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Zefelippo v. Rodi

A-5789-99T2 (N.J. Super. App. Div. 2001) (Unpublished)

AGENCY—A party claiming an apparent agency relationship must establish that the appearance of authority has been created by the conduct of the alleged principal; it cannot be established solely by proof of conduct of the alleged agent.

A loan was made to an entity owned by three individuals in equal shares, one of whom was the lender’s father. The loan was memorialized by a promissory note signed by two of the owners of the business as president and secretary. In addition, each of the three owners personally guaranteed repayment of the debt. The borrower was to make monthly interest payments on the debt and pay the principal on the anniversary of the note. The borrower made its monthly interest payments but failed to pay the principal balance. Thereafter, the two owners other than the father, left the business which the father later dissolved. The note holder filed suit to collect the outstanding principal and interest. The other two owners contended that the father had indemnified them for any suits arising out of the promissory note. The lower court granted summary judgment to the note holder. The two owners appealed, arguing that with the authorization of the holder, the father agreed to release and hold them harmless for any claims under the note. The Appellate Division began by recognizing that “an agency relationship may be created when one party consents to have another act on its behalf, with the principal controlling and directing the act of the agent. Even if a person is not an actual agent, he or she may be an agent by virtue of apparent authority based on manifestations of that authority by the principal.” Further, “the party claiming the agency relationship must establish that the appearance of authority has been created by the conduct of the alleged principal; it cannot be established alone and solely by proof of conduct by the supposed agent.” Here, the Appellate Division concurred with the lower court that “no reasonable factfinder could conclude from the evidentiary material that there was an express or implied agency relationship between the note holder and his father, or that the note holder’s conduct caused the owners to believe that a relationship of authority in fact existed. The note holder knew nothing about the indemnification purportedly given by his father to the other owners.” On this basis, the Appellate Division affirmed the lower court’s judgment and required the other two owners to pay their share of the outstanding principal and interest.


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