December 23, 2008
ROBERT KING, PLAINTIFF-RESPONDENT,
ESTATE OF ROBERT G. SENN, JOSEPH TROPIANO, SPECIAL ADMINISTRATOR OF THE ESTATE OF ROBERT G. SENN, DEFENDANTS-APPELLANTS, AND THE SENN FAMILY TRUST AND JAMES B. HOBBS, DEFENDANTS.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-4379-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted December 8, 2008
Before Judges Lisa and Alvarez.
Appellants, the Estate of Robert G. Senn and Joseph Tropiano, Special Administrator of the estate, appeal from a judgment entered against the estate in the amount of $66,500 in favor of plaintiff, and from the denial of their motion for a new trial. We conclude that the jury verdict was factually supported by the evidence and accorded with the controlling legal principles. We further conclude that Judge Locascio did not err in denying the new trial motion. Accordingly, we affirm.
Plaintiff, a resident of Middletown, became aware of an abandoned house that had fallen into a state of semi-disrepair in Middletown. Plaintiff was interested in acquiring the home as his personal family residence. Plaintiff is a plumber by trade and possesses home improvement skills. It was his intention, if he could acquire the property, to perform necessary repairs and upgrades to the property.
Plaintiff contacted the Middletown tax office and learned that the property was owned by the Estate of Robert G. Senn. Senn, a New Hampshire resident, died on May 13, 2001. The Middletown tax record listed the property owners as "Senn, R., Estate of, c/o Hobbs & Assoc." Plaintiff obtained a title search, which revealed the owner as Robert G. Senn. Plaintiff further learned that a local realtor had listed the property a year earlier for $439,000.
Plaintiff contacted James B. Hobbs, a New Hampshire probate attorney, who had been appointed by the New Hampshire court as administrator of the Senn estate and who confirmed to plaintiff that he was "in charge [of] the property." After some discussions and negotiations, plaintiff and Hobbs reached an agreement. They both signed a document dated September 1, 2004 entitled "Real Estate Lease with Option to Purchase," designating plaintiff as the tenant and the "Senn Family Trust" as landlord. Hobbs executed the agreement as individual landlord and as trustee for the "Senn Family Trust." The lease ran from September 1, 2004 to May 31, 2005, at which time plaintiff would have the option of purchasing the property for $420,000. In the interim, plaintiff was obligated to pay $2000 per month, of which $1500 from each payment would be credited to the purchase price if he exercised his option to buy. Plaintiff was also obligated to pay a $60,000 deposit at the commencement of the agreement. Plaintiff paid the $60,000 and paid $8000 in monthly payments. He made these payments to Hobbs as trustee for the Senn Family Trust.
The Senn Family Trust never existed. It was a fictitious entity created by Hobbs for the purpose of looting the estate.
Hobbs deposited the funds received from plaintiff into his personal checking accounts and appropriated them to his own use, thus defrauding both plaintiff and the estate. To facilitate his scheme as Senn lay on his deathbed two weeks before his death, Hobbs somehow misappropriated the expired seal of a New Hampshire notary and executed a phony deed purporting to convey the property from Robert Senn individually to the Senn Family Trust. The deed was never recorded.
As he planned, plaintiff proceeded to make improvements on the property. He fully intended to exercise the option and purchase the property. However, as the May 31, 2005 closing date came and went, plaintiff found that he could no longer get in touch with Hobbs. As it turned out, the New Hampshire probate courts discovered Hobbs' nefarious dealings as a result of his looting another estate. By order dated October 25, 2005, the New Hampshire courts removed Hobbs from all probate matters and appointed Joseph Tropiano, another New Hampshire probate attorney, as special administrator for the Senn estate.
Tropiano found among Hobbs' papers letters from plaintiff and his attorney requesting a copy of the deed in the name of the fictitious trust. Tropiano contacted plaintiff and his attorney, and requested copies of cancelled checks and the lease agreement, which were furnished. Neither party was able to understand how the bank allowed checks made payable to Hobbs as trustee for another entity to be deposited directly into his personal checking accounts instead of into a trust account.
Tropiano repudiated the agreement with plaintiff. On behalf of the estate, he sold the property to another party. In the process, plaintiff was evicted from the property.
On May 17, 2006, Hobbs was indicted in New Hampshire for various felonies in connection with his improprieties in dealing with several estates. One indictment charged theft by misappropriation of property for defrauding the Estate of Robert G. Senn and Robert A. King. Hobbs pled guilty and was sentenced to ten years imprisonment. In accordance with his plea agreement, he was required to repay the estate $68,000, plus a statutory 17% fee.
Plaintiff filed this action against the estate, Tropiano, the Senn Family Trust, and Hobbs, for return of the $68,000 he paid. The case was tried before Judge Locascio and a jury. Defendants argued that plaintiff's contract could not bind the Estate of Robert G. Senn because, by its terms, it bound the Senn Family Trust, which did not exist, and because Hobbs had no authority to enter into such an agreement. The jury returned a verdict finding that (1) when Hobbs signed the lease with the option to purchase he had the authority to bind the estate, (2) a valid contract existed between plaintiff and the estate, (3) the estate breached the contract with respect to the sale of the property, proximately causing plaintiff $65,000 in damages, and (4) the estate breached the contract by unlawfully evicting plaintiff, proximately causing him $1500 in damages. A judgment was entered in accordance with the verdict on February 5, 2008. On February 15, 2008, the judge denied defendants' motion for a new trial, explaining:
Reasonable minds might accept evidence as adequate to support verdict. Kulbacki v. Sobchinsk[y], 38 N.J. 435, 445.
No clear miscarriage of justice under the law. R. 4:49-1.
This appeal followed.
When deciding a motion for a new trial after a jury verdict has been rendered, a trial judge must determine whether, "having given due regard to the opportunity of the jury to pass upon the credibility of the witnesses, it clearly and convincingly appears that there was a miscarriage of justice under the law."
R. 4:49-1(a); Dolson v. Anastasia, 55 N.J. 2, 6-7 (1969). The judge is not the thirteenth and decisive juror and may not substitute his or her judgment for that of the jury simply because the judge would have reached the opposite conclusion. Dolson, supra, 55 N.J. at 6. Rather, the trial judge must "canvass the record, not to balance the persuasiveness of the evidence . . . but to determine whether reasonable minds might accept the evidence as adequate to support the jury verdict." Ibid. (quoting Kulbacki v. Sobchinsky, 38 N.J. 435, 445 (1962)).
On appellate review, a trial court's order granting or denying a motion for a new trial shall not be reversed unless it clearly appears that there was a miscarriage of justice under the law. R. 2:10-1. Thus, the standard governing appellate review of a trial court's disposition of a new trial motion remains essentially the same as that controlling the trial judge, with the exception that an appellate court must pay deference to the trial court's "feel of the case." Dolson, supra, 55 N.J. at 7. The trial court does not receive such deference, however, where its ruling rests upon "a determination as to worth, plausibility, consistency or other tangible considerations apparent from the face of the record . . . which he [or she] is no more peculiarly situated to decide than the appellate court." Ibid.
An agency relationship arises when one party consents to have another act on its behalf, with the principal controlling and directing the acts of the agent. Sears Mortgage Corp. v. Rose, 134 N.J. 326, 337 (1993). Even if a person does not possess actual authority, he or she may be an agent by virtue of apparent authority based on manifestations of that authority by the principal. Id. at 338. "Apparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other's manifestations to such third persons." Restatement (Second) of Agency § 8 (1958).
New Jersey courts have applied the doctrine of apparent authority where a principal acts in such a way as to convey the impression to a third party that the agent has certain powers which he may or may not possess. Lobiondo v. O'Callaghan, 357 N.J. Super. 488, 497 (App. Div.), certif. denied, 177 N.J. 224 (2003). The law of apparent authority is well settled:
The rule is that the principal is bound by the acts of his agent within the apparent authority which he knowingly permits the agent to assume, or which he holds the agent out to the public as possessing. The question in every case depending upon the apparent authority of the agent is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question. [C.B. Snyder Realty Co. v. Nat'l Newark & Essex Banking Co. of Newark, 14 N.J. 146, 154 (1953) (quoting Am. Well Works v. Royal Indem. Co., 109 N.J.L. 104, 108 (E. & A. 1932).]
In contract situations, apparent authority imposes liability not as a result of the contractual relationship, but because of actions by a principal which have misled a third party into believing the relationship of authority does, in fact, exist. Wilzig v. Sisselman, 209 N.J. Super. 25, 35 (App. Div.), certif. denied, 104 N.J. 417 (1986), 107 N.J. 109 (1987), 108 N.J. 188 (1987). Further, apparent authority is closely related to the doctrine of estoppel, and the essential elements of reliance must be present before apparent authority can be found. Id. at 35-36; see Sears Mortgage, supra, 134 N.J. at 338 ("Of particular importance is whether a third party has relied on the agent's apparent authority to act for the principal."); see also N. Rothenberg & Son, Inc. v. Nako, 49 N.J. Super. 372, 381-82 (App. Div. 1958) (distinguishing between estoppel theory and objective contract theory of apparent authority).
When one of two innocent parties must suffer a financial loss as a result of a fraud perpetrated by an agent, courts have generally held that the party who enabled the fraud to be committed should shoulder the burden. Sears Mortgage, supra, 134 N.J. at 346; see Clients' Sec. Fund of the Bar of N.J. v. Sec. Title & Guar. Co., 134 N.J. 358, 369 (1993) (companion case). In Sears Mortgage, a closing attorney retained by a real estate purchaser and designated by the title insurance company stole the purchase money for the transaction. Supra, 134 N.J. at 332-35. The Court held that, although the attorney was the agent of both parties, the insurer should bear the burden of the loss because it exercised greater control over the attorney and was in a better position to have avoided the loss. Id. at 346; Clients' Sec. Fund, supra, 134 N.J. at 369.
In this appeal, the estate puts forth two arguments in support of its position that the jury erred in finding that Hobbs had the apparent authority to bind the estate. The estate argues first that Hobbs' fraudulent conduct exceeded the scope of his authority, thus releasing the estate from liability on the contract, and, second, that no apparent authority existed because King's reliance on Hobbs' apparent authorization to enter into the transaction on behalf of the estate was unreasonable. We find neither argument persuasive. We address each of the estate's points in turn.
The estate cites authority for the proposition that when an agent engages in illegal conduct, a presumption arises that he or she did not act within the scope of his or her authority on behalf of the principal. The estate then argues that it should not be held liable on the contract because Hobbs' criminal conduct in stealing the money exceeded the scope of his agency. The estate argues: "When Mr. Hobbs deposited the monies received by him into his own checking account, he was clearly acting outside the scope of his authority."
The principle relied upon by estate would be relevant if King knew of Hobbs' illegal conduct and did nothing to further investigate the extent of Hobbs' authority. But, King knew nothing of the scheme. Although Hobbs' self-dealing certainly exceeded the scope of his authority, it is not his fraudulent conduct after the transaction but his apparent authority to enter into the contract from the viewpoint of King that controls. In other words, Hobbs' depositing the money into his own accounts is irrelevant to the question of authority because the issue as to whether the estate remains liable on the contract turns instead on whether he had authority, as administrator, to enter into the underlying lease agreement. Absent his fraud, as the estate administrator, Hobbs had the authority to deal with potential buyers such as King and to execute contracts on behalf of the estate.
Appellants illustrate the thinness of their argument on this point by citing cases in which principals were relieved of liability for the intentional torts of their agents. The estate maintains that, because Hobbs' conduct could be construed as conversion, and therefore tortious, the estate should be relieved of liability on an otherwise valid contract. Essentially, the estate asks us to adopt a bright line rule that an agent's criminal or tortious conduct destroys his or her apparent authority toward an innocent third party victim of the fraud. Such a rule is not warranted.
At the point when Hobbs entered into the contract with King, he acted well within the scope of his authority to liquidate assets on behalf of the estate. The real thrust of the estate's appeal instead centers on whether King acted reasonably in believing Hobbs had authority to lease the property on behalf of the "Senn Family Trust" rather than the estate.
The critical question in every apparent authority case focuses upon whether the principal held out the agent such that "a person of ordinary prudence" is justified in presuming that such agent has authority to perform the particular act in question. C.B. Snyder Realty, supra, 14 N.J. at 154. This inquiry involves three steps: 1) the principal's acts in holding the agent out, 2) reliance by the third party, and 3) that the reliance by the third party be reasonable under the circumstances. Shadel v. Shell Oil Co., 195 N.J. Super. 311, 316 (Law Div. 1984).
The estate appears to concede the second step of the analysis. King's payment of $68,000, let alone his substantial improvement of the property, proves that he relied upon Hobbs' authority to enter into the contract. As to the first step, the estate argues that it did nothing to hold out or represent to King or other third parties that Hobbs was authorized in this transaction. Yet, the estate acknowledges that "Mr. Hobbs was appointed as administrator of Robert Senn's Estate, by the New Hampshire Surrogate's Court." The New Hampshire court's appointment of Hobbs led King, or anyone else who obtained a title search on the property, to discover that the property was titled to the Estate of Robert G. Senn and in the care of "Hobbs & Assoc." Further, before Tropiano's replacement of Hobbs, it appears that Hobbs had total control of the estate, making it difficult to imagine how the estate could possibly have done anything further to "hold out" Hobbs to the public as having the authority to enter into contracts on its behalf.
The estate's argument on appeal focuses on the third step of the analysis, the reasonableness of King's belief that Hobbs possessed authority to lease the property with an option to buy. Specifically, the estate argues that because the Middletown tax records and King's title search revealed that the property was owned by the Estate of Senn or by Robert Senn individually, King's execution of the contract with the "Senn Family Trust" as landlord was unreasonable. The estate argues that, notwithstanding the discrepancy between the names of the two entities, "King unquestioningly signed a lease with the 'Senn Family Trust', despite review with an attorney." The estate also argues that King acted unreasonably in forwarding his bank checks to Hobbs rather than the estate or the fictitious entity.
The fact that King had the lease reviewed by an attorney means that he did not enter into the lease "unquestioningly" and only serves to bolster the reasonableness of his conduct. King testified that, at the time he and his attorney reviewed the contract and he signed it, the difference in name between the estate and the phony trust never crossed his mind. King checked the municipal records, obtained a title search, and sought the advice of counsel. Furthermore, Hobbs sent King a copy of the phony deed in the name of the trust, which appeared to be properly notarized although the notary commission was expired. These circumstances could well support the jury's verdict by tending to show that a reasonably prudent person would have been deceived.
The reasonableness of King's belief in Hobbs' apparent authority under the circumstances was a fact question for the jury to decide. As Judge Locascio noted, reasonable minds could differ. While King forwarded his checks to Hobbs individually, the checks were made payable to Hobbs as trustee for the "Senn Family Trust." The jury's finding that King was reasonable in his belief of Hobbs' authority does not constitute clear error.
Nothing about the lease or the nature of the transaction in general was so extraordinary as to impose upon King an obligation to exercise a heightened degree of scrutiny beyond the due diligence that he conducted.
While both King and the estate are innocent parties, the estate stands in a better position to bear the burden because it may recover the money from Hobbs under the restitution order in the criminal case against Hobbs. The estate is also the more appropriate party to absorb the loss because it had the capacity to control Hobbs, while King did not.
In conclusion, King's failure to delve deeply into the difference between the "Senn Family Trust" and the "Estate of Senn" is not so patently unreasonable as to allow for a new trial under Rule 4:49-1(a). Because reasonable minds may differ on the issue, the jury's verdict holding the estate liable under the contract does not constitute an miscarriage of justice under the law.
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