Title: Fergus v. Ross
Citation: N/A
Docket Number: SJC-12231
State: Massachusetts
Issuer: Massachusetts Supreme Court
Date: August 2, 2017

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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.