a. for Phillips: On what theory would the law firm be liable for Carson's misdeeds?
b. Did Carson's misdeeds occur in the ordinary course of the partnership's business?
c. Did Carson act with the actual authority of his partners?
d. What can partners do to prevent this type of liability?
The Phillips and the Carsons had been friends for several years before Mr. Phillips died. Mrs. Phillips hired Mr. Carson, a partner in a law firm, to handle her husband's estate. She paid his firm $80,000. For no extra charge, the firm handled a number of other legal matters for her.
One evening at a party, Carson told Phillips that he was having financial problems. Fearful that he might be suicidal, she loaned him and his wife $270,000. To secure the loan, Carson gave her a mortgage on property in Arizona. Later, Carson asked Phillips to release her mortgage so that he could sell the land. He offered her a mortgage on land in Kansas and told her that this would put her in a better position. Carson prepared a mortgage on the Kansas property but failed to file it with the Register of Deeds. All of Carson's correspondence with Phillips, whether relating to her husband's estate or the loans, was typed on firm letterhead by his secretary at the firm. Phillips knew that the secretary did both firm and personal work for Carson.
Carson filed for bankruptcy protection. Because Phillips's mortgage had never been filed, she became an unsecured creditor with little chance of receiving repayment on her loan. She filed suit against Carson and his law firm. The lower court found that Carson had been negligent for not filing the mortgage.
The trial court dismissed the claim against the law firm on a motion for summary judgment. The appeals court reversed on the grounds that there was substantial evidence from which a trier of fact could find the firm liable.