Case ID: misc_111/html/0595-01.html
Source: Caselaw Access Project
Author: {"author": "Finch, J. Mullan, J. (dissenting).", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Alexander Spitzer and Another, Respondents, v. Born, Incorporated, Appellant.
    (Supreme Court, Appellate Term, First Department,
    May, 1920.)
    Corporations — manufacturing — what does not constitute a corporate obligation — lease — contracts — evidence.
    A lease for three years by a manufacturing corporation is not within the ordinary and usual course of the corporate business, and where the by-laws provide that all contracts shall be executed by both the president and secretary, such a lease, signed by the president only, does not constitute a corporate obligation, in the absence of proof that he had actual authority to sign.
    Mullan, J., dissents.
    
      Appeal by the defendant from a judgment of the Municipal Court of the city of New York, borough of Manhattan, ninth district, in plaintiff’s favor, after a trial before the court without a jury.
    Louis I. Grossfield, for appellant.
    George Wolf, for respondents.
   Finch, J.

The action was brought to recover one month’s rent claimed to be due under a lease between the parties. The defendant was a corporation and the lease signed “ Born, Inc. (L. S.) Samuel H. Born, Pres. (L. S.).” No corporate seal was attached. The defendant claimed that the lease did not constitute a corporate' obligation. In support of this defendant submitted a copy of the by-laws, which apparently provide that all contracts shall be executed by both the president and the secretary. It is conceded that the secretary had knowledge of the execution of the lease, and there was no contradiction of the fact that he was present at the time it was signed. Neither the president nor the secretary of the defendant testified, the defendant relying on the point of law that the lease did not constitute a corporate obligation. It further appears that the lease is for three years, rent payable monthly, and the rent for the first month was-paid by check other than the check of the corporation (a check of someone not acting in behalf of the corporation). The defendant never moved into nor occupied the premises.

It is clear that the lease was, in fact, executed outside of the authority conferred by the stockholders of the corporation upon the officers.

The rule is well established that a general officer of a corporation has power prima facie to do any act which the board of directors could ratify, and it is clear that the board of directors of the defendant corporation in this case had power to ratify the lease. The fact, however, that the president of the corporation in this case had prima facie authority to sign the lease does not necessarily preclude the defendant from showing that under the by-laws he did not have actual authority. The corporation must act through its agents and officers and it has the power to provide in its by-laws the particular officers who should have power to bind it and the manner in which they shall' act. It is only where a corporation has given an agent apparent authority to act for it that it can be bound' by the act of the officer performed without actual authority, and consequently where a corporation has given an officer apparent authority, a party dealing with the agent on the strength of the apparent authority is not bound by any secret limitations imposed by the by-laws of the corporation. Since corporations transact their ordinary business through their general officers, the courts have held that the general officers of a trading corporation have apparent authority to do any act within the scope of the ordinary and usual business of the corporation, and no by-law of the corporation is binding upon a party who relies upon this apparent authority. Rathbun v. Snow, 123 N. Y. 349. In other words, the prima facie authority of a general officer of a corporation cannot be limited as to third persons in regard to acts which except for the by-law would be construed as within the apparent scope of agency, but in no case has any court held that a corporation cannot show that the prima facie authority of the officer did not in fact exist in regard to acts which, though within the corporate powers, are not part of its ordinary and usual business. Gause v. Commonwealth Trust Co., 124 App. Div. 438, 451. The sole question in this case, therefore, is, was the execution of a written lease for three years by a manufacturing corporation within the ordinary and usual course of the corporate business? It seems to me that any person dealing with a corporation would realize that the execution of such a lease is an extraordinary act which is usually acted upon by the board of directors and not submitted to the sole direction of a general officer. A party dealing with a general officer under such circumstances may rely upon the prima facie authority of the officer, but he assumes the risk of the corporation proving that the officer acted without authority.

It follows that the judgment should be reversed, with thirty dollars costs, and the complaint dismissed on the merits, with costs.

Mullan, J. (dissenting).

I dissent. Were it not for the contrary view entertained by my learned brethren, I should have thought it was fairly plain that the execution of the lease by its president bound the defendant. The defendant’s business was that of making confectionery. The lease was obtained, as it itself shows, for that purpose. Concededly, the plaintiff did not know of the by-laws referred to. Was not the making of the lease contract within the apparent scope of the president’s authority? I see no more reason to doubt his right to hire this place than to question his ability to bind his company in the purchase of sugar. As was said in a Pennsylvania case involving a lease entered into by a corporation’s president whose authority was questioned: ‘ ‘ The president of a company presents himself to make a contract, evidently connected with the business; he declares the object and purpose of the contract. Who doubts him? We are a dealing people. Is he asked to produce the charter and the books of the company, to show that he is authorized to make the contract seewndum artem? Such is not the custom. * * * This contract * * * was within the scope of the authority of the president of the company.” Steam-Boat Co. v. McCutcheon & Collins, 13 Penn. St. 13. In Matter of Tinney, 187 App. Div. 569, an attorney was disbarred for the reason, among others, that he advised his corporation- client, sued for rent, to deny the mailing of the lease. The lease was executed by the president without a special authorization by the board of directors that was required by the company’s by-laws; and the attorney argued that he was thus justified in advising the company to interpose a verified answer denying the making of the lease. The official referee had said in his opinion: “ In making this claim the respondent loses -sight of the well-settled doctrine that presumably the president of a corporation who is in charge of the management of its business is authorized to execute a contract negotiated by him, and the corporation, as against third persons, is bound by the acts done within the scope of his apparent authority.” It is true that the referee then proceeded to point out that the company ratified by occupying the demised premises, but it is significant that Clarke, P. J., in writing for the Appellate Division, quoted with apparent approval the part of the referee’s opinion I have -set out. Are we arbitrarily to put leases and other contracts in relation to realty in a class by themselves? Admittedly, a lease contract is as capable of ratification as any other, and the Court of Appeals has said that:" The president ox other general officer of a corporation has power, prima facie, to do any act which the directors could authorize or ratify.” Hastings v. Brooklyn Life Ins. Co., 138 N. Y. 473, 479. In the Gause Case, 124 App. Div. 438, cited by Mr. Justice Finch, the decision was rested squarely on the ground that the contract there in question was so extraordinary that there was no apparent authority to execute it. In the Bohm Case, 9 N. Y. Supp. 514, the court followed a decision in Rathbum v. Snow in a lower court. In the Court of Appeals (123 N. Y. 349) the affirmance was predicated upon the fact that the agent whose authority had heen denied helow had not yet become an agent at the material times, and the court took occasion expressly to repudiate the notion that the contract would have been void because of a by-law of which the other party was ignorant, saying: ‘ By-laws of business corporations are as to third persons private regulations binding as between the corporation and its members or third persons having knowledge of them, but of no force as limitations per se as to third persons of an authority, which, except for the by-law, would be construed as within the apparent scope of the agency.” For the reasons stated I vote to affirm.

Judgment reversed, with thirty dollars costs.