Plaintiffs, who are sisters, were defrauded by Kenneth Soule, an agent of defendant Equitable Life Assurance Society of the United States (Equitable), beginning while Soule was employed by Equitable and continuing after Equitable terminated him in July 1992. Soule actually opened an Equitable account for one plaintiff, but he did not do so for the other, instead stealing all the funds that plaintiff entrusted to him. * * *

   * * * Equitable hired Soule on or about April 1, 1990, as an agent authorized to sell Equitable financial products, such as insurance policies and annuities, to the public. Before becoming an Equitable agent, Soule from 1986 onward had been plaintiff Parlato’s accountant and financial advisor. Parlato, a resident of Queens, began investing in Equitable financial products through Soule in May 1990, and Soule actually opened several Equitable accounts in Parlato’s name while he was an Equitable agent. In the spring of 1992, however, Soule began criminally defrauding Parlato. Between March and May of 1992, Parlato, at Soule’s urging, liquidated certain of her non-Equitable investments, and entrusted the proceeds to Soule for investment in Equitable financial products. Soule converted these funds, and all additional funds that Parlato subsequently entrusted to him, to his personal use.

   In 1991, Soule began soliciting plaintiff Perry, Parlato’s sister and a resident of Hawaii, to invest in Equitable products. In May 1992, Perry began entrusting funds to Soule to be used to open investment accounts for her at Equitable. Unlike Parlato, however, Perry alleges that Soule never opened any Equitable account for her, and that, from the start, he misappropriated every penny she ever entrusted to him. Thus, prior to the instant litigation, Perry was unknown to Equitable.

   Equitable terminated Soule’s employment in July 1992. Although Parlato allegedly still had an account with Equitable at that time, Equitable did not notify her of the termination. For approximately four years after his termination, Soule allegedly continued to represent himself to plaintiffs as an Equitable agent and to solicit their further investment in purported Equitable financial products. Plaintiffs do not allege, however, that they were exposed to any manifestations by Equitable of a continuing connection between Soule and Equitable after July 1992.

   In August 1996, plaintiffs contacted Equitable to verify the status of their investments. At that time, Equitable informed plaintiffs that Soule had been terminated by Equitable in July 1992. This allegedly was the first time plaintiffs became aware that Soule’s relationship with Equitable had been severed. Plaintiffs then alerted law enforcement authorities to Soule’s misconduct. Ultimately, Soule pleaded guilty to a federal charge of mail fraud, and was sentenced to 27 months in prison and three years of supervised release, conditioned on his promise to make restitution in the amount of $ 416,000.

   Plaintiffs commenced this action against Equitable in December 1999. Each plaintiff asserted a cause of action for fraud, based on the contention that she entrusted her money to Soule in reliance on the appearance of authority to act for Equitable with which the company had clothed him. [The trial court granted the defendant’s motion to dismiss the complaint], and plaintiffs have appealed.

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   * * * [I]t is well established that a principal may be held liable in tort for the misuse by its agent of his apparent authority to defraud a third party who reasonably relies on the appearance of authority, even if the agent commits the fraud solely for his personal benefit, and to the detriment of the principal [citations]; Restatement [Second] of Agency §§261, 262, 265 [1]; [citations]. The reason for this rule is that the principal, by virtue of its ability to select its agents and to exercise control over them (see Restatement [Second] of Agency §1 [1]), is in a better position than third parties to prevent the perpetration of fraud by such agents through the misuse of their positions. Thus, the principal should not escape liability when an innocent third person suffers a loss as the result of an agent’s abuse, for his own fraudulent purposes, of the third person’s reasonable reliance on the apparent authority with which the principal has invested the agent. * * *

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   [The plaintiffs’ claims based on frauds perpetrated during Soule’s employment by Equitable are barred by the statute of limitations.]

   * * * The final question before us, therefore, is whether, under these circumstances, Equitable’s termination of Soule’s employment in July 1992 had the effect, as a matter of law, of immediately cutting off his apparent authority to act for Equitable vis-a`-vis the two plaintiffs. This question cannot be answered in the abstract. Rather, since the two plaintiffs are situated differently, the question must be addressed separately as to each plaintiff.

   We hold that Parlato’s claim, to the extent it is not timebarred, should not have been dismissed on a motion addressed to her pleading. The Court of Appeals has held that a third party who, like Parlato, is known by a principal to have previously dealt with the principal through the principal’s authorized agent, is entitled to assume that the agent’s authority continues until the third party receives notice the principal has revoked the agent’s authority [citations]. The law of other states appears to be similar (see Restatement [Second] of Agency §§124A, 125, 127, 135, 136 [1], [2]; [citations]). In recognizing this duty of a principal to give notice of the revocation of an agent’s authority, we are simply applying established principles.

   In this case, Parlato alleges that Soule opened actual Equitable investment accounts for her while he was still an authorized agent of Equitable. If this is proven to be so, Parlato will be entitled to the benefit of the above-described rule permitting her, as a person known to have done business with Equitable through Soule in the past, to presume that Soule remained authorized to act for Equitable in the absence of either (1) notice that his authority had been revoked or (2) other circumstances that would have rendered it unreasonable to believe that Soule had authority to act for Equitable in the transactions he proposed [citation]; Restatement [Second] of Agency §125, Comment b; [citation]. Before any determination can be made as to whether it was reasonable for Parlato to believe that Soule had authority to act for Equitable in the transactions for which her claims are not time-barred, the particular facts of this case must be developed through discovery. Therefore, it was error to dismiss Parlato’s claim on this pleading motion.

   This brings us to the question of the viability of Perry’s claim against Equitable. Perry alleges that Soule stole all of the money she entrusted to him, and that he never opened any Equitable account in her name. Thus, Perry’s own allegations establish that Equitable had no way of notifying her of Soule’s termination in July 1992. Under these circumstances, we hold that any apparent authority Soule Chapter 20 Relationship with Third Parties 377 CASE 20-3 Direct Liability of Principal: Negligent Hiring CONNES V. MOLALLA TRANSPORT SYSTEM, INC. Supreme Court of Colorado, 1992 831 P.2d 1316 Quinn, J. [Terry Taylor was an employee of Molalla Transport. In hiring Taylor, Molalla followed its standard hiring procedure, which includes a personal interview with each applicant and requires the applicant to fill out an extensive job application form and to produce a current driver’s license and a medical examiner’s certificate. Molalla also contacts prior employers and other references about the applicant’s qualifications and conducts an investigation of the applicant’s driving record in the state where the applicant obtained the driver’s license. Although applicants are asked whether they have been convicted of a crime, Molalla does not conduct an independent investigation to determine whether an applicant has been convicted of a crime. Approximately three months after Taylor began working for Molalla, he was assigned to transport freight from Kansas to Oregon. While traveling through Colorado, Taylor left the highway and drove by a hotel where Grace Connes was working as a night clerk. Observing that Connes was alone in the lobby, Taylor pulled his truck into the parking lot and entered the lobby. Once inside, Taylor sexually assaulted Connes at knifepoint. Although Taylor denied any prior criminal convictions on may have had vis-a`-vis Perry terminated along with his actual authority when his employment by Equitable came to an end.

   Considerations of fairness, practicality and sound public policy lead us to this conclusion. Even in the case of a third party unknown to the principal, it seems fair to hold the principal responsible for the agent’s misuse of his apparent authority while the principal-agent relationship continues to exist, bringing benefits to the principal and giving the principal a measure of control over the agent’s conduct (see Restatement [Second] of Agency §1 [1] [an agent acts on behalf of the principal subject to the principal’s control]). It seems unfair, however, to hold the principal responsible for torts its former agent commits after termination against an unknown third party, even if the former agent facilitates his wrongdoing by misrepresenting to the victim that the agency relationship is still in existence. Once the agent’s employment has been terminated, the principal no longer has any power to control the agent’s conduct. Moreover, the principal obviously cannot give notice of the agent’s termination to a third party that is totally unknown to it. The law, of course, ‘‘does not require the impossible …’’ [Citation.] Further, allowing claims against a principal based on a former agent’s posttermination torts against unknown third parties would subject the principal to potentially unlimited liability.

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   Finally, the amended complaint alleges that Equitable ‘‘made no effort to alert the public in general that Soule was no longer its agent.…’’ It is true that section 136 (3) of the Restatement (Second) of Agency (published in 1958) takes the position that, absent public notice (as by advertisement in a newspaper of general circulation) of revocation of an agent’s authority in the area in which he formerly acted for the principal, apparent authority continues to exist after such revocation as to persons who previously knew of the agency and do not receive actual notice of the revocation, even if such persons never previously did business with the agent and thus are unknown to the principal. While this rule (hereinafter, the ‘‘public notice rule’’) finds support in a number of very old New York cases [citation], we do not regard the public notice rule as binding at this late date, at least under the particular facts alleged by plaintiffs. There is no statutory or regulatory mandate for public notice in this context * * * and the most recent New York cases giving support to the rule appear to be from the era when the telephone was a relatively new and uncommon device. Today, a person dealing with an individual known to have represented a company in the past can easily verify that the individual is still an agent for the company by contacting the company by telephone. Moreover, there is no reason to believe that the newspaper advertisements contemplated by the public notice rule would actually be read by customers such as plaintiffs in this action. This is particularly so in the case of plaintiff Perry, who, as a resident of Hawaii, would have been highly unlikely to come across a newspaper advertisement announcing Soule’s termination in the New York area (see Restatement [Second] of Agency §136 [3] [a] [public notice rule is satisfied by publication ‘‘in a newspaper of general circulation in the place where the agency is regularly carried on’’]). We therefore decline to ascribe legal significance to Equitable’s alleged failure to give public notice of Soule’s termination.

   [Judgment modified in part and affirmed in part.]