Legal Memorandum: Liability of a Co-trustee

Issue: Whether a co-trustee can remain free from liability for a thirdparty manager’s decisions that exceeds the scope of the third party’s authority.

A principal is liable for the fraudulent acts of his or her agent that are committed within the scope of the agent’s authority.  Chase Manhattan Bank v. Perla, 65 A.D.2d 207, 411 N.Y.S.2d 66 (4^th Dep’t 1978).  See Chubb & Son Inc. v. Consoli, 283 A.D.2d 297, 726 N.Y.S.2d 398 (1^st Dep’t 2001) (stating the general rule that a principal, even if innocent, is liable for acts of fraud that are within the scope of the agent’s actual or apparent authority).  Accord News Am. Mktg., Inc. v. LePage Bakeries, Inc., 16 A.D.3d 146, 791 N.Y.S.2d 80 (1^st Dep’t 2005); Bowers v. Merchs. Mut. Ins. Co., 248 A.D.2d 1005, 670 N.Y.S.2d 274 (4^th Dep’t 1998); Adler v. Helman, 169 A.D.2d 925, 564 N.Y.S.2d 828 (3d Dep’t 1991).  Further, a principal will be liable for an agent’s acts outside the scope of authority if the principal ratifies the agent’s actions and retains the benefits derived from those actions.  Adler, 169 A.D.2d 925, 564 N.Y.S.2d 828.

Conversely, “[i]t is also well-settled law that when an agent exceeds his authority, … his principal is not bound, [and] the agent will be held liable for the damage occurring to the other contracting party.”  Riverside Research Inst. v. KMGA, Inc., 108 A.D.2d 365, 370, 489 N.Y.S.2d 220, 224 (1^st Dep’t 1985) (holding that where the agent induced the sublessee to surrender […]