Apparent Authority Created by Acts of the Principal, Not the Agent

On April 16, 2019, Justice Grays of the Queens County Commercial Division issued a decision in 45-34 Pearson St. LIC, LLC v. Ohana, 2019 NY Slip Op. 31565(U), holding that apparent authority is created by the principal, not the agent, explaining:

One who deals with an agent does so at his or her peril, and must make the necessary effort to discover the actual scope of authority. 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. It is axiomatic that apparent authority must be based on the actions or statements of the principal Here, the Lender defendants failed to identify any act or word by which Pearson LIC conferred apparent authority upon Ohana. Moreover, the Lender defendants failed to make a prima facie showing that they had conducted due diligence on the transactions. Accordingly, the branches of the motion by the Lender defendants which are for summary judgment dismissing the tenth and eleventh causes of action against Pearson Street, are denied.

(Internal quotations and citations omitted).

A question that sometimes arises in commercial litigation is whether an individual had authority to act on behalf of a business entity, such as a corporation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether a person has authority to bind a company on behalf of which he or she purports to speak.