Mosell Realty Corp. v. Schofield

33 S.E.2d 774, 183 Va. 782, 159 A.L.R. 786, 1945 Va. LEXIS 227

• Court: Supreme Court of Virginia
• Decided: April 23, 1945
• Docket: Record No. 2886
• Status: Published

Opinions

Eggleston, J.,

delivered the opinion of the court.

Dora Schofield, trading as Schofield & Herman, a licensed real estate broker, has recovered a verdict and judgment against Mosell Realty Corporation for services as a broker in procuring a purchaser for the corporation’s real estate. We are asked to reverse the judgment on the ground that the evidence is insufficient to sustain the verdict and the judgment. The main contention is that the president of the corporation, with whom the contract sued upon was alleged to have been made, lacked the necessary authority to enter into it.

In view of the jury’s verdict,- the facts may be stated thus:

Mosell Realty Corporation is a close corporation. The capital stock is distributed equally among Sol Kaplan, L. H. Goldman, and Leon Banks, who are its only directors. Kaplan is the president, Goldman the vice-president, and Banks the secretary and treasurer.

The corporation owns a valuable piece of property located at the southeastern comer of Colonial avenue and Thirteenth street, in the city of Norfolk, on which are located a moving picture theatre and four stores. This is the only property the corporation owns or has ever owned. All of the buildings are occupied by tenants and the leases were arranged through Banks, who is engaged in the real estate rental business in Norfolk and who attends to the collection of the rents, and the matters incidental thereto. Kaplan likewise lives in Norfolk, while Goldman lives at Durham, North Carolina.

In October, 1940, A. Sigourney Herman, a salesman employed by Dora Schofield, obtained a prospective purchaser of the property. He knew that the property was owned by the Mosell Realty Corporation and that Sol Kaplan was its president. Accordingly, he called on Kaplan at the latter’s place of business and inquired whether the property was for sale, and if so, at what price. Kaplan told Herman that the property was for sale at the price of $50,000 net to the owner, and authorized him to sell at that price. He also told Herman that there was a mortgage indebtedness on the property, held by a local bank which would give him the details thereof, and that Banks, the rental agent, would give him the data with réspect to the leases.

Herman obtained from Banks the desired information as to the leases on the property. When he advised Banks, in reply to the latter’s inquiry, as to the price quoted by KapIan, Banks’ reply was: “That is all right.” Banks questioned neither Kaplan’s right to authorize the sale of the corporation’s property nor the adequacy of the price named by him.

Shortly thereafter Herman visited Kaplan with his prospect, one Joseph Silverberg of Baltimore, Maryland,' who wanted to buy the property but was willing to pay only $45,000 for it. Kaplan stood out for a price of $50,000 net to the corporation and the deal failed because the buyer was unwilling-to pay the price demanded. No.question was raised by Kaplan as to his authority to negotiate a sale for the corporation.

In 1941 Herman interested another purchaser in the property but no offer from him was obtained,

No further negotiations for the sale of the property were had until the early summer of 1943, when Herman obtained two prospects for its purchase. Because of the lapse of time since his original authority, Herman returned to Kaplan and asked whether he (Herman) was still authorized to sell the property at the same price. Kaplan’s reply was: “That is still all right. I will accept such an offer.” Immediately after this conversation with Kaplan, Herman again consulted Banks and obtained from him the status of the leases on the property. Again, neither Kaplan nor Banks raised any question as to Kaplan’s authority to negotiate a sale of the property.

On June 28, 1943, Herman obtained from one D. Galanides a written offer to buy the property at the sum of $51,000. The offer was accompanied by a deposit of $500. Herman presented the offer and check to Kaplan who examined and approved them but requested that Herman hold them, saying that he (Kaplan) was leaving for New York that afternoon. Kaplan further said that upon his return “I will accept the offer.” Herman called upon Kaplan upon the latter’s return from New York. In the meantime Herman had obtained a written offer from Harry Kramer, accompanied by a deposit oof $500, to purchase the property at $52,500. Herman presented both the Galanides and Kramer offers to Kaplan who refused to accept either, because he said that on his trip to New York he “happened to see Goldman” who informed him' (Kaplan) that he (Goldman) was not willing to sell the property.

Kaplan denied having made this statement to Herman as to the interview between him (Kaplan) and Goldman in New York. He testified that no such interview took place. Goldman likewise testified that there was no such interview or conversation, and that the first intimation he had about the negotiations for the sale of the property was contained in a letter to him from Banks after the present suit had been brought. Indeed, Goldman said, the subject of the sale of the property at any price had never been discussed by Kaplan, Banks and himself, who constituted the board of directors and were the holders of all of the capital stock of the corporation.

Banks, the secretary and treasurer of the corporation, testified that the corporation had authorized no one to sell the property.

While counsel for both parties indicated at the trial that they desired to offer in evidence the minute books of the corporation, so far as the record shows they were not produced. Apparently the corporation held only the formal annual meetings of its board of directors. Goldman admitted that he received notice of such meetings, but the record is silent as to whether he attended them.

Although the record discloses no formal resolution of the board of directors or stockholders authorizing Kaplan, its president, to sell this property, which, as has been said, was the corporation’s principal asset, or to enter into the brokerage contract to effect such a sale, the. defendant in error contends that such authority is sustainable on two theories: First, Kaplan, as president of the corporation, had the implied or inherent authority to enter . into the contract sued on; and, second, the directors of the corporation clothed him with the apparent authority to enter into the contract sued on, and hence they and the corporation are estopped to deny the lack of actual authority therefor. In our opinion, neither of these contentions can be sustained.

It is well settled that the inherent or implied authority of a corporate president is limited to acts within the ordinary course of its business and does not extend to extraordinary and unusual transactions such as the sale and purchase of real estate.

As is said in 13 Am. Jur., Corporations, sec. 939, p. 900, “By virtue of his office alone, no executive officer or agent of a corporation has any authority to sell or make a contract for the sale of the real estate of the corporation. Thus, the secretary has no such power, nor has the president.” See also, Fletcher Cyclopedia Corporations, Perm. Ed., Vol. 2, sec. 605, pp. 508-9; Mack Realty Co. v. Beckley Hdw., etc., Co., 107 W. Va. 290, 148 S. E. 122, 123; Lawrence v. Montgomery Gas Co., 88 W. Va. 352, 106 S. E. 890, 894.

In Sterling v. Trust Company, 149 Va. 867, 141 S. E. 856, this court held that the secretary and treasurer of a corporation engaged in the automobile and garage business did not have the authority to bind the corporation for the purchase of an expensive piece of real estate' for the purpose of enlarging its business, even though such officer held approximately fifty per cent, of the capital stock of the corporation, was one of its three, stockholders, and one of its four directors. We there pointed out (149 Va., at pages 877, 878) that such authority was lodged in the board of directors of the corporation.

The same principles apply to the sale of a corporation’s real estate.

If a' corporate president is without implied authority, by virtue of his office, to sell a part of the real estate of the corporation, a fortiori he is without implied power to negotiate a sale of the real estate which, as here, constitutes the corporation’s principal asset. Fletcher Cyclopedia Corporations, Perm. Ed., Vol. 2, sec. 606, pp. 515, 516. .

Neither do we think that the verdict and judgment here can be sustained under the principle that the corporation clothed its president with apparent authority to enter into the contract sued on and for that reason is estopped to deny that it actually authorized him to do so.

True it is that, “A corporation is subject, to the same extent as a natural person, to the general pfinciple that one who holds out another, or allows him to appear as having authority to act, as his agent with respect to his business generally, or with respect to a particular matter, cannot, as against persons dealing with him in good faith, deny that his apparent authority is real.” Fletcher Cyclopedia Corporations, Perm. Ed., Vol. 2, sec. 449, p. 257. Sterling v. Trust Co., supra (149 Va., at pages 879, 880); Bardach Iron, etc., Co. v. Charleston fort Terminals, 143 Va. 656, 673, 129 S. E. 687.

But as it is aptly said in Restatement of the Law, Agency, Vol. 1, sec. 52, p. 131, “Unless otherwise agreed, authority to act in the principal’s business does not include authority to sell the principal’s interests in land, unless the business entrusted to the agent includes the selling of land.”

And, continuing, the author says (Vol. 1, sec. 52, p. 132): “Ordinarily, an authority to conduct a business, no matter how general, does not include authority to.sell things necessary for the operation of the business as it is ordinarily conducted. Thus, where the premises upon which a business is conducted are owned by the principal, it is inferred that a manager of the business has no authority to sell them or any portion of them.” See also, Mechem on Agency, 2d Ed., sec. 802, p. 576; 2 Am. Jur., Agency, sec. 140, p. 112.

Let us examine the evidence here in the light- of these principles. This corporation owns a single piece of real estate which is the only property it. has ever owned. It is not engaged in the business of buying and selling real estate.² Its only business is that of leasing the property and such matters as are incidental thereto. This business the corporation entrusted to Banks as its rental agent. Whether the directors, by formal action-, authorized this agency we do not know. But even if it did not do so, the board clothed the rental agent with the apparent authority to execute the necessary leases and to do such things as were-incidental thereto.

We may assume that Kaplan cooperated with Banks-to such an extent that each had the apparent authority to negotiate and execute the leases and to carry out the-necessary details, and that Goldman acquiesced therein. If so, leasing the property and attending to the matters incidental thereto were the limit of Kaplan’s and Banks’ authority.. The fact that they had the apparent authority, or even the actual authority, to lease the property did not carry with it the implied authority to sell.

The precise question was involved in Mack Realty Co. v. Beckley Hdw., etc., Co., supra. After holding that the-agent there had the apparent authority to rent the property in question, the court said (148 S. E., at pages 123, 124): “However that may be, power to lease is radically different from power to sell. The one indicates an intention to retain the property, the other an intention to dispose of it.. Therefore authority to sell cannot be implied from authority to lease. ‘If the agency arises by implication from numerous-acts done by the agent, with the tacit consent or acquiescence of the principal, it is deemed to be limited to acts of the like nature. * * * An implied agency is never construed to extend beyond the obvious purposes for which it is-apparently created.’ Story [Law of Agency], supra, sec, 87.” See also, 2 C. J. S., Agency, sec. 114, p. 1327; Grant v. Burrows, 139 Ark. 16, 212 S. W. 95, 98; Rhodes v. Downing, 13 Ala. App. 494, 68 So. 788, 791.

It is true that under the testimony on behalf of the plaintiff below the jury had the right to infer that two of the-directors of the corporation (Kaplan and Banks) had acquiesced in the contract here sued on. But there is no such evidence as to Goldman, the third director. According to Kaplan’s statement, as related by Herman, when Kaplan mentioned the subject of a proposed sale to Goldman, in New York, .Goldman immediately expressed his unwillingness to sell the property and thus repudiated the transaction. And yet the effect of the judgment below is to hold Goldman’s interest in the corporation hable for one-third of the .recovery.

But aside from this, the fact that Kaplan and Banks ■Owned a majority of the stock of the corporation, and constituted a majority of its board of directors, gave them no authority to bind the corporation in any such informal manner.

It is elementary that the authority of the directors is conferred upon them as a board, and they can bind the corporation only by acting together as an official body. A majority of them, in their individual names, cannot act for the board itself and bind the corporation. Starring v. Kemp, 167 Va. 429, 435, 188 S. E. 174, 177, 190 S. E. 163; Mack Realty Co. v. Beckley Hdw., etc., Co., supra (148 S. E., at page 123); 13 Am. Jur., Corporations, sec. 948, p. 909.

As this court, speaking through Mr. Justice Holt, said in Starring v Kemp, supra (167 Va., at page 435, 188 S. E., at page 177), “The directors of a corporation must act in their corporate capacity, as a board in orderly procedure, and not as individuals; * * * .”

Nor did the fact that Kaplan and Banks own two-thirds of the capital stock of the corporation, in the absence ■of statute, vest in them the authority to bind the corporation outside of a formal stockholders’ meeting. Sterling v. Trust Co., supra (149 Va., at page 880); Mack Realty Co. v. Beckley Hdw., etc., Co., supra (148 S. E., at page 125); 13 Am. Jur., Corporations, sec. 416, p. 469.

Under Code, sec. 3820a' (Acts 1930, ch. 357, p. 791, as amended by Acts 1936, ch. 179, p. 302, Acts 1940, ch. 49, p. 57), a corporation such as that whose rights are here involved, may sell its entire assets “when in the judgment of the board of directors it is for the interest of the corporation” to do so, upon “the written consent of the holders of two-thirds of all the stock of the corporation issued and outstanding.” But here neither the required action of the board of directors nor the written consent of the stockholders was obtained.

The plaintiff below insists that the contract here sued on is merely a contract of employment entered into between her and the president of the defendant corporation, and that its validity does not depend upon the authority of the president to enter into a contract for the sale of the corporation’s real estate. The answer to that argument is obvious. If the president of the corporation had no authority to enter into the main contract to sell the corporation’s property, he likewise had no authority to enter into the incidental contract of employment with the plaintiff to make such a sale. If he lacked the authority to sell the property himself, he necessarily lacked the authority to employ the plaintiff to make such sale. What he could not do directly he could not do through another.

On this subject Fletcher Cyclopedia Corporations, Perm Ed., Vol. 2, sec. 598, p. 486, says: “If the president of a corporation is without apparent authority to bind the corporation by a contract to sell its property, he is without power to contract for the corporation to compensate one for malting a sale.” The text is supported by these authorities: Caddy Oil Co. v. Sommer, 186 Ky. 843, 218 S. W. 288, 291; Thompson v. North Star Muskrat Farm, 183 Minn. 314, 236 N. W. 461; Abraham Lincoln Life Ins. Co. v. Hopwood, 81 F. (2d) 284; McCorry v. Wiarda & Co., 149 App. Div. 863, 134 N. Y. S. 667, 669.

Since the evidence before us shows that Kaplan, the president of the corporation, lacked the necessary authority to enter into the contract sued on, it follows that the judgment complained of must be reversed and a final judgment entered for the defendant corporation.

Reversed and pnal judgment.

2 The defendant in error prints as an appendix to her brief the charter of the corporation which lists “the purposes for which it is formed,” among others, “to buy, sell, * * * and generally deal in improved or unimproved real properties, * * * .”

Aside from the fact that the charter was not offered in evidence and hence is not a part of the record, the fact that the corporation was chartered for these purposes is, of course, no evidence that it actually engaged in such business.