The Business Court’s decision yesterday in Leiber v. Arboretum Joint Venture, LLC, 2009 NCBC 16 (N.C. Super. Ct. July 8, 2009) involved the law of agency: whether a German Count named Spreti had been acting as Plaintiff’s agent when the Defendant LLCs and partnerships sent Plaintiff’s share of distributions to Spreti. A large chunk of the money was then stolen by Spreti.

Plaintiff Leiber, a German citizen, had put money at the urging of Spreti in a number of United States investments (the "AAC entities"). The AAC entities were operated by two other Germans, Count and Countess Arco. Over a fifteen year period, the AAC entities sent hundreds of thousands of dollars of Leiber’s distributions and tax refunds to Spreti. 

Spreti paid some of the money he received to Leiber, but kept hundreds of thousands of dollars of Leiber’s money for himself. Leiber knew that his payments were sent to Spreti, but he never objected to this practice and apparently wasn’t very attentive to his investment.  Leiber began to suspect Spreti’s misconduct, but Spreti committed suicide the night before the two were to meet to discuss matters.

The specific distributions at issue in the case were payments to Leiber for redemption of his interests in two of the AAC entities. Spreti received both of these payments.  One was a Wachovia Bank check for $151,274 and the other a Bank of America check for $254,858.  Spreti forged Leiber’s indorsement on the checks, cashed them, and kept the money.

After Spreti’s suicide, Leiber sued the AAC entities, alleging that they had improperly sent the checks to Spreti.  He also sued Wachovia and Bank of America, alleging that they had improperly paid the checks over Spreti’s forged indorsement.

Agency Issues

The defense of the AAC entities was that Spreti had been acting as Leiber’s agent, and they therefore had acted appropriately in sending Leiber’s distributions to Spreti. The opinion contains a thorough discussion of the law of agency, including actual authority, apparent authority, apparent agency, agency by estoppel, and ratification.

Judge Tennille determined that although Leiber had not expressly authorized Spreti to act as his agent, there were a number of legal theories on which Spreti would be deemed to be Leiber’s agent:

  • Spreti had implied actual authority to act for Leiber, because Spreti had acted as Leiber’s only contact with the AAC entities for 15 years; and Leiber knew that his checks were being sent to Spreti and had never objected to that practice.
  • Spreti had apparent authority to act on Leiber’s behalf, because Leiber had held Spreti out to the AAC entities as having authority to act for him by using Spreti to manage his investments in the AAC entities for 15 years.
  • An apparent agency relationship existed between Leiber and Spreti, because Leiber’s silence regarding the checks sent to Spreti caused the AAC entities "to believe an agency relationship existed" and the AAC entities had relied on Leiber’s action to their detriment.
  • Because Spreti was the general partner of two of the AAC partnerships, he was deemed to be Leiber’s agent.

The Court further determined that even if there were no agency relationship, Leiber’s fifteen year silence regarding the checks was a ratification of Spreti’s unauthorized acts. The Court granted summary judgment on all of Leiber’s claims against the AAC entities, as they all depended on the argument that Spreti had not been authorized to receive checks on Leiber’s behalf.

The Forged Indorsements

The Bank of America check on which Spreti forged Leiber’s indorsement had been deposited by Spreti at his account at a German bank, Oberbank.  Oberbank transferred the check to Wachovia for collection. Wachovia then presented the check to Bank of America for payment, and Bank of America made payment in full.

Bank of America crossclaimed against Wachovia on its liability for the payment of this check, contending that Wachovia had breached the presentment warranty of N.C.G.S. §25-3-417(a)(1), which is a warranty that there are no unauthorized or missing indorsements on a check presented for payment.  Presentation warranties are breached if a check contains a forged indorsement.

Judge Tennille ruled that the presentment warranty had been breached, and that Wachovia was liable to Bank of America on its crossclaim  He observed that Wachovia was free to go "down the collection chain" to the German bank at which the check had been deposited.  Under the UCC, final liability "rests ultimately on the initial depository bank which presumably could have guarded against the loss by inspecting the indorsement more closely."