Daily Development for Thursday, November 29, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri firstname.lastname@example.org
ATTORNEY/CLIENT; SCOPE OF AUTHORITY; ATTORNEYIN FACT: Attorneys at law are not automatically presumed to be attorneys in fact for the purpose of binding their real estate clients to a contract.
Busciglio v. DellaFave, 840 A.2d 897 (N.J. App. Div. 2004)
A real estate broker prepared a contract for the sale of residential property. It contained a standard attorney-review clause allowing each party to have its attorney review the contract within a three business day period. If the attorney disapproved, he or she was required to notify the real estate broker as well as the other party within the three business days. If no disapproval was received within those three days, then the contract became legally binding as written.
Two days after the contract was signed, the buyer's attorney wrote to the seller's attorney expressly disapproving the contract and simultaneously offering an amendment to the contract in the form of a contract rider. The cover letter said that the signature of the seller's attorney in place of the actual seller was acceptable "to expedite conclusion of the attorney review." The buyer's attorney then added that he was instructing his client to forward payment to the seller's attorney to be deposited in his trust account, but that it should not be deposited until the amendment was signed by both the seller's attorney and the seller.
A day later, the seller's attorney responded that he had not seen the completed contract of sale, but he still proposed changes to both the contract of sale and the rider and faxed them to the buyer's attorney, who signed the changes as "approved," and faxed them back. The next day, the seller's attorney sent a letter to the buyer's attorney acknowledging that he had received the completed agreement of sale, which, at that time, was signed by the seller. He also returned the rider, signing it on behalf of his clients and noting that it was subject to his previous letter that the buyer's attorney had already approved. On the very next day, the seller's attorney wrote to the buyer's attorney to say that the seller had requested that he "not revive the contract of sale." The buyer then sued the sellers for specific performance of the amended contract.
Neither attorney had obtained a written retainer agreement setting forth the scope of either attorney's representation. Furthermore, neither the seller nor the buyer had signed any of the changes to the contract of sale or executed a power of attorney appointing their respective lawyers as attorney-in-fact.
The Court held the essential terms of a contract could be satisfied from the letters written between the attorneys, but there was a question as to whether the seller's attorney had the authority to bind the seller to the contract. If the seller expressly authorized its attorney to sign on behalf of them, specific performance could be ordered. Here, the lower court did not address the issue of express authority. When it ordered specific performance, it focused upon the actions of the seller's attorney without determining if he could bind his client to the contract. Apparent authority must be established "clearly and convincingly" by the actions of a principal, not those of its alleged agent. Therefore, the Court reversed the lower court and remanded the matter for a trial to determine whether the seller had either expressly or implicitly authorized its attorney to bind it to the amended contract.
Comment 1: Where should the law be on this issue? Should it be different for commercial transactions as opposed to residential transactions? Remember that residential purchasers have only foggy notions of the process that is really going on, but in general acknowledge that their best interest is served by prompt movement toward resolution of minor difficulties and a closing. Thus,. they buy into the result, but do they buy into the process? Of course, the best procedure is for attorneys to do nothing until they actually meet and obtain an executed engagement agreement. But this could take some time, and the rough and tumble of a hot real estate market may make such arrangements a luxury that the parties can’t afford.
Comment 2: In commercial transactions, on the other hand, it is more likely that the parties have entrusted negotiating authority to their counsel, and where this is not the case attorneys would be well advised to notify the other side clearly that their client’s signature is necessary to finalize any deal. . See, e.g. In re Hudgins, 188 B.R. 938 (Bkrtcy. E.D. Tex. 1995) (the DIRT DD for 2/2/96) (Attorney has authority to commit mortgagee client to forbearance agreement with his signature where client's president had participated intermittently in negotiations conducted by attorney and appeared to acquiesce in attorney's authority.) Compare: Shafer v. Barrier Island Station, Inc., 946 F.2d 1075 (4th Cir. 1991) (no implied authority).
Comment 3: Is there a difference between the attorney having the authority to negotiate and having the authority to transfer the client’s position? See Diversified Development & Investment, Inc. v. Heil, 889 P.2d 1212 (N.M. 1995). (the DIRT DD for 8/22/95) (Attorney does not have implied authority to extend orally his clients' option contract deadline when the contract requires modifications to be in writing, but may nevertheless have implied authority to express the position of the client on the same issue.)
Comment 4: In Diversified, above, the issue was whether the attorney could transmit the client’s waiver of a deadline, which presumably could be accomplished orally through estoppel, even though the contract required a writing. What about where the Statute of Frauds expressly requires the signature of the party to be bound. Is the attorney’s signature enough? For a case upholding the attorney's agency authority, as against a claim that the authority was verbal and therefore invalid under the Statute of Frauds when applied to real estate transactions, see Nelson v. Boone, 890 P.2d 313 (Haw. 1995)
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