Opinion
10-31-1929
KNOPF v. ALMA PARK, Inc., et al.
Julius Stein, of Newark, for complainant. Abram I. Bluestein, of Paterson, and Heller & Boss, of Passaic, for defendants.
(Syllabus by the Court.)
Suit by Charles Knopf against Alma Park, Incorporated, and others. Decree for complainant.
Julius Stein, of Newark, for complainant.
Abram I. Bluestein, of Paterson, and Heller & Boss, of Passaic, for defendants.
BACKES, Vice Chancellor. The bill is by a stockholder in behalf of Alma Park, Inc., to set aside a conveyance executed in the name of the company, under its corporate seal, by its president and a fictitious secretary, without the authority of the board of directors, its knowledge or acquiescence. The company was formed in 1912 to take over five parcels forming a tract of 244 acres of pine land in Ocean county, then owned by Frederick R. Knopf. At the time of the execution of the disputed deed, Frederick R. Knopf owned 45, his father, Richard Knopf, 30, and his brother Charles, the complainant, 25, of the 100 outstanding shares of the company, and the three constituted the board of directors from 1915 on. Frederick R. Knopf was president; the complainant, secretary. The company's only quarters since then were in the complainant's office in Newark. Part of the tract of land had been laid out in streets, blocks, and lots, on paper, by Frederick R. Knopf before he conveyed to the company, and he had sold 124 of the lots per the map of record. After the company took title he sold a few more, and then the enterprise collapsed. In 1925 Frederick R. Knopf, as president, with the aid of one Herman, as secretary, a stranger to the company and the office, executed in the name of the company a deed for the five tracts to the United States Land & Development Company, Inc. Knopf took back a purchase-money mortgage for $7,500 in the name of the company, and shortly afterwards sold and assigned it, pocketing the proceeds. The bill was filed promptly upon the discovery of the fraud in 1928. The United States Land & Development Company conveyed the lands in parcels severally to five of the defendants, two of whom, the Bopad Land & Development Company and Rosenblatt, answered the bill. Their conveyances were in exchange for real estate. The Bopad Company conveyed to two additional defendants, who have defaulted. There is nothing in the case of acquiescence or ratification by the board of directors, nor of conduct to estop the company. There are no equities in favor of the defendants to which the company is called upon to respond. The execution of the deed was a simple case of fraud by the president, in which the board of directors and stockholders had no part.
The management of corporate affairs is committed by law to the directors assembled in board meeting, and it is established that the president of a corporation has no more authority over its property than any other director. Titus v. Cairo & F. Ry. Co., 37 N. J. Law, 98; Stokes v. N. J. Pottery Co., 46 N. J. Law, 237; Thomson v. Central Pass. Ry. Co., 80 N. J. Law, 328, 78 A. 152; Holcombe v. Trenton White City Co., SO N. J. Eq. 122, 82 A. 618; Economy Auto Supply Co. v. Fidelity Union Trust Co. (N. J. Err. & App.) 144 A. 30. If he is put in charge of the company's affairs, he may bind it by contract in the usual course of business, as any other agent may, acting within the scope of his authority; and so the president of a company engaged in a real estate development may be deemed to be clothed with authority to sell lots, for that is its business, but not the tract as a unit—that is not company business. It is debatable whether the directors could convey the tract as a unit without the consent of the stockholders, if it would result in terminating the company's activities. Meyerhoff v. Bankers' Security, Inc., 105 N. J. Eq. 76,147 A. 105.
Corporations are sometimes deemed to have ratified unauthorized acts and to be estopped if they retain the proceeds, and the doctrine is invoked by the defendants because the grantee in the disputed deed executed a purchase-money mortgage for $7,500 to the company. This was without the authority or knowledge of the board of directors, as was the cashing and assigning of the mortgage and appropriating of the proceeds by the president, and in no way implicates the company. There cannot be ratification without knowledge.
The deed is a nullity. The rule of caveat emptor obtains. The first taker under the disputed deed took with notice that it was dealing with an agent and was bound to verify his authority at its peril. 27 R. C. L. 668 et seq. It was also put on notice by the sale of the tract as a unit, the tract having been previously laid out in building lots by a recorded map. Subsequent purchasers were likewise put upon inquiry by the record.
The special equity of innocent purchaser for value, set up by the defendants, cannot prevail against the legal title of the company. 27 R. C. L. 673. The innocence and good faith of a subsequent purchaser of an invalid title cannot supplant the legal title. Vattier v. Hinde, 7 Pet. 252, 8 L. Ed. 675; Lindblom v. Rocks (C. C. A.) 146 F. 660.
Complainant is entitled to a decree.