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Fergus v. Ross

Appeals Court of Massachusetts, Suffolk

June 9, 2016


          Heard Date January 21, 2016.

         Civil action commenced in the Superior Court Department on August 31, 2010.

         The case was heard by Frances A. Mclntyre, J.

          Arnold E. Cohen for the defendant.

          Gordon E. Feener for the plaintiff.

          Present: Green, Wolohojian, & Henry, JJ.

          WOLOHOJIAN, J.

         We consider here a principal's liability to a third party for the conduct and representations of his agent in the context of a private lending transaction. Following a bench trial, a judge of the Superior Court concluded that Steven A. Ross, individually, was bound by promises Bernard Laverty, Jr., made to Joseph Fergus because Laverty was Ross's agent and acted within the scope of his apparent authority. Judgment accordingly entered against Ross, individually. The central issue on appeal is whether the judge erred in concluding Laverty had apparent authority to bind Ross to act as closing agent on a side loan about which Ross did not have actual knowledge. We affirm.


         We summarize the judge's findings, which we must accept unless clearly erroneous. See Weiler v. PortfolioScope, Inc., 469 Mass. 75, 81 (2014). "A finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 792 (1986), quoting from United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948). Where there are two permissible views of the evidence, a judge's finding adopting one view is not clearly erroneous. See Pehoviak v. Deutsche Bank Natl. Trust Co., 85 Mass.App.Ct. 56, 65 (2014).[2]

         Fergus, a middle-aged man with an eighth grade education, is a public insurance adjuster also in the business of rebuilding damaged residential properties he comes across in his insurance work. Fergus is savvy and smart, but he is not sophisticated about financial matters or perfecting security interests. He had previously bought and sold several residential properties, financing them through conventional lenders. Before the facts giving rise to this case, Fergus had never dealt with a private lender.

         In the summer of 2007, Fergus required between $75, 000 and $100, 000 for the cosmetic work needed to complete the rehabilitation of a burned-out property on Ruthven Street in the Dorchester section of Boston. Fergus could not obtain conventional financing on the property and so he contacted his cousin, Catherine Gibbons, a mortgage broker, to ask for her help. Gibbons recommended Bernard Laverty, Jr., who had connections to several "hard money" lenders.[3] One of those connections was Attorney Steven A. Ross, who ran a private lending practice at Gilmartin, Magence and Ross, LLC (GMR). Laverty would bring Ross potential borrowers and if Ross "liked" them, he would make the loan and pay Laverty a referral fee. This arrangement began before the transaction at issue in this case and continued thereafter. In addition, Laverty had himself borrowed money from Ross on five or six occasions in the past.[4]

         At the same time, Laverty happened to need money to close on a property in Marshfield for which he had signed a purchase and sale agreement. Therefore, he pressured Fergus to give him a side loan of $120, 000 out of the proceeds of any loan from Ross. To "protect[]" Fergus, Laverty offered to give him a "deed-in-lieu" on the Marshfield property. Fergus's notion of the meaning of a deed-in-lieu was vague, but he understood that if Laverty did not repay the side loan, he would be able to sell the Marshfield house. In Fergus's mind, he would be protected "either way." On this basis, Laverty persuaded Fergus to borrow from Ross more money than he (Fergus) needed. The side loan was to be for one month.

         Laverty brought Fergus's need for a "hard money" loan to Ross's attention and, thereafter, there was no direct communication between Fergus and Ross. Instead, all discussions with Ross were conducted by Laverty, outside of Fergus's presence. Laverty was the sole conduit of information to and from Ross and, according to Fergus, Laverty "set everything up." Laverty met with Fergus to discuss the loan terms, arranged (and was present for) the inspection of the Ruthven Street property by Ross's wife, delivered the commitment letter to Fergus, obtained Fergus's signature, and returned it to Ross.

         As noted above, Ross's wife (who had been told that Fergus needed the loan to complete renovations) inspected the Ruthven Street property for Ross. Based on that inspection, Ross knew or should have known that Fergus needed a loan of only $75, 000 to $100, 000 to complete the renovations. Nonetheless, Ross set the amount of the loan at $260, 000 -- more than twice what Fergus needed. Fergus never requested a $260, 000 loan; in fact, he never requested any specific amount. The amount set by Ross was not a random figure. It represented not only the $75, 000 to $100, 000 that Fergus needed, but also the $120, 000 for Laverty's side loan, and the costs (which included prepaid interest, origination fees, appraisal fee, and legal fee) associated with the loan itself -- all of which came out of the loan proceeds at the time of closing. Those facts, together with Ross's knowledge that Laverty was not receiving his customary referral fee, that Laverty could not be expected to expend time and energy without compensation, and that Laverty frequently borrowed money, permitted the judge to find (as she did) that Ross could have easily deduced that Laverty was to receive a side loan from the proceeds of the loan to Fergus.

         All paperwork for the loan was prepared by Ross. Among other things, Ross prepared and signed a commitment letter dated September 7, 2007, containing the terms of the loan. Laverty delivered that letter to Fergus on September 10, 2007, the day before the closing. Fergus signed the letter and gave it to Laverty to return to Ross. On the same day, Fergus handwrote, and signed, a letter to Ross, which Laverty represented he would deliver to Ross together with the signed commitment letter.[5]That letter reads:

"To Steve Ross.
"Bernard Laverty is getting $120, 000 from the closing on Ruthven ...

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