Opinion
C.A. No. 01C-01-230-FSS
Submitted: February 3, 2003
Decided: June 2, 2003
Upon Defendant's Motion For Summary Judgment — DENIED as to Counts I-III; and GRANTED as to Count IV.
James S. Green, Esquire, Seitz Van Ogtrop Green, Wilmington, Attorney for Plaintiffs and Third-Party Defendants.
Richard L. Abbott, Esquire, The Bayard Firm, Wilmington, Attorney for Defendants.
OPINION AND ORDER
In this breach of contract case, the court must look at three lease agreements. Plaintiffs are developers, property owners and leasing agents. Defendant is primarily a banking and credit card company. Plaintiffs contend Defendant defaulted on, or anticipatorily breached, the lease agreements. Defendant argues that the lease agreements are invalid under the Statute of Frauds. Specifically, Defendant insists that its employees exceeded their authority by signing the lease agreements. Defendant also asserts that the agreements are unenforceable because Plaintiffs have not paid the county transfer tax on non-commercial leases.
Because it appears from the record, when viewing the evidence in the light most favorable to Plaintiffs, that the leases were signed by Defendant's employees, the Statute of Frauds does not apply. And while the tax must be paid before the court will enforce the leases, this litigation will determine if the lease agreements are enforceable. Thus, Defendant's on-going concern about whether plaintiffs pay taxes remains premature. In short, this case is going to trial on September 29, 2003, as scheduled.
I.
Plaintiffs filed suit on January 24, 2001. On February 16, 2001, Defendant First USA, N.A. answered the complaint and filed an action against Third-Party Defendants, Verino Pettinaro, Gregory Pettinaro, Kathryn Pettinaro and CW Properties, LLC. Then First USA filed an amended answer and counterclaim February 28, 2001. Meanwhile, on February 16, 2001, Defendant Bank One Corporation filed a motion to dismiss and Defendant First USA filed a motion for partial summary judgment.
After a hearing on April 9, 2001, the court denied Defendant Bank One's motion to dismiss and reserved decision on Defendant First USA's motion for partial summary judgment. By letter dated April 24, 2001, the court conditionally dismissed Plaintiff's claim against Defendant Bank One. By stipulation of the parties, the court dismissed Count V, a claim for damages and additional telephone charges.
In an August 31, 2001memorandum decision, the court concluded that the leases purport to transfer a leasehold interest in residential property, exceeding five years. Additionally, the court decided that the lease agreements would not be enforceable unless they are recorded. The court added that Plaintiffs could defeat Defendant's motion, as it concerned the county tax, merely by recording the leases and paying the tax. Defendant and Plaintiffs responded to the court's memorandum on March 28, 2002 and April 25, 2002, respectively. On May 2, 2002, the court addressed the parties concerns by letter, explaining that the case did not fundamentally concern a tax, but rather a lease agreement dispute. The court, in effect, further deferred considering the tax issue. As implied above, the court will continue to ignore the tax question until Defendant concedes that the leases are enforceable, or the court is called upon to actually enforce them.
Branpark, Inc. v. First USA Bank, Bank One Corp., 2001 WL 1079047 (Del.Super.Ct.).
Otherwise, Defendant First USA filed its memorandum of law in support of its motion for summary judgment on January 21, 2003. Plaintiffs' memorandum of law in opposition was filed February 4, 2003. And on February 10, 2003, Defendant First USA filed its reply.
II.
It appears from the undisputed evidence that before signing the questioned leases, Plaintiffs and Defendant had a successful business relationship. Although Defendant is a large commercial lender and financial institution, the business here concerned rental property. Plaintiffs provided Defendant with temporary housing for transferred employees and Defendant paid in full, sometimes in advance. The rentals were for one year or less.
On or about September 17, 1999, three leases were dropped off at First USA by Cindy Pettinaro (now Pettinaro-Wilkinson). No one, however, seems to know when or how they were returned to Pettinaro. But it is clear that all three of the leases contained a signature line titled, "Tenant: First USA Bank." And each was signed by hand, "Melissa Counsellor/First USA Bank." The combined lease, described below, provided a "Title" line for the signor, but it was left blank. It is agreed that Counsellor was a First USA Bank employee with at least some authority to sign leases for Defendant.
One lease agreement, between Rockwood VL, Corp. (now known as Queensbury Village, Inc.), landlord, and First USA Bank, tenant, was signed by Cindy Pettinaro, Vice President of Rockwood VL., and, as just explained above, First USA Bank by Melissa Counsellor. That lease called for 50 units of approximately 900 square feet, to be delivered by Plaintiffs on or before March 1, 2001. The rent due was $2,500.00 per month, per unit. The term was for five years, beginning upon each unit's delivery to the tenant. The total value of the agreement was $7,500,000.00.
Also on September 17, 1999, a second lease agreement between Harbor Associates, landlord and First USA Bank, tenant, was by Cindy Pettinaro, Partner, and First USA Bank by Counsellor. The lease called for 68 units of approximately 700 square feet, to be delivered on or before March 1, 2002. The rent due was $3,100.00 per month, per unit. The term was for five years, beginning upon each unit's delivery. The total value of the second agreement was $12,648,000.00.
Finally on September 17, 1999, the combined lease agreement mentioned above between Branpark, Inc., Pettinaro Enterprises, CW Properties, LLC and Greenville Place, L.P., landlord, and First USA Bank, tenant, was signed by Cindy Pettinaro, Vice President and Member, and First USA Bank by Counsellor. The combined lease called for 61 units of various sizes, effective October 1, 1999 and ending September 30, 2004. The rent varied per unit. The total value of the third lease was approximately $8,828,335.80.
The lease calling for immediate occupancy contained actual addresses of units to be rented. The other two leases, commencing in the future, gave the buildings' locations. None of the leases contained descriptions of the units, except the two future leases provided approximate square footage. All three leases contained a provision referring to them as commercial leases, which are exempt from the Delaware Landlord-Tenant Code.
Del. C. Ann. tit. 25, ¶ 5103 (1989 Supp. 2002).
III.
When deciding a motion for summary judgment, the court must examine the record to determine if any genuine issue of material fact exists. The court must view the evidence in the light most favorable to the non-moving party. When considering a motion for summary judgment, the court is required to examine the present record, all pleadings, affidavits and discovery. Summary judgment must be denied when evidence reasonably indicates that a material fact is in dispute, or if it seems desirable to inquire more thoroughly into the facts in order to clarify the application of the law.IV.
Defendant contends it is entitled to summary judgment because the Statute of Frauds requires that an agent have written authority when executing a document transferring an interest in land on behalf of a principal. Melissa Counsellor, First USA relocation coordinator, did not have written authority. Relying on Montray Realty Co. v. Arthurs, Defendant asserts: "Thus, all three leases at issue were void as a matter of law unless Counselor (sic) was authorized to enter into them in writing by First USA." Defendant further contends that "it is undisputed and undisputable that Counselor (sic) was never authorized in writing to enter into these leases. Consequently, none of these leases is valid as a matter of law."Next, Defendant argues that apparent authority cannot be used to trump the Statute of Frauds writing requirement. And "because the law requires an agent's authority to be in writing, a person dealing with a putative agent is on notice of that fact and has the duty to inquire whether the putative agent has the requisite written authority to bind his putative principal." Thus, Plaintiffs were bound to inquire whether Counsellor had the requisite written authority to act for First USA. Plaintiffs must bear the consequences of their failure to demand written proof that Defendant's agents had authority to sign contracts worth almost $30,000,000.00. Defendant also makes an issue out of the undisputable fact that Pettinaro-Wilkinson did not have written authority from Plaintiffs.
Zeeb v. Atlas Powder Co., 87 A.2d 123, 126 (Del. 1952).
Defendant further asserts that:
The part performance doctrine cannot be used in this case for two reasons: 1) it is only available to overcome the requirement of a writing in the case of an oral agreement subject to the Statute of Frauds: not a purported agreement in writing; and 2) in any event, it cannot be used to overcome the requirement that an agent's authority appear in writing.
Defendant argues that Acierno v. McCall, is on point. Acierno holds that when the parties do not have an oral contract, the doctrine of part performance relied on by plaintiff to take the case out of Statute of Frauds does not apply. Defendant asserts this case is similar. Defendant claims:
264 A.2d 513 (Del. 1970).
Plaintiffs concede that all of their contacts regarding the leases at issue were with Counsellor. It is also beyond dispute that Counsellor had no authority of any kind, much less written authority, to enter into these contracts. Consequently, as was the case in Acierno, there could not have been an oral agreement on which to apply the rule of part performance.
Under Delaware law, Defendant further argues, a contract to convey an interest in land must identify the premises with sufficient certainty that the parties can identify exactly what it is that is to be conveyed. The Rockwood Lease and the Harbor Associates Lease are not valid because they do not identify the premises subject to the leases "with a reasonable certainty."
DuPont v. Sloan, 408 A.2d 281, 283 (Del. 1979).
Next, Defendant reasserts the argument it has advanced several times. Plaintiffs failed to pay the county transfer tax required for long-term residential leases. Plaintiffs still have not paid the taxes and consequently, it is now appropriate to render judgment on that issue. As already presented above, the tax issue still is not ripe for decision.
Del. C. Ann. tit. 25, ¶ 158 (1989 Supp. 2002).
Finally, Defendants argue that the tortious interference count lacks proof. Plaintiffs only identify two tenants purportedly contacted by a First USA representative. And there is no admissible evidence that either tenant left because of First USA's contact. In addition, no one demanded refunds of rental payments due to the "interference." Lastly, although Plaintiffs assert that business with the duPont Company decreased as a result of the contact, Plaintiffs have no evidence that anyone who would have rented from Plaintiffs abstained due to Defendant's conduct.
V.
Plaintiffs contend that their business relationship with Defendant began in 1997. Plaintiff was represented by Pettinaro-Wilkinson, and First USA by Melissa Counsellor. Plaintiffs allege that Counsellor, who worked as a relocation specialist, was a department manager and an officer of the bank. At this point, the record still is not clear enough to decide, as a matter of law, precisely what Counsellor's position with Defendant was and what authority she had to sign leases for Defendant, her employer.
There also were two other employees who worked in the department with Counsellor: Christine Barbour, the relocation manager; and Jennifer Beideman, a relocation assistant. Plaintiffs assert that "the relocation department, at all times, held themselves out to Pettinaro as being authorized to transact business on behalf of their employer." And the department "routinely entered into contracts and leases to acquire interest in land consisting of numerous apartments, townhouses and condominiums that First USA honored." According to Plaintiffs, the previous leases with them were for amounts ranging from $33,000.00 to $847,071.60. Plaintiffs argue that all the previous leases, which Counsellor or Barbour signed, were pre-approved. Plaintiffs further contend:
The relocation department would get their marching orders from the heads of First USA's Staffing and Human Resources Departments. The department heads would instruct the relocation department to obtain a certain amount of temporary housing, locate the housing, inform the department heads of what was found, get their approval, then an employee in relocation would sign the necessary leases.
In response to Defendant's argument that the Statute of Frauds requires Counsellor (and Barbour) to have had actual written authority to enter into a valid contract, Plaintiffs rely on Mitchell v. Brimer, which holds that the Statute's purpose is to prevent an agent without authority from acting on a principal's behalf. But where the principal has acknowledged the agent's authority, then the Statute is satisfied: the danger of unfounded claims and perjury no longer exists.
Del. C. Ann. tit. 6, ¶ 2714 (1993).
1987 WL 5319 (Del.Ch.).
Plaintiffs argue that First USA entered into many leases, often paying in advance, based solely on Counsellor's (and Barbour's) signatures. And it is only now, and only the three leases at issue that First USA seeks to void. Plaintiffs further argue that Defendant has even accepted part of one of the leases: units were occupied and rent was paid. Plaintiffs assert that "parsing the Statute like this is at odds with its intended purpose and should not be permitted. Allowing First USA to invalidate these leases based on the Statute would not prevent fraud, but rather would facilitate fraud."
Plaintiffs argue that First USA is a corporation that can only act through its officers and agents. And that First USA did in fact sign the leases because Counsellor, an officer and employee who was charged with acquiring temporary housing, had pre-approval to sign the leases. Thus, since the contract was reduced to writing and signed by the party to be charged, the Statute is satisfied.
Responding to Defendant's reliance on Acierno v. McCall, Plaintiffs claim Acierno is not on point. Plaintiffs argue:
264 A.2d 513 (Del. 1970).
In Acierno, neither the "party to be charged" nor any third party authorized in writing by McCall had signed the contract. Here, the party to be charged, First USA, did sign the writing by its employee and officer Counsellor.
Plaintiffs claim that:
First USA never questioned the authority of Counsellor and Barbour to execute the many leases needed to serve its relocated employees. Moreover, it paid millions of dollars in rent to the various landlords, including Pettinaro, required by those contracts. Only when the management of First USA and the business climate had changed, was the validity of the leases challenged.
Upon the execution of the Harbor Brick Building and Queensbury Village leases, and reliance thereon, Pettinaro designed the buildings in accordance with the leases, paid consideration to assure the city and county approvals necessary for First USA's leases and moved forward to construct the units.
Plaintiff claims to have engaged in demolition, asbestos removal, installation of pilings and building design work on the First USA units. Accordingly, Plaintiffs argue they materially changed their position in reliance on the contract and performed their part of the bargain.
Plaintiffs further assert that First USA employees occupied the units under the combined lease, and that "First USA paid hundreds of thousands of dollars of rent on those units under the terms of the Combined lease." Plaintiffs further argue that both parties fully performed under the Combined lease for a year, at which time First USA "renounced the leases."
VI.
Under the Statute of Frauds, a contract conveying an interest in land must be in writing and it must be signed by the one against whom the contract is sought to be enforced. If "some other person," signs a contract that falls within the Statute of Frauds, the signor must have written authorization by the principal. The Statute of Frauds states in pertinent part:
Hessler, Inc. v. Farrell, 226 A.2d 708 (Del. 1967) see also Mitchell v. Brimer, 1987 WL 5319 (Del.Ch.).
Del. C. Ann. tit. 6, ¶ 2714 (1993 Supp. 2002).
No action shall be brought to charge any person . . . upon any contract or sale of lands, . . . unless the contract is reduced to writing, or some memorandum, . . . [is] signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized in writing. . . .
Defendant observes that this requirement has been part of Delaware's law for over 134 years. Generally, it is correct that where a party to a contract for the sale of land causes the contract to be executed by an agent acting on that party's behalf, the agent's authorization must be in writing.
Montray, 105 A.2d at 186.
Mitchell, 1987 WL 5319 at *3 citing Acierno v. McCall, 264 A.2d 513 (Del. 1970).
The purpose behind the Statute of Frauds is to prevent the agent from making unfounded claims of authority to act on the principal's behalf. Or put more simply, to prevent a principal from being held responsible for a contract procured through fraud or overreaching of its own agent. Where the principal has acknowledged the agent's authority, the danger no longer exists.
Mitchell, 1987 WL 5319 at *7-8.
Here, the Statute of Frauds applies in the sense that the leases are applicable conveyances of land. The court is satisfied, however, that the contracts were signed by the "party to be charged," rather than "some other person." Thus, the Statute's writing requirement has been satisfied. Corporations can only act through their officers and employees. The contracts admittedly were signed in Defendant's corporate name by Defendant's corporate employee. Furthermore, in this case, the corporate employee had signed other leases in the corporation's name.
At trial, Defendant may prove that its employee exceeded her actual and apparent authority. As presented above, there appear to be facts supporting that claim and it does not seem that Plaintiffs did much, if anything, to establish that Defendant's signor had authority to bind Defendant to the tune of almost $30,000,000.00. But the undisputed facts remain that Plaintiff is suing on written contracts purporting to be in the name of the party to be charged, signed by the party to be charged's employee.
Acierno does not apply. In Acierno, a landowner's attorney attempted to bind his client through an oral contract for the sale of his client's land. Acierno held that the buyer could not prove the contract, even through part performance, because the attorney lacked written authority to enter into any contract concerning the sale of land on his client's behalf. Acierno emphasized the undisputed fact that the buyer "had no direct contact with the defendants." Thus, Acierno was the sort of situation the Statute was meant to address. Here, the parties were not strangers. They had an on-going relationship involving leases.
Deciding in Defendant's favor on this case's facts would mean, in effect, that corporations can deny any contracts signed by their employees unless the people doing business with them are savvy enough to demand written proof of the employees' authority. And this is true, regardless of whether the employee appeared to have authority or whether the other party partially performs. At trial, the parties will have the opportunity to convince a jury that the lease agreements are, or are not, enforceable, and if they are, to what extent.
VII.
Finally, the court addresses the tortious interference claim. The elements to a tortious interference with existing contractual or prospective contractual relations are:
• the existence of a valid business relation or expectancy;
• the interferer's knowledge of the relationship of expectancy;
• intentional interference that:
• induces or causes a breach of termination of the relationship or expectancy and that:
• causes resulting damages to the party whose relationship or expectancy is disrupted.
In re Frederick's of Hollywood, Inc., 1998 WL 398244, *5 (Del.Ch.).
Plaintiff's evidence does not amount to tortious interference. There were no requests for return of money from any occupants. Nor have Plaintiffs provided evidence that potential renters refused or were deterred from renting from Plaintiffs due to any actions by Defendants. Thus, the tortious interference claim does not survive.
VIII.
For the foregoing reasons, Defendants' Motion for Summary Judgment on Counts I — III is DENIED but on Count IV is GRANTED.
IT IS SO ORDERED.