Frequently, individuals and entities (principals) act through agents to conduct business. When litigation arises from such business, the third parties with whom the agent interacted, often seek to hold the agent liable for any damages that are suffered.
The law is clear that “an agent for a disclosed principal will not be personally bound unless there is clear and explicit evidence of the agent’s intention to substitute or superadd his personal liability for, or to, that of his principal.” Savoy Record Co. v. Cardinal Export Corp., 15 N.Y.2d 1, 4 (1964) (citations and internal quotation marks omitted); see also, Overbay v. Berkman, Henoch, Peterson, Peddy & Fenchel, P.C., 185 A.D.3d 707, 708-09 (2nd Dep’t 2020) (citing Savoy Record). “The defense of agency in avoidance of contractual liability is an affirmative defense and the burden of establishing the disclosure of the agency relationship and the corporate existence and identity of the principal is upon he or she who asserts an agency relationship.” Safety Environmental, Inc. v. Barberry Rose Management Co. Inc., 94 A.D.3d 969 (2nd Dep’t 2012) (citations, internal quotation marks and brackets omitted).
“A principal is considered to be disclosed if, at the time of a transaction conducted by an agent, the other party to the contract had notice that the agent was acting for the principal and the principal’s identity.” Stonhard v. Blue Ridge Farms, LLC, 114 A.D.3d 757, 758 (2nd Dep’t 2014) (citations and internal quotation marks omitted). The test for whether a principal is “disclosed” is “actual knowledge, not suspicion.” Safety Environmental, 94 A.D.3d at 970 (quoting Ell Dee Clothing Co. v. Marsh, 247 N.Y. 392, 397 (1928).) For example, the plaintiff in Stonhard, was a contractor that installed flooring at a food manufacturing facility. The Second Department, in reversing supreme court’s grant of summary judgment dismissing the individual defendant from the action and granting summary judgment to the plaintiff, stated:
The plaintiff established, prima facie, its entitlement to judgment as a matter of law on the complaint insofar as asserted against the defendant Marvin Sussman with evidence that it entered into a contract with Sussman of “Blue Ridge Farms,” pursuant to which the plaintiff was to install flooring at the “Blue Ridge Farms” food manufacturing facility in Brooklyn, and Sussman failed to disclose that he was acting as an agent for the defendant Blue Ridge Foods, LLC, which owns the facility.
Stonhard, 114 A.D.3d at 758 (citations omitted). Since the agent in Stonhard was acting for a “partially disclosed principal in that the agency relationship was known, but the identity of the principal remained undisclosed,” “he became personally liable under the contract”. Stonhard, 114 A.D.3d at 758-59 (citations and internal quotation marks omitted).
The general rule that an agent will not be liable for the principal’s obligations is not without limit. For example, “[t]he fact that an agent acts for a disclosed principal does not relieve the agent of liability for its own negligent acts.” American Ref-Fuel Co of Hempstead v. Resource Recycling, Inc., 281 A.D.2d 574, 575 (2nd Dep’t 2001) (citation omitted). Similarly, “[i]t has long been an established rule of law that the agent is not liable to third parties for non-feasance but only for affirmative acts of negligence or other wrong.” Pelton v. 77 Park Ave. Condominium, 38 A.D.3d 1, 11 (1st Dep’t 2006), overruled on other grounds by Fletcher v. Dakota, Inc., 99 A.D.3d 43, 49–50, 948 N.Y.S.2d 263 (1st Dep’t 2012).
It is against this backdrop that this Blog discusses Elango Medical PLLC v. Trump Place Comdominium, decided on May 18, 2021, by the Appellate Division, First Department. The individual plaintiff in Elango is “an African-American, is a licensed physician and the sole owner of [corporate] plaintiff Elango Medical PLLC.” Corporate plaintiff attempted to lease space to open a medical office in the Trump Plaza Condominium, for which the Trump Corporation is the managing agent for the condominium and its board of managers.
According to plaintiffs, they found a listing for a unit in the subject condominium that was “identified as ‘professional space’ for physician/medical office use.” Plaintiffs’ offer to lease the unit was accepted by the owner of the unit and the parties “entered into a lease agreement subject to approval by the board.” The application was denied, however, “because the condominium bylaws restricted the unit to residential use.” Plaintiffs alleged that they were never advised of any restrictions even though the listing agent and representatives of the Trump Corp. were aware of same. It was also “undisputed that the unit had previously been used as a medical office from 1993 to mid-2017 and that two other units in the Condominium were currently being used as medical offices.”
Plaintiffs brought claims against Trump Corp. for, inter alia, “race-based discrimination in violation of the New York City and State Human rights laws.” Trump Corp moved for summary judgment arguing, inter alia: that the application was denied for legitimate reasons (the use of the unit was restricted to residential use); that Trump Corp. was acting as an agent for the board, a disclosed principal; and, that “the Board had no idea who or what Dr. Elango was because…the Application was not reviewed or processed by the Board once it was determined, from the first page of the Lease, that the PLLC’s intended use was impermissible.” Plaintiffs opposed the motion “arguing that the proffered reason for rejecting their application was pretextual, that issues of fact existed as to the scope of the agency relationship, and Trump Corporation could nonetheless be held liable for its own independent tortious conduct, and that issues of fact existed as to whether Trump Corporation was aware of Dr. Elango’s race. Supreme court denied the motion.
Trump Corp. argued on appeal that “it cannot be held liable because it acted as the agent of a disclosed principal, i.e., the board.” Supreme court’s order was unanimously affirmed. The Court, after setting forth the law on agency like that which is set forth herein, including that “an agent may still be held liable for its own affirmative wrongful acts,” stated:
Here, it would have been premature to grant summary judgment on this issue as document and deposition discovery have not yet begun and are clearly necessary to explore Trump Corporation’s agency status and its relationship with the Board, and whether it was aware of Dr. Elango’s race and its involvement in the decision to reject plaintiffs’ application.
In the context of the agency defense and the discrimination claim, the Court was also moved by the fact that: “the evidence that a color photograph of the applicant was required to be submitted with the application was sufficient to create an issue of fact as to whether Trump Corporation was aware of Dr. Elango’s race [; that] the word “COLOR” is spelled out in capital letters for emphasis in its document[; and,] that the unit had previously been used as a medical office.
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