could infer that 

Sunset and Directors manifested their assent to be bound 

to the loan transactions between plaintiffs and third parties 

arranged by Kantor. Taylor, 345 Or at 410-11; Badger, 311 

Or at 24-25; Restatement (Third) § 2.03.5

5 Defendant’s argument that Sunset and Directors did nothing to create the 

appearance of authority for Kantor to act “as a financial advisor and propose, and 

then carry out, an investment scheme involving the placement of private loans” 

misses the mark. Plaintiffs do not seek to hold Sunset and Directors liable under 

an apparent authority theory for Kantor’s financial advice. Rather, plaintiffs 

seek to bind Sunset and Directors to the loan transactions arranged by Kantor. 

The evidence that we have recited provides a basis for a factfinder to draw an 

inference that Kantor—as a “loan officer” hired by Sunset and Directors—was 

authorized to facilitate the receipt of loans to plaintiffs from those companies and 

to arrange for plaintiffs to make loans to third parties.
732 Harkness v. Platten

We further conclude that a reasonable factfinder 

could infer from the evidence that it was reasonable for plaintiffs to believe that Kantor was authorized—as a loan officer for Sunset and Directors—to engage in the investment 

and loan scheme on behalf of those companies. In particular, 

a factfinder could infer that plaintiffs reasonably believed 

that Kantor’s actions were part of her usual or customary 

authority as a loan officer hired by Sunset and Directors to 

make and arrange loans on behalf of the mortgage companies. See Eads, 351 Or at 738 n 5 (concepts of “usual authority” and “customary authority” help inform determination 

whether third party’s reliance was reasonable).

Additionally, we find the Restatement (Third) commentary instructive on the question of the reasonableness 

of plaintiffs’ belief. Comment d to section 2.03 notes that, 

where “a third party knows that the actor in question is 

an agent and knows the identity of the principal, the third 

party should assess what is observed of the agent in light of 

the agent’s position as a fiduciary with a duty to use authority on behalf of the principal.” Restatement (Third) § 2.03 at 

comment d. With respect to particular transactions, such 

as the loan transactions in this case, a third party should 

consider whether it appears to be reasonably related to the 

principal’s known business. Id. “Absent circumstances that 

should raise questions in the mind of a reasonable third 

party, as a general matter there is no requirement that 

the third party inquire into the scope of an agent’s authority.” Id. Here, plaintiffs knew that Kantor was an agent of 

Sunset and Directors and observed Kantor in light of her 

position as a fiduciary with a duty to use authority on behalf 

of Sunset and Directors. Under the circumstances described 

above, plaintiffs could reasonably have believed that all the 

loans were reasonably related to Sunset’s and Directors’ 

business, and that Kantor was acting within her fiduciary 

duty as a “loan officer.”

Finally, we consider plaintiffs’ argument that 

the trial court erred in granting defendant’s motion for a 

directed verdict on plaintiffs’ noncontract claims under 

a theory of respondeat superior. The Court of Appeals did 

not reach plaintiffs’ argument that the trial court failed to 

determine the vicarious liability of Sunset and Directors on 
Cite as 359 Or 715 (2016) 733

those claims, because, in its view, plaintiffs did “not raise or 

develop any legal arguments as to how [the] evidence meets 

the respondeat superior elements.” Harkness, 270 Or App at 271

n 6. We disagree. In their brief on appeal, plaintiffs argued,

“The trial court in this case conflated the concept of 

respondeat superior liability for tort claims with the concept 

of apparent authority that applied to the breach of contract 

claims in the Kantor lawsuit, although the Harnesses’ trial 

counsel pointed out the difference. As a practical matter, 

however, it only makes a potential difference with respect to 

the second element for respondeat superior liability—that 

the employee must have been motivated, at least partially, 

by a purpose to serve the employer—which is not part of 

the test for apparent authority. The evidence for the first 

and third elements—that the conduct must have occurred 

substantially within the time and space limits authorized 

by the employment, and the act must have been of a kind 

that the employee was hired to perform—is the same as the 

evidence for Kantor’s apparent authority discussed above 

with respect to the breach of contract claim.

“The evidence for the second element of respondeat superior liability is, however, present in the fact that Kantor 

persuaded the Harknesses to obtain the funds which she 

would then purportedly lend to other borrowers by taking 

out loans from Sunset and Directors, using their equities 

in first their residence and then a rental house that they 

owned as collateral. A jury could find that these loans to 

the Harknesses, which Kantor arranged in her capacity 

as a loan officer with first Sunset and then Directors, had 

a partial purpose to benefit, and did benefit, those two 

employers.

“Because of these flaws in the trial court’s analysis, it 

never addressed the substance of the Harknesses[’] other 

claims alleged against Kantor, Sunset, and Directors in the 

Kantor lawsuit. The evidence summarized in the Summary 

of Facts, above, established most, if not all of those claims 

as they were alleged in the Second Amended Complaint in 

that case.”

(Record citations omitted.)

We conclude that plaintiffs sufficiently developed 

their argument on appeal that the trial court failed to 

determine the vicarious liability of Sunset and Directors 
734 Harkness v. Platten

on plaintiffs’ noncontract claims, and we therefore reach 

that argument. Again, on review of the grant of defendant’s 

motion for a directed verdict, we view the evidence and draw 

all reasonable inferences in plaintiffs’ favor. Trees, 354 Or 

at 200. Based on the evidence we have discussed in relation to plaintiffs’ theory of apparent authority, we also conclude that a factfinder could infer that the requirements for 

holding an employer vicariously liable under the doctrine of 

respondeat superior are met in this case.

This court has summarized those requirements as 

follows:

“Under the doctrine of respondeat superior, an employer 

is liable for an employee’s torts when the employee acts 

within the scope of employment. Negligence or other tortious conduct by the employer is not required. * * *

“Three requirements must be met to conclude that 

an employee was acting within the scope of employment. 

These requirements traditionally have been stated as:

(1) whether the act occurred substantially within the 

time and space limits authorized by the employment;

(2) whether the employee was motivated, at least partially, 

by a purpose to serve the employer; and (3) whether the act 

is of a kind which the employee was hired to perform.”

Chesterman v. Barmon, 305 Or 439, 442, 753 P2d 404 (1988) 

(citation omitted).

In this case, based on the same evidence that plaintiffs presented regarding apparent authority, a reasonable 

factfinder could infer that the above three requirements 

have been met:

(1) Kantor’s acts occurred substantially within the time 

and space limits authorized by the employment;

(2) Kantor’s conduct as a “loan officer” in loaning funds 

to plaintiffs based on the equity in their different 

properties and then facilitating the lending of those 

funds to other borrowers for plaintiffs’ investment 

purposes was motivated, at least in part, by a purpose to serve her employers, and

(3) Kantor’s conduct described above was a kind that 

Kantor was hired to perform as a “loan officer.” In 
Cite as 359 Or 715 (2016) 735

particular, and as previously described, there was 

evidence that Sunset was a “mortgage finance provider” and a “mortgage broker” and that Kantor 

was employed on a commission basis as a loan officer to originate loans. Sunset’s president, Johnson, 

also testified that a good loan officer at Sunset could 

tell clients to utilize the equity in their real property 

to make money.

Thus, the trial court erred in allowing defendant’s motion 

for directed verdict on plaintiffs’ theory of respondeat superior. See Stanfield, 284 Or 651, 655, 588 P2d 1271 (1978) 

(“question of whether or not an employee has acted within 

the scope of his employment at any given time is normally a 

question for the jury, except in cases where only one reasonable conclusion can be drawn from the facts”).

We conclude, then, that the trial court erred in 

allowing defendant’s motion for a directed verdict and 

that the Court of Appeals erred in affirming that decision. 

Accordingly, we remand to the trial court for further proceedings consistent with this opinion.

The decision of the Court of Appeals is reversed. 

The judgment of the circuit court is reversed, and the case 

is remanded to the circuit court for further proceedings.