Ward to look for vessels to propose to the Ministry.
If an authorization is ambiguous, and the agent has reason to
recognize the ambiguity, the agent may act only in accordance
with the principal's intent, except in the case of an
emergency. See Restatement, supra, § 44. The failure of
Belbeisi's letter to grant Ward the requested authority
unambiguously is completely evident and should have been
readily apparent to Ward. Thus, Ward had a duty to obtain more
definite instructions from the Ministry. See id. comment c.
Despite the shortness of time, there was no "emergency"
preventing Ward from doing so. Indeed, Belbeisi's letter
invites further inquiries, and includes his home phone number
to facilitate them. For these reasons, the court finds that
Belbeisi's letter did not give Ward authority to fix a contract
on the Ministry's behalf.
Other than Belbeisi's fax of May 14, petitioners point to a
number of statements in McDaniel's testimony, indicating that
McDaniel had full authority to fix a contract.*fn9 In
particular, McDaniel testified as follows: "If I'm not mistaken
Pressley had talked to the Minister and the Minister gave him
the okay to go ahead and fix three cargoes of 50,000 metric
tons each. The only thing the Minister wanted was the
performance bond." McD.Tr. 28. She specifically testified that
Pressley received by telephone the Minister's approval of the
telex, McD.Ex. P (msg. no. 1449), informing him that they had
fixed the cargoes. McD.Tr. 104. McDaniel testified that she was
listening in on the telephone calls. McD.Tr. 16, 104-05.
McDaniel also testified, with regard to her alleged general
authority to fix a vessel without obtaining the Ministry's
approval of the terms, that she had spoken with the Minister
personally. McD.Tr. 14.
Belbeisi, however, testified in his deposition that the
Minister is a political appointee — his title suggests that he
is a cabinet officer — who has no knowledge of the shipping
business and is not involved in the negotiation of contracts.
Bel.Tr. 158. The court finds Belbeisi's testimony on this point
to be credible, and believes that it is unlikely that the
Minister would have approved the specific contract terms
himself. It is even more unlikely that the Minister would have
approved any contract terms without informing Belbeisi, who was
ordinarily responsible for negotiating contracts of this type,
see id., or that he would approve the terms and then
immediately instruct Belbeisi to act as if the terms had not
been approved. McDaniel had misunderstood or misrepresented her
authority on at least one other occasion: when the Ministry had
rejected the Herlofson fixture, see McD.Ex. 15 (msg. no.
400:87); Bel.Tr. 88, she nonetheless communicated to Hudson
that the Ministry had approved the fixture on condition that a
performance bond be posted. See McN.Ex. 10 (msg. nos. 102,
103). The court also notes that it was in McDaniel's
self-interest to testify that she was authorized to fix the
contracts, given the possibility of liability for acting beyond
the scope of her authority. See Karavos Compania Naviera S.A.
v. Atlantica Export Corp., 588 F.2d 1, 9 (2d Cir. 1978). For
these reasons, the court finds that McDaniel's deposition
testimony regarding her authority is not credible.
McDaniel's other statements that she had full authority are
conclusory and devoid of any detailed explanation as to the
source of the putative authority. McD.Tr. 13-14, McD.Ex. 13 &
16. The court finds that petitioners have failed to meet their
burden of establishing, by a preponderance of the evidence,
that the Ministry granted Ward actual authority to conclude the
Ward's lack of actual authority does not foreclose the
possibility that its actions might bind the Ministry under the
doctrine of apparent authority. Apparent authority to do an act
"is created as to a third person by written or spoken words or
conduct of the principal which, reasonably interpreted, causes
the third person to believe that the principal consents to have
the act done on his behalf by the person purporting to act for
him." Restatement, supra, § 27, quoted in part in Fennell v.
TLB Kent Co., 865 F.2d 498, 502 (2d Cir. 1989) (applying
federal common law).
A party must establish two elements to recover on the theory
of apparent authority: "(1) the principal was responsible for
the appearance of authority in the agent to conduct the
transaction in question, and (2) the third party reasonably
relied on the representations of the agent." Herbert
Construction Co. v. Continental Ins. Co., 931 F.2d 989, 993-94
(2d Cir. 1991) (citations and internal quotation marks omitted)
(applying New York law); see Hallock v. State, 64 N.Y.2d 224,
231, 485 N.Y.S.2d 510, 513, 474 N.E.2d 1178, 1181 (1984); Ford
v. Unity Hosp., 32 N.Y.2d 464, 473, 346 N.Y.S.2d 238, 244,
299 N.E.2d 659, 664 (1973). The existence of the apparent authority
must be "traceable" to the principal, and cannot be established
by the unauthorized acts, representations or conduct of the
agent. Herbert Construction, supra, 931 F.2d at 993;
Ford, supra, 32 N.Y.2d at 473, 346 N.Y.S.2d at 244, 299 N.E.2d
at 664; accord Fennell, supra, 865 F.2d at 502 (applying
federal common law).
There is no evidence of direct communication from the
Ministry to the petitioners or their agents that Ward or
McDaniel had the authority to fix a contract without the
Ministry's approval. If, however, an agent has actual authority
to represent to a third party that she has authority to do a
specific act, and in fact makes such representations, then the
principal is "responsible" for the appearance of authority, and
the agent has apparent as well as actual authority.
Restatement, supra, § 27 comment c. Unless expressly directed
not to do so, any agent is implicitly authorized to represent
the extent of her authority. Id. § 27 comment c; see also id.
§§ 35, 40, 46.
Conversely, unless expressly directed otherwise, an agent is
not authorized falsely or incorrectly to represent the extent
of her authority. As previously noted, McDaniel had no
authority to fix vessels for the Ministry. To be sure, the
uncontroverted testimony of McNelis and Fronsdal indicates that
on May 19 and 20, respectively, McDaniel represented to them
that she had that authority, McN.Tr. 128, Fro.Tr. 132-33, but
there is no evidence that the Ministry authorized her to make
Petitioners rely on Hawaiian Paradise Park Corp. v. Friendly
Broadcasting Co., 414 F.2d 750 (9th Cir. 1969), a non-maritime
case, for the proposition that apparent authority may be
created by "the granting of permission to the agent to perform
acts and conduct negotiations under circumstances which create
in him a reputation of authority in the area in which the agent
acts and negotiates." Id. at 756. In that case, the defendant's
agent had customarily obtained authorization by telephone from
the defendant during the negotiations that he conducted with
the plaintiff. Id. n. 42. On that basis, the district court
concluded that the plaintiff was entitled to believe that the
agent was acting on the defendant's telephone instructions. Id.
The Ninth Circuit upheld this finding of fact as not "clearly
erroneous," but indicated that another trial judge might have
resolved the matter differently. Id. at 756.
The existence of apparent authority is a question of fact.
Id. at 755; accord Herbert Construction, supra, 931 F.2d at
994. Thus, under the rule of Hawaiian Paradise Park, apparent
agency exists in this case only if, as a factual matter, the
Ministry was responsible for granting permission to Ward to
conduct business in a way that created a reputation of
authority in Ward with respect to the petitioners or their
agents. See Hawaiian Paradise Park, supra, 414 F.2d at 755-56;
see also Herbert Construction, supra, 931 F.2d at 993.
The mere act of hiring Ward as its broker does not make the
Ministry responsible for any belief by the petitioners' agents
that Ward was authorized to fix contracts for the Ministry
without its approval.
Although it is customary in the shipping industry to do
business through brokers, it is also customary for a broker to
get the principal's approval before fixing a binding contract.
See McN.Tr. 100-108, 138, Gam.Tr. 14. Thus, the hiring of Ward
as a broker could not have created a reputation of authority to
fix contracts without approval.
The Ninth Circuit's holding in Hawaiian Paradise Park also
does not necessarily lead to the conclusion that McDaniel was
acting with apparent authority in falsely communicating to
McNelis, see McN.Ex. 10 (telexes of May 21, 1987, msg. nos.
102, 103), that the Ministry had approved the Herlofson
charter, although it may leave open that possibility. See id.
at 756 (district court finding of fact held not clearly
erroneous). However, the holding of the Second Circuit in
Karavos Compania Naviera S.A. v. Atlantica Export Corp.,
588 F.2d 1 (2d Cir. 1978), which unlike Hawaiian Paradise Park is
binding on this court, makes clear that the Ministry cannot be
held responsible on these facts for any belief by Herlofson or
its agents that the Ministry had given such approval.
The Karavos case, like the present case, involved a petition
to compel arbitration on an alleged fixture of a ship charter.
The respondent in that case, Atlantica, had allowed an agent,
Repetti, to use its telephone lines for the purpose of finding
a vessel for Atlantica to charter. Id. at 6-7. The Second
Circuit held that Atlantica's actions were insufficient, as a
matter of law, to give Repetti apparent authority to fix a
vessel. Id. at 10.
Petitioners attempt to distinguish Karavos by asserting that
Repetti was not a broker but an alleged employee of Atlantica.
P.Rep. 7. Repetti was, in fact, a representative of an
independent trading company. Karavos, 588 F.2d at 3.
Nonetheless, it is not important whether Repetti is called a
"broker" or something else, since it is clear that Repetti's
function was to secure vessels for Atlantica. See id. at 6. As
petitioners point out, "not every employee of a trading company
has authority to fix a time charter," id. at 10, but it is also
true that not every employee of a ship broker has authority to
fix a voyage charter.
In addition, petitioners had a duty of reasonable inquiry to
determine the scope of McDaniel's authority. See id. at 10. To
be sure, Herbert Construction, supra, 931 F.2d at 995, holds
that reasonable inquiry is not a prerequisite to maintaining a
cause of action based on apparent authority under New York law;
rather, "[i]n the apparent authority context, the duty to
inquire only arises when the facts and circumstances are such
as to put [the third party] on inquiry, the transaction is
extraordinary, or the novelty of the transaction alerts the
third party to the danger of fraud." Id. at 996, (internal
quotation marks and citations omitted). However, the duty of
inquiry in this case is governed by federal maritime law, as
expounded in Karavos, rather than by New York state law, as
expounded in Herbert Construction. See supra note 7. Moreover,
the "novelty" of McDaniel's claim of authority to fix without
consulting the Ministry, together with rumors in the market
calling Ward's authority into doubt, put McNelis on actual
notice of the danger of fraud. See supra page 7. Seeking and
obtaining McDaniel's own assurances, without more, is
insufficient to relieve McNelis of the duty of reasonable
inquiry. See Karavos, supra, 588 F.2d at 9.
For the foregoing reasons, the court concludes that Ward had
neither actual authority nor apparent authority to make a
binding contract on behalf of the Ministry. It is therefore
unnecessary to reach the other contentions of the
parties.*fn10 The petitions are denied on the merits.
IT IS SO ORDERED.