1. Whether the defendant _____ had authority, actual or apparent, to bind
__________to the mortgage given to plaintiff _________?
2. Whether plaintiff had established any basis on which the court may find equitable estoppel?
3. Whether the answer filed by ____ and full and complete discovery provided plaintiff with sufficient information concerning defendant’s allegations as to ___ having exceeded his corporate authority?
The record shows that the
transaction that is the subject of this action was a personal one between
plaintiff and _____ (R-649) (644) (293-294).
Defendant negotiated the terms on his own; he signed the contract in his
own name (R-106-107); he applied to ____ on his own for a mortgage loan
(R-633); took occupancy prior to closing on his own behalf (R-114-115); he
negotiated the second mortgage loan with plaintiff on his own and he never
disclosed it to his brother or his father, the other shareholders of the
corporation; defendant took title in his own name (R-644); and he alone dealt
with plaintiff when payments were missed.
Plaintiff testified he considered the transaction a personal one and
that he considered the debt to be defendant’s personal debt. Plaintiff admitted he knew ____ and ____
were equal owners of ___ along with defendant and that he knew them personally
(R-136-141). Notwithstanding that
knowledge he also admitted that he never contacted either co-owner prior to the
execution of the Note and Mortgage and further, that he never contacted them
regarding the defaults in payments until formal demands were made by his
lawyers in 1995 (R-136-141) (151-152) (147) (161).
The
Note and Mortgage to plaintiff was solely for the purpose of completing
defendant’s personal transaction. No
benefit was conferred by this transaction upon ___. It received nothing in exchange for its purported mortgage
obligation. Plaintiff has argued that
____ benefited because he got to use the sheet metal equipment housed in the
building. This is an unrealistic theory
since the ___ claimed they still owned the equipment and more importantly, he
paid defendant rent (R-524-528). As to
___, no illustration was offered by plaintiff as to how he was benefited by the
transaction between defendant and plaintiff.
It cannot be said that the instrument signed on behalf of ___ was
supported by any consideration to the maker thereof.
Plaintiff
argues that defendant had both actual and apparent authority to execute the
Note and Mortgage on behalf of ___. He
claims that __ had authority to execute agreements in the ordinary course of
___ business and that the mortgage to plaintiff falls into that category. While executing a note and mortgage was a
permitted or authorized act for the corporation, it is not the same as its
“ordinary course of business.”
The
ordinary course of business of ___ was not borrowing money and executing
mortgages. ___ ordinary course of
business was owning and operating the property it owned in ___. Mortgaging that property for defendant’s
personal benefit was not part of running that business.
The
other actions by the shareholders referred to by plaintiff do show certain
transactions were made which benefited the individual owners, and sometimes
corporate formalities were overlooked, but all of those transactions were
undertaken with the knowledge and consent of all the shareholders
(R-538-553). All the actions cited by
plaintiff were mutually consented to – the subject’s mortgage to plaintiff was
not.
Prior
to the transaction in question, plaintiff had no dealings with ___
whatsoever. He had no conversations of
any business substance with any shareholder of ___ until he began negotiating
with defendant for the sale of his property.
Plaintiff never communicated with anyone who had an interest in ___
other than defendant (R-136-141).
Except for defendant’s self-serving statement, plaintiff had no
indication of defendant’s authority to perform any acts for the corporation
(R-140), and particularly an act, which benefited only ___ personally. Plaintiff seeks to rely upon the awareness
that his former attorney, ___, claims to have had as to defendant’s authority
(R 135-141).
As of _____, 200_, ___ was aware of three prior loan transactions involving the family. The loan document for the first was signed by ___ and ___; the second was signed by defendant; and the third was signed by all three family members. Each transaction was for institutional financing of corporately owned property (R-208-209) (213-217) (239-241).
___
testified that he didn’t know who the shareholders of ___ were as of July 19,
1990. He assumed defendant was
authorized, essentially because defendant said he was (R-291-300) and because
he said transactions involving ___ were handled by defendant prior
(R-292). The evidence shows, however,
that there was only one loan transaction involving ___ and ___ where only
defendant acted for ___. Further, and
most importantly, the subject transaction did not benefit or involve ___ (the
corporation) – it only involved defendant.
Plaintiff
failed to inquire beyond defendant’s self-serving representation, and he failed
to request the consents of the other two shareholders.
Plaintiff asserted in its Brief (PA Brief page 6) that ___ “appeared to include” the mortgage liability in its tax return. This is reasserted at PA Brief, pages 28 and 45. This representation distorts the actual matter as it was presented to the Court. ___ indicated he did not know what the entry reflected (R-605-606) and a review of the return (R-812 et seq) does not specify or identify the item.
THE
DEFENDANT ________ HAD NO AUTHORITY, ACTUAL OR APPARENT, TO BIND ___
PROPERTIES, LTD. TO THE MORTGAGE GIVEN TO PLAINTIFF BRUCE J. LINDENBAUM.
As a general rule, in order
that a corporation may be bound by the acts of one as its officer or agent in
executing a note and mortgage upon the ground of apparent authority or estoppel, it must appear that the
corporation is chargeable with notice or knowledge of the acts relied upon to
establish such apparent authority or estoppel.
18B Am. Jur. 2d, Corporations sec. 1528.
Generally, persons dealing
with the officers and agents of a corporation are required to take notice that
the latter’s powers are derived from statutes, bylaws or usages which define
the extent of their authority, and in doubtful cases, one must acquaint himself
with the exact extent of that authority.
Traitel Marble Co. v. Brown Bros., Inc. 159 A.D. 485, 144 N.Y.S.
562 (1913). Plaintiff was aware that
the Note and Mortgage was to secure a purchase of property personal to
defendant.
In the determination of
authority conferred upon officers by boards of directors, the minutes of the
meeting of the directors and formal resolution of the board are the best
evidence. 18B Am. Jur. 2d, Corporations
sec. 1632. However, a formal resolution
is not the only evidence of corporate action; everything that is said and done
and the entire setting of the occasion may help in determining the authorization
intended to be conferred on a corporate agent and the purpose to be carried out
and effected. Geotel, Inc. v.
Wallace 162 A.D. 2d 166, 556 N.Y.S. 2d 577, app dismd, app den 76 N.Y. 2d
917, 563 N.Y.S. 2d 55, 564 N.E. 2d 665 (1990, 1st Dept). The extent of a corporate agent’s authority
is not to be established by his own representations. Wolper v. New York Water Service Corp. 276 A.D. 1106, 96
N.Y.S. 2d 647 (1950); Loeb v. Star & Herald Co. 187 A.D. 175, 175
N.Y.S. 412 (1919); Witt v. Carlton Dress Goods Co. 156 N.Y.S. 693 (1915,
Sup App T).
In an action against a
corporation under a contract made with an officer or agent, direct authority
must be shown in the officer or agent to make such a contract on behalf of the
corporation, or facts must be shown from which such authority would be presumed. N.A. Berwin & Co. v. Hewitt Realty
Co. 199 A.D. 453, 191 N.Y.S. 817, affd 235 N.Y. 608, 139 N.E. 754 (1922); Coney
Island Automobile Race Co. v. Boyton 87 A.D. 251, 84 N.Y.S. 347 (1903).
The making of a contract by
officers of a corporation will not in the first instance be presumed to be
within their authority unless the contract is one within the power of the
corporation itself to make, and one in the general course of its business. N.A. Berwin & Co. v. Hewitt Reality
Co. 199 A.D. 453, 191 N.Y.S. 817, affd 235 N.Y. 608, 139 N.E. 754
(1922). The mere fact that a
corporation has the power to make a certain type of contract does not, of
itself, clothe even the highest officer of a corporation with apparent authority
to bind the corporation to such a contract.
18B Am. Jur. 2d, Corporations sec. 1542. Moreover, the general authority of an officer or agent to
contract for a corporation does not include the power to make unusual
contracts. Carney v. New York Life
Insurance 162 N.Y. 453, 57 N.E. 78 (1900).
See also Business Corporation Law Sec: 624; 708(a); 908; 911.
New York is in accord with
the rule established in many jurisdictions that a corporation is not liable
upon a contract of suretyship or guaranty made by an officer, in the absence of
evidence that the contract was within the express or implied authority of the
officer, or was within his ostensible or apparent authority as established by
the practice of the company (18 B Am. Jur. 2d, Corporations sec. 1551). An officer of a corporation cannot bind the
corporation to pay the debt of another by a mere promise of payment. Bankers’ Trust Co. v. International R.
Co. 207 A.D. 579, 202 N.Y.S. 561, affd 239 N.Y. 619, 147 N.E. 220 (1924).
The law does not easily imply a power in a corporate officer or agent to encumber the property of a corporation where the latter is not engaged in the business of encumbering property of the kind involved. Unless actual or apparent authority is conferred, the officers or agents of a corporation have no authority to encumber the property of the corporation and, in the absence of ratification thereof, it would not be binding on the corporation. It is not, as a general rule, within the apparent authority of a president of a corporation to encumber its property by executing a Note and Mortgage to secure his personal purchase of real property.
The mortgaging of corporate
property generally requires the consent of the stockholders. In the absence of such express authority
corporate officers or agents do not have the power or authority to give even a
mortgage on personal property where that is not within the regular and normal
course of the business of the corporation.
In re Chubby’s Parkchester, Inc. 94 F Supp 701 (1951, DC N.Y.).
Corporate officers or agents
have no right or authority to use, divert, or appropriate corporate property
for their own individual interests or purposes. Thus, a corporate officer has no authority to use corporate funds
for payment of his own debts. Quintal
v. Kellner 264 N.Y. 32, 189 N.E. 770 (1934). A general agent of a corporation, entrusted by the corporation
with the management of its affairs, has no actual authority to appropriate the
corporate property to his own use by transfer to himself directly or
indirectly. In such a case, the attempted
transfer is made without actual authority, and it constitutes a conversion and
passes no title to anyone. Wen Kroy
Realty Co. v. Public Nat’l Bank & Trust Co. 260 N.Y. 84, 183 N.E. 73
(1933). G.E. Capital Mortgage
Services Inc. v. Taylor 228 A.D. 2d 475, 644 N.Y.S. 2d 295 (A.D. 2nd
1996). In Nash v. Y and T
Distributors, 207 A.D. 2d 799, 616 N.Y.S. 2d 402 [2d Dept 1994], the Court
stated:
See also Standard Funding
Corp. v. Lewitt et. al. 89 N.Y. 2d 546, 656 N.Y.S. 2d 188. (1997)
The creation of apparent
authority to enter the transactions in issue as defendant’s agent requires
words or conduct of the principal--defendant--communicated to plaintiff as a
third-party, which gave rise to the appearance and reasonable belief that the
agent possessed authority to enter into the transactions (see Hallock v.
State of New York, 64 N.Y. 2d 224, 231; see also City of Cohoes v.
Kestner Engrs., 226 A.D. 2d 914; Standard
Bldrs. Supplies v. Gush, 206 A.D. 2d 720, 721; Mead v. Finger Lakes-Seneca
Coop. Ins. Co., 184 A.D. 2d 952, 953).
The plaintiff failed to take even minimal steps to discover the actual
scope of authority (Chelsea Natl. Bank v. Lincoln Plaza Towers Assocs.,
93 A.D. 2d, 219, affd 61 N.Y. 2d 817).
An “agent cannot by his own acts imbue himself with apparent authority”
(Hallock v. State of New York, supra, at 231). See also Fleet Bank v. Consola 268 A.D. 2d 627, 701 N.Y.S.
2d 182 (A.D. 3rd 2000).
Plaintiff
attempted to show at trial defendant’s authority as a result of other
transactions he undertook on behalf of ___.
At best, this evidence showed that he acted as President of ___ for its
corporate purposes and benefit. There
was never a showing of his having acted on other occasions in the corporate
name for his own benefit. The corporate
transactions alleged were discovered by his attorney in the course of
preparation for trial and were unknown on __, 200_. Those acts could not have misled plaintiff into believing
defendant was authorized to act in such a capacity.
Plaintiff
had a clear duty to inquire into the truth of defendant’s self-serving
statement as to his authority. His
failure to do so precludes him from enforcing the Note and Mortgage against ___
or its successors.
Point
II
PLAINTIFF HAS NOT ESTABLISHED ANY BASIS
ON WHICH THE COURT MAY FIND EQUITABLE
ESTOPPEL.
Plaintiff
asserts that principles of equitable estoppel and waiver require reversal. To be afforded the protection of equitable
estoppel, a party must establish as to their adversary:
The record conclusively demonstrates that
plaintiff’s evidentiary submissions fail to establish any of the requisite
elements of equitable estoppel as they apply to the defendant. See Brelsford v. United States Auto.
Assoc., 89883 [3d Dept 2001], decided December 20, 2001. As set forth above, certain criteria
must be established for equitable estoppel to apply. As to ___:
(1)
Conduct
which amounts to a false representation or concealment of material facts:
___ had no dealings with the
plaintiff and was not aware of defendant’s actions in executing the note and
mortgage. Plaintiff, who knew the other
shareholders, never spoke to them concerning the transaction nor did his attorney
seek any corporate resolution authorizing the execution of the documents.
(2)
Intentions
or expectation that the conduct be acted upon:
The plaintiff never produced
any evidence to show that ___ or its shareholders were aware of the transaction
or that they were aware of any other self-dealing by defendant and approved
such actions.
(3)
Knowledge
of the real facts:
The plaintiff never met his
burden of proof to show that ___ or its shareholders had actual or constructive
knowledge of defendant’s actions in executing the note and mortgage. In fact, the only evidence produced was to
the contrary.
As
to the plaintiff:
(1)
Lack
of knowledge or the means of knowledge of the truth as to the facts:
Plaintiff testified he knew
the other shareholders and principals of ___ but did not consult with them in
any manner to inquire if the transaction and acts of defendant were
appropriate. He was aware of who they
were and was in a position to contact them – however he failed to do so.
(2)
Reliance
on the Party estopped:
Since there was no testimony
as to actions by the other shareholders of ___ upon which the plaintiff relied,
this point fails,
634 N.Y.S. 2d 306 (A.D. 4th
Dept 1995).
A reasonable inquiry by Plaintiff would have revealed to him the lack of consent of ___’s other two shareholder/directors, and he is chargeable with that knowledge.
Plaintiff’s assertion that the mortgage in question was included in defendant’s tax return and therefore, should create an estoppel is without foundation. ___ indicated he did not know what the entry reflected and a review of the entry provides no basis for the claim. Plaintiff never provided proof of its claim that the listed item was the mortgage in issue and the tax return does not identify it as such. In addition, this would have occurred after the event and was not relied upon by plaintiff so as to create an estoppel claim. The record does not support plaintiff’s claim.
Point III
Plaintiff contends the defendant waived the
issue of lack of authority of defendant by failing to plead same as an
affirmative defense.
First,
the defendant explicitly stated in its answer that the corporation was not
authorized to consummate the transaction.
The defendants’ First Affirmative Defense stated:
Secondly, defendants’ Third Affirmative Defense, as acknowledged in plaintiff’s Brief at page 12 stated:
7. The Note and Mortgage referred to in the complaint were
made by defendant to acknowledge and secure his own
debt to plaintiff.
8. Said Note and Mortgage were made without the knowledge
of defendant or the other shareholders of defendant ___ .
Plaintiff’s alleged “fair reading” interpretation is erroneous and lacks any credibility. There was extensive discovery of the principals and plaintiff was fully aware of the allegations raised as to defendant’s lack of authority.
Plaintiff
made no motion to strike defendants’ pleadings at trial and did not, in fact,
raise this issue at trial. The issue of
defendant’s authority was argued at the time of the argument of Summary
Judgment motions and the matter was referred to trial. The plaintiff did not raise any alleged
waiver at that time.
In BMX Worldwide Ltd v. Coppola N.Y.C. Inc.,
107 Dept 2001 decided October 25, 2001 the Court stated:
In this case plaintiff was not prejudiced or surprised.
CONCLUSION
The
defendant has failed to show any error in the decision of the Court below and
the judgment should be affirmed.
Respectfully
submitted,
By: ____________________
Attorneys
for Defendants