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Cowan, Gunteski & Company v. Macrae

A-2628-08T3 (N.J. Super. App. Div. 2010) (Unpublished)

AGENCY — Where two people, such as a father and son, have a verbal agreement to retain a third party’s services, and one of them had specific authority to sign the other’s checks and also had general authority to act for the other one, a court can reasonably find an agency relationship between the two and can obligate the principal for contracts entered into on her or his behalf by the agent.

A father and son formed a corporation to provide telecommunications services. They were approached by a financing company that offered them a $2,000,000 line of credit. They accepted. The father then transferred his interest in the corporation to his son for $1.00. The son experienced financial difficulties and was forced to sell the corporation’s assets to the financing company in exchange for the financing company’s assumption of the corporation’s debts. Around that time, New York State determined that the corporation owed $750,000 in unpaid sales taxes as a consequence of the sale of its assets to the financing company.

The corporation consulted with its attorney, who recommended that it retain an accounting firm to represent it at a sales tax audit and to advise the corporation whether it had a claim against the financing company. The corporation, father, son, and their attorney met with the accounting firm. The accounting firm then sent a retainer letter, which was returned signed by both father and son along with a check drawn on the father’s bank account. The parties met again, and the accounting firm requested an additional retainer to complete the agreed-upon services. The parties were not able to reach an agreement regarding the fees and the accounting firm ceased its representation after the sales tax audit was completed. The firm demanded payment of its bill. When its bill remained unpaid, it sued the father, but not the son. It did not sue the son because he had filed for bankruptcy protection and had been discharged of personal liability for the firm’s claim.

At trial, the father claimed that he never agreed to be responsible for the accountant’s bill and that he had provided checks to his son only due to his son’s financial problems. He claimed to be unaware that his $10,000 check was made payable to the accounting firm and he argued that he never agreed to be responsible for the accounting fees. The lower court found that the father and son had reached a verbal agreement to retain the firm’s services and that the son exercised a specific power to sign his father’s checks and also had general authority from his father. The lower court also found that, using those authorities, the son signed a retainer agreement and retainer check on his father’s behalf. The lower court rejected the son’s testimony that his father did not discuss specific details about the business and was just present at meetings at the son’s request because the son becomes nervous at meetings and forgot details.

The father appealed, but the Appellate Division affirmed. In doing so, the Court rejected the father’s claim that he did not have a contract with the accounting firm and that his son had no authority to sign a retainer agreement or tender a retainer check. The Court noted that it is improper for an appellate court to “engage in an independent assessment of the evidence as if it were the court of first instance.” It also noted that an appellate court is not free to make its own determination about credibility. In this case, the lower court found that the evidence established a contract between the accounting firm and the father and it credited the accountant’s testimony while rejecting the testimony of the father and son. As such, the Court was not free to independently assess the lower court’s factual determinations.

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