Real Property Law

AppTerm, 2nd, 11th, and 13th Districts

(memorandum opinion)

In purchaser's action for return of a down payment, purchaser appealed from Civil Court's judgment, after a nonjury trial, dismissing the complaint and awarding seller judgment on a counterclaim seeking enforcement of the sale contract's liquidated damages provision. The Appellate Term affirmed, holding that purchaser was not entitled to rely on the sale contract's mortgage contingency clause.

The parties executed a sale contract dated July 11, 2007 by the terms of which purchaser had 45 days to obtain a mortgage commitment in the sum of $535,000. If purchaser could not obtain a mortgage in that amount, she was entitled to cancel the contract, provided she notified the seller of her inability within 45 days of the date of the sale contract. The contract also obligated purchaser “to make prompt application” to an institutional lender, or to a mortgage broker who would promptly submit the application to an institutional lender. Finally, the contract included a liquidated damages provision which entitled seller to 10% of the purchaser price if purchaser defaulted on the contract. Purchaser paid a $38,500 deposit into escrow.

Purchaser testified that she signed a mortgage application form with a mortgage broker for a mortgage in the amount of $650,250. An employee of an institutional lender testified that his bank had received from purchaser a mortgage application in the amount of $535,000 on Sept. 9 (apparently an application different from the one submitted to the mortgage broker). The bank denied the application on Sept. 11, 2007, due to purchaser's credit history. Purchaser then requested return of her down payment, but seller refused. Purchaser then brought this action, and seller counterclaimed for $76.500.

In affirming Civil Court's judgment for seller both on the main complaint and the counterclaim, the Appellate Term emphasized that the application to the mortgage broker was improper because the mortgage amount exceeded the amount specified in the sale contract. The court then noted that the application to the institutional lender was not received until after the sale contract's 45-day window, and purchaser never provided seller with timely notice of her failure to obtain a commitment. As a result, purchaser defaulted on the contract, and seller was entitled to enforce the liquidated damages provision.'

Prescriptive Easement

Pulsifer v. Gutchess

NYLJ 9/5/13

Supreme Ct., Essex Cty.

(Muller, J.)

In landowner's action for a declaratory judgment that he holds a prescriptive easement over neighboring land, neighbor moved for summary judgment dismissing the complaint and granting judgment on his counterclaim for a declaration that landowner has no rights over the disputed roadway. The court denied the summary judgment motion, holding that affidavits of third parties raised questions of fact about the existence of a prescriptive easement before 1988.

Landowner maintains a hunting camp on his land. Neighbor owns adjacent, unimproved, parcels, one of which abuts a town road, and has a private road that proceeds through it to landowner's lot. Landowner contends that he used the private road to access his camp from 1956 through 2009, when neighbor erected a locked gate across the road. Neighbor, however, produced several agreements suggesting that landowner's use was permissive.

First, neighbor produced a recreation agreement by the terms of which neighbor's predecessor granted landowner the exclusive right to engage in various recreational activities for a fee of $3,500 per year. That agreement covered the period from 1988 to 1993 and was later extended for an additional year. Second, neighbor produced agreements between neighbor's own company and landowner under the terms of which neighbor agreed to allow landowner to use his land for hauling timber. Those agreements covered the period from 1996 through 2008. Landowner nevertheless claimed that he had established a prescriptive easement from 1956 through 1988, despite his deposition testimony that he did not do any work on the roadway during that time period. After his deposition, landowner attempted to correct his testimony, saying that he did maintain the roadway.

In denying neighbor's summary judgment motion, the court first indicated that landowner's own post-deposition testimony was insufficient to raise a triable issue of fact about whether his use of the roadway was sufficiently open and notorious. But the court did rely on affidavits from family members and friends, all of whom contended that they helped landowner maintain the road from the 1960s onward. Based on those affidavits, the court concluded that landowner had raised an issue of fact sufficient to defeat neighbor's summary judgment motion, rejecting neighbor's argument that the affidavit testimony established at best, that the public at large had used the roadway, defeating the claim that landowner had established the exclusivity necessary for an easement by prescription.

COMMENT

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Although exclusive use is not required to prove a prescriptive easement claim, exclusive or nearly exclusive use provides evidence of notice to the landowner of the user's claim of right, a necessary element of a prescription easement claim. In Fila v. Angiolillo, for example, the court found that the use of a road by the claimants' predecessors in title was sufficiently adverse and notorious to create a prescriptive easement. In so finding, the court specifically mentioned that the claimants' “predecessors in title and their invitees and not [] the general public” were the primary users of the road, and that these predecessors used the road “almost exclusively.” 8 A.D.2d 693. By contrast, in Lyon v. Melino, the claimants failed to prove they had acquired a prescriptive easement over a driveway that they used along with the general public because they did not show that they had taken any “distinctive or derisive” action to “notify the owner” of their specific use and claim of right. 214 A.D.2d 992, 993. See also Allan v. Mastrianni, 2 A.D.3d 1023, 1024 (no prescriptive easement found where claimant failed to show servient owner was “made aware of assertion of hostile right” when all neighbors had historically used roadways in cooperative manner).

Exclusive or nearly exclusive users are particularly likely to prevail on prescriptive easement claims if they can show that they made improvements to the land. Improvements help establish that the landowner had notice of the adverse use and the user's claim of right. For example, in Epstein v. Rose, 101 A.D.2d 646, the court held that the claimant's open and notorious use of a road established a prescriptive easement where the claimant and his sons repaired the road at issue and placed logs in a ditch between the main road and the servient owner's land. The logs allowed vehicles to access the roadway that crossed the servient land and led to the claimant's land. See also Gravelle v. Dunster, 2 A.D.3d 964 (prescriptive easement found where claimant paved and regularly maintained driveway that she shared with neighboring, servient landowner). A servient owner should know that the typical neighbor would not make expenditures on improvements like these unless the neighbor believed he had a permanent right to the easement.

If, however, the servient owner expressly granted permission to the claimant during the prescriptive period, the claimant may not acquire a prescriptive easement, and exclusivity of use and improvements made to the land by the claimant become irrelevant. In Beretz v. Diehl, for example, the claimants had cleared saplings and bulldozed the road, but the servient landowner showed that on many occasions the claimants had asked for, and had received, permission to create and use the road. 302 A.D.2d 808.

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Tranferor Submits Insufficient Evidence

O'Connor v. O'Connor

NYLJ 9/5/13

Supreme Ct., Kings Cty.

(Schmidt, J.)

In an action to void a deed, both the transferor and the transferee sought summary judgment. The court granted transferee's motion, holding that transferor had not submitted evidence sufficient to rebut the presumption of validity that attaches to a notarized deed.

A deed dated Aug. 13, 2004, purported to transfer the subject property from Junior O'Connor to Jumol O'Connor. Junior's signature was acknowledged by a notary public, and the deed was recorded on Nov. 15, 2004. On Dec.15, 2005, transferee Jumol executed a mortgage to Greenpoint Mortgage Funding to secure a $191,500 loan. On Aug. 11, 2010, transferor Junior brought this action to set aside the deed and mortgage, contending that the 2004 deed was forged. Transferor offered testimony at an examination before trial asserting that the signature was not his, that he was not present in New York during 2004, and that he did not know the notary who acknowledged the signature. Both parties moved for summary judgment.

In granting transferee's motion, the court relied on the presumption of execution created by a certificate of acknowledgment on a deed or mortgage, noting that the presumption can be rebutted only by clear and convincing evidence. The court concluded that transferor's own testimony was insufficient to rebut the presumption, commenting on the absence of evidence that transferor was out of the state, and the absence of the affidavit of a handwriting expert.

COMMENT

A transferor's affidavit stating that her acknowledged signature on a deed was forged is not sufficient to defeat a motion for summary judgment. For instance, in Clark v. Mortgage Services Unlimited, 78 A.D.3d 1104, the Second Department granted summary judgment to a bank against a transferor seeking to set aside two deeds when the only evidence of forgery was transferor's testimony that the signatures on the deeds were not hers. The court indicated that evidence beyond a challenger's own affidavit, such as a handwriting expert or a lay witness who was present at the execution of the deeds, would be necessary to rebut the presumption of validity of a recorded deed.

However, corroboration such as a notary public's testimony identifying improper notarization in addition to transferor's affidavit is sufficient to avoid a summary judgment motion. Thus, in Moffett v. Gerardi, 75 A.D.3d 496, the Second Department reversed an order of summary judgment in favor of the transferee, relying on the notary public's express refusal to testify that the signature on the deed belonged to the transferor because the deed was not notarized in his usual manner. Because transferor produced evidence corroborating his affidavit stating that his signature was forged, a triable issue of fact precluded summary judgment.

Unlike the victim of a fraudulently granted deed who takes protection under Real Property Law ' 266, a subsequent purchaser to a forged deed cannot acquire bona fide purchaser status. Thus, in Yin Wu v. Wu, 288 A.D.2d 104, the First Department denied a motion for summary judgment in favor of subsequent purchasers despite their unawareness that the true owner's brother forged his signature on the deed conveying the property to purchasers. The court stated that the purchasers could not be considered bona fide purchasers regardless of whether they knew the seller's deed was forged because the seller had no title to convey in the first place and Real Property Law ' 266 does not apply to deeds that are void.

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Corporate Agent

Elgin Realty, Inc. v. Klein

NYLJ 9/13/13, p. 27, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action by corporate owner of real estate for a judgment declaring a mortgage invalid, corporate owner appealed from Supreme Court's grant of summary judgment to mortgagees. The Appellate Division modified to grant mortgagees a declaration that the mortgage was valid, but otherwise affirmed, holding that the corporate agent who signed the mortgage documents had apparent authority to act on the corporation's behalf.

In 2004, Elgin Realty acquired title to commercial property. In 2008, Klein, purporting to act as president of Elgin, obtained a loan from mortgagees, giving them a mortgage to secure the loan. In 2009, Elgin brought this action, alleging that Behrend was the sole shareholder of Elgin and that Klein had no authority to give a mortgage on the subject property. Supreme Court awarded summary judgment to mortgagees.

In modifying, the Appellate Division agreed with Supreme Court that the mortgage was valid because Klein had apparent authority to act on Elgin's behalf. The court noted in particular Behrend's deposition testimony that he had authorized Klein to purchase the subject property for Elgin, and had agreed that Klein was entitled to collect rent due on the property, and to sell the property, in which case Klein's only obligation would be to repay the loan Behrend had made to Klein to finance the purchase. Under those circumstances, the court concluded that mortgagees were entitled to rely on Klein's apparent authority. As a result, Supreme Court properly awarded summary judgment to mortgagees. But because the action was for a declaratory judgment, the Appellate Division held that Supreme Court should have included a provision declaring the mortgage valid.

COMMENT

A mortgagee who argues that it relied on an agent's apparent authority to execute a mortgage, must establish that the principal's actions, not merely the agent's representations, created a reasonable belief that the agent possessed authority. For example, the Third Department held in Merrell-Benco Agency, LLC v. HSBC Bank USA, 20 A.D.3d 605, that the principal was bound to the mortgage executed by his agent because the principal's delegation of control created a reasonable belief that the agent was authorized to execute a mortgage. The LLC's silent partner and shareholder delegated control over daily operations, such as employee supervision and client management, to its chief operating officer. Moreover, mortgagees even after the silent partner discovered the COO's fraudulent transfers and loan agreements, the silent partner did not attempt to cabin the COO's control over business operations. Conversely, the Second Department in ER Holdings, LLC v. 122 W.P.R. Corp. held the executed mortgage invalid because mortgagees failed to produce evidence of principal's actions to prove the creation of agent's apparent authority. Specifically, mortgagees submitted no evidence illustrating that the principal, 122 W.P.R. Corp, acted or spoke in a manner that created a reasonable basis to believe agent's representation that he was authorized to execute a mortgage.

Where a purchaser or lender wishes to acquire or encumber a corporation's property, statutes may limit the corporate officer's authority to execute the transaction. For instance, Business Corporation Law ' 911 (BCL ' 911) requires a signed resolution from the corporation's board of directors in order to bind the corporation to a mortgage obligation. The court in Bernstein v. Braiman, 27 Misc. 3d 1236(A), held that an executed mortgage loan was void because the parties failed to satisfy BCL ' 911. Here, the corporate agent represented to lenders that as secretary of the 1916 Mermaid Avenue Corporation (Mermaid Corporation), she had authority to execute a mortgage on their property. Although the mortgagee knew that the property was owned by Mermaid Corporation, neither the lenders nor their attorney secured a signed board of director's resolution pursuant to BCL ' 911.

Additionally, BCL ' 909(a) states that if a corporation seeks to sell all or substantially all of its assets through a transaction that is not the “usual or regular course of business actually conducted,” then the transaction must be approved by two-thirds of all outstanding shares. The Second Department, in Vig v. Deka Realty Corp., 143 A.D.2d 185, dismissed purchaser's claim for specific performance of a sale contract because seller's shareholders had not approved the sale. Seller's president executed a contract purporting to sell the seller's sole property to purchasers, but seller's three shareholders successfully blocked the sale when the court concluded that because seller's business was property management rather than property sales and acquisition,. As a result, the sale was not in the seller's “usual or regular course of business,” and was therefore subject to BCL
' 909(a). Thus, the sale was void for failure to secure approval from two-thirds of outstanding shares. Bernstein and Vig demonstrate that third parties who engage in real property transactions with corporations must be careful to examine the limits imposed on corporate agents by the Business Corporation Law.

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Mortgage Contingency Clause

Ali v. Buno

NYLJ 8/9/13, p. 23, col. 2

AppTerm, 2nd, 11th, and 13th Districts

(memorandum opinion)

In purchaser's action for return of a down payment, purchaser appealed from Civil Court's judgment, after a nonjury trial, dismissing the complaint and awarding seller judgment on a counterclaim seeking enforcement of the sale contract's liquidated damages provision. The Appellate Term affirmed, holding that purchaser was not entitled to rely on the sale contract's mortgage contingency clause.

The parties executed a sale contract dated July 11, 2007 by the terms of which purchaser had 45 days to obtain a mortgage commitment in the sum of $535,000. If purchaser could not obtain a mortgage in that amount, she was entitled to cancel the contract, provided she notified the seller of her inability within 45 days of the date of the sale contract. The contract also obligated purchaser “to make prompt application” to an institutional lender, or to a mortgage broker who would promptly submit the application to an institutional lender. Finally, the contract included a liquidated damages provision which entitled seller to 10% of the purchaser price if purchaser defaulted on the contract. Purchaser paid a $38,500 deposit into escrow.

Purchaser testified that she signed a mortgage application form with a mortgage broker for a mortgage in the amount of $650,250. An employee of an institutional lender testified that his bank had received from purchaser a mortgage application in the amount of $535,000 on Sept. 9 (apparently an application different from the one submitted to the mortgage broker). The bank denied the application on Sept. 11, 2007, due to purchaser's credit history. Purchaser then requested return of her down payment, but seller refused. Purchaser then brought this action, and seller counterclaimed for $76.500.

In affirming Civil Court's judgment for seller both on the main complaint and the counterclaim, the Appellate Term emphasized that the application to the mortgage broker was improper because the mortgage amount exceeded the amount specified in the sale contract. The court then noted that the application to the institutional lender was not received until after the sale contract's 45-day window, and purchaser never provided seller with timely notice of her failure to obtain a commitment. As a result, purchaser defaulted on the contract, and seller was entitled to enforce the liquidated damages provision.'

Prescriptive Easement

Pulsifer v. Gutchess

NYLJ 9/5/13

Supreme Ct., Essex Cty.

(Muller, J.)

In landowner's action for a declaratory judgment that he holds a prescriptive easement over neighboring land, neighbor moved for summary judgment dismissing the complaint and granting judgment on his counterclaim for a declaration that landowner has no rights over the disputed roadway. The court denied the summary judgment motion, holding that affidavits of third parties raised questions of fact about the existence of a prescriptive easement before 1988.

Landowner maintains a hunting camp on his land. Neighbor owns adjacent, unimproved, parcels, one of which abuts a town road, and has a private road that proceeds through it to landowner's lot. Landowner contends that he used the private road to access his camp from 1956 through 2009, when neighbor erected a locked gate across the road. Neighbor, however, produced several agreements suggesting that landowner's use was permissive.

First, neighbor produced a recreation agreement by the terms of which neighbor's predecessor granted landowner the exclusive right to engage in various recreational activities for a fee of $3,500 per year. That agreement covered the period from 1988 to 1993 and was later extended for an additional year. Second, neighbor produced agreements between neighbor's own company and landowner under the terms of which neighbor agreed to allow landowner to use his land for hauling timber. Those agreements covered the period from 1996 through 2008. Landowner nevertheless claimed that he had established a prescriptive easement from 1956 through 1988, despite his deposition testimony that he did not do any work on the roadway during that time period. After his deposition, landowner attempted to correct his testimony, saying that he did maintain the roadway.

In denying neighbor's summary judgment motion, the court first indicated that landowner's own post-deposition testimony was insufficient to raise a triable issue of fact about whether his use of the roadway was sufficiently open and notorious. But the court did rely on affidavits from family members and friends, all of whom contended that they helped landowner maintain the road from the 1960s onward. Based on those affidavits, the court concluded that landowner had raised an issue of fact sufficient to defeat neighbor's summary judgment motion, rejecting neighbor's argument that the affidavit testimony established at best, that the public at large had used the roadway, defeating the claim that landowner had established the exclusivity necessary for an easement by prescription.

COMMENT

'

Although exclusive use is not required to prove a prescriptive easement claim, exclusive or nearly exclusive use provides evidence of notice to the landowner of the user's claim of right, a necessary element of a prescription easement claim. In Fila v. Angiolillo, for example, the court found that the use of a road by the claimants' predecessors in title was sufficiently adverse and notorious to create a prescriptive easement. In so finding, the court specifically mentioned that the claimants' “predecessors in title and their invitees and not [] the general public” were the primary users of the road, and that these predecessors used the road “almost exclusively.” 8 A.D.2d 693. By contrast, in Lyon v. Melino, the claimants failed to prove they had acquired a prescriptive easement over a driveway that they used along with the general public because they did not show that they had taken any “distinctive or derisive” action to “notify the owner” of their specific use and claim of right. 214 A.D.2d 992, 993. Se e also Allan v. Mastrianni, 2 A.D.3d 1023, 1024 (no prescriptive easement found where claimant failed to show servient owner was “made aware of assertion of hostile right” when all neighbors had historically used roadways in cooperative manner).

Exclusive or nearly exclusive users are particularly likely to prevail on prescriptive easement claims if they can show that they made improvements to the land. Improvements help establish that the landowner had notice of the adverse use and the user's claim of right. For example, in Epstein v. Rose, 101 A.D.2d 646, the court held that the claimant's open and notorious use of a road established a prescriptive easement where the claimant and his sons repaired the road at issue and placed logs in a ditch between the main road and the servient owner's land. The logs allowed vehicles to access the roadway that crossed the servient land and led to the claimant's land. See also Gravelle v. Dunster, 2 A.D.3d 964 (prescriptive easement found where claimant paved and regularly maintained driveway that she shared with neighboring, servient landowner). A servient owner should know that the typical neighbor would not make expenditures on improvements like these unless the neighbor believed he had a permanent right to the easement.

If, however, the servient owner expressly granted permission to the claimant during the prescriptive period, the claimant may not acquire a prescriptive easement, and exclusivity of use and improvements made to the land by the claimant become irrelevant. In Beretz v. Diehl, for example, the claimants had cleared saplings and bulldozed the road, but the servient landowner showed that on many occasions the claimants had asked for, and had received, permission to create and use the road. 302 A.D.2d 808.

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Tranferor Submits Insufficient Evidence

O'Connor v. O'Connor

NYLJ 9/5/13

Supreme Ct., Kings Cty.

(Schmidt, J.)

In an action to void a deed, both the transferor and the transferee sought summary judgment. The court granted transferee's motion, holding that transferor had not submitted evidence sufficient to rebut the presumption of validity that attaches to a notarized deed.

A deed dated Aug. 13, 2004, purported to transfer the subject property from Junior O'Connor to Jumol O'Connor. Junior's signature was acknowledged by a notary public, and the deed was recorded on Nov. 15, 2004. On Dec.15, 2005, transferee Jumol executed a mortgage to Greenpoint Mortgage Funding to secure a $191,500 loan. On Aug. 11, 2010, transferor Junior brought this action to set aside the deed and mortgage, contending that the 2004 deed was forged. Transferor offered testimony at an examination before trial asserting that the signature was not his, that he was not present in New York during 2004, and that he did not know the notary who acknowledged the signature. Both parties moved for summary judgment.

In granting transferee's motion, the court relied on the presumption of execution created by a certificate of acknowledgment on a deed or mortgage, noting that the presumption can be rebutted only by clear and convincing evidence. The court concluded that transferor's own testimony was insufficient to rebut the presumption, commenting on the absence of evidence that transferor was out of the state, and the absence of the affidavit of a handwriting expert.

COMMENT

A transferor's affidavit stating that her acknowledged signature on a deed was forged is not sufficient to defeat a motion for summary judgment. For instance, in Clark v. Mortgage Services Unlimited, 78 A.D.3d 1104, the Second Department granted summary judgment to a bank against a transferor seeking to set aside two deeds when the only evidence of forgery was transferor's testimony that the signatures on the deeds were not hers. The court indicated that evidence beyond a challenger's own affidavit, such as a handwriting expert or a lay witness who was present at the execution of the deeds, would be necessary to rebut the presumption of validity of a recorded deed.

However, corroboration such as a notary public's testimony identifying improper notarization in addition to transferor's affidavit is sufficient to avoid a summary judgment motion. Thus, in Moffett v. Gerardi, 7 5 A.D.3d 496, the Second Department reversed an order of summary judgment in favor of the transferee, relying on the notary public's express refusal to testify that the signature on the deed belonged to the transferor because the deed was not notarized in his usual manner. Because transferor produced evidence corroborating his affidavit stating that his signature was forged, a triable issue of fact precluded summary judgment.

Unlike the victim of a fraudulently granted deed who takes protection under Real Property Law ' 266, a subsequent purchaser to a forged deed cannot acquire bona fide purchaser status. Thus, in Yin Wu v. Wu, 288 A.D.2d 104, the First Department denied a motion for summary judgment in favor of subsequent purchasers despite their unawareness that the true owner's brother forged his signature on the deed conveying the property to purchasers. The court stated that the purchasers could not be considered bona fide purchasers regardless of whether they knew the seller's deed was forged because the seller had no title to convey in the first place and Real Property Law ' 266 does not apply to deeds that are void.

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Corporate Agent

Elgin Realty, Inc. v. Klein

NYLJ 9/13/13, p. 27, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action by corporate owner of real estate for a judgment declaring a mortgage invalid, corporate owner appealed from Supreme Court's grant of summary judgment to mortgagees. The Appellate Division modified to grant mortgagees a declaration that the mortgage was valid, but otherwise affirmed, holding that the corporate agent who signed the mortgage documents had apparent authority to act on the corporation's behalf.

In 2004, Elgin Realty acquired title to commercial property. In 2008, Klein, purporting to act as president of Elgin, obtained a loan from mortgagees, giving them a mortgage to secure the loan. In 2009, Elgin brought this action, alleging that Behrend was the sole shareholder of Elgin and that Klein had no authority to give a mortgage on the subject property. Supreme Court awarded summary judgment to mortgagees.

In modifying, the Appellate Division agreed with Supreme Court that the mortgage was valid because Klein had apparent authority to act on Elgin's behalf. The court noted in particular Behrend's deposition testimony that he had authorized Klein to purchase the subject property for Elgin, and had agreed that Klein was entitled to collect rent due on the property, and to sell the property, in which case Klein's only obligation would be to repay the loan Behrend had made to Klein to finance the purchase. Under those circumstances, the court concluded that mortgagees were entitled to rely on Klein's apparent authority. As a result, Supreme Court properly awarded summary judgment to mortgagees. But because the action was for a declaratory judgment, the Appellate Division held that Supreme Court should have included a provision declaring the mortgage valid.

COMMENT

A mortgagee who argues that it relied on an agent's apparent authority to execute a mortgage, must establish that the principal's actions, not merely the agent's representations, created a reasonable belief that the agent possessed authority. For example, the Third Department held in Merrell-Benco Agency, LLC v. HSBC Bank USA, 20 A.D.3d 605, that the principal was bound to the mortgage executed by his agent because the principal's delegation of control created a reasonable belief that the agent was authorized to execute a mortgage. The LLC's silent partner and shareholder delegated control over daily operations, such as employee supervision and client management, to its chief operating officer. Moreover, mortgagees even after the silent partner discovered the COO's fraudulent transfers and loan agreements, the silent partner did not attempt to cabin the COO's control over business operations. Conversely, the Second Department in ER Holdings, LLC v. 122 W.P.R. Corp. held the executed mortgage invalid because mortgagees failed to produce evidence of principal's actions to prove the creation of agent's apparent authority. Specifically, mortgagees submitted no evidence illustrating that the principal, 122 W.P.R. Corp, acted or spoke in a manner that created a reasonable basis to believe agent's representation that he was authorized to execute a mortgage.

Where a purchaser or lender wishes to acquire or encumber a corporation's property, statutes may limit the corporate officer's authority to execute the transaction. For instance, Business Corporation Law ' 911 (BCL ' 911) requires a signed resolution from the corporation's board of directors in order to bind the corporation to a mortgage obligation. The court in Bernstein v. Braiman, 27 Misc. 3d 1236(A), held that an executed mortgage loan was void because the parties failed to satisfy BCL ' 911. Here, the corporate agent represented to lenders that as secretary of the 1916 Mermaid Avenue Corporation (Mermaid Corporation), she had authority to execute a mortgage on their property. Although the mortgagee knew that the property was owned by Mermaid Corporation, neither the lenders nor their attorney secured a signed board of director's resolution pursuant to BCL ' 911.

Additionally, BCL ' 909(a) states that if a corporation seeks to sell all or substantially all of its assets through a transaction that is not the “usual or regular course of business actually conducted,” then the transaction must be approved by two-thirds of all outstanding shares. The Second Department, in Vig v. Deka Realty Corp., 143 A.D.2d 185, dismissed purchaser's claim for specific performance of a sale contract because seller's shareholders had not approved the sale. Seller's president executed a contract purporting to sell the seller's sole property to purchasers, but seller's three shareholders successfully blocked the sale when the court concluded that because seller's business was property management rather than property sales and acquisition,. As a result, the sale was not in the seller's “usual or regular course of business,” and was therefore subject to BCL
' 909(a). Thus, the sale was void for failure to secure approval from two-thirds of outstanding shares. Bernstein and Vig demonstrate that third parties who engage in real property transactions with corporations must be careful to examine the limits imposed on corporate agents by the Business Corporation Law.

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