Center v. Hampton Affiliates, Inc.

• Decision Date: 22 October 1985
• Citation: 497 N.Y.S.2d 898,488 N.E.2d 828,66 N.Y.2d 782
• Parties: , 488 N.E.2d 828, 42 UCC Rep.Serv. 287 Benjamin CENTER, Individually and as a Shareholder of Hampton Affiliates, Inc., Appellant, v. HAMPTON AFFILIATES, INC., et al., Respondents, et al., Defendants.
• Court: New York Court of Appeals Court of Appeals

Page 898

497 N.Y.S.2d 898

66 N.Y.2d 782, 488 N.E.2d 828, 42 UCC

Rep.Serv. 287

Benjamin CENTER, Individually and as a Shareholder of

Hampton Affiliates, Inc., Appellant, v. HAMPTON AFFILIATES, INC., et al., Respondents, et al., Defendants.

Court of Appeals of New York.

Oct. 22, 1985.

Lloyd D. Feld, New York City, for appellant.

Jules A. Epstein, Lake Success, and Joseph T. Adragna, Hicksville, for respondents.

OPINION OF THE COURT MEMORANDUM.

The order of the Appellate Division, 106 A.D.2d 422, 482 N.Y.S.2d 514, should be modified, with costs to appellant, by reinstating plaintiff's complaint except those portions of the first, second and fourth causes of action which assert claims against defendants Ingraldi, Goldman, Lakin's Appliance Stores Broadway, Inc. and Lakin's Appliance Stores, Inc. acting in their individual capacities and, as so modified, affirmed.

This action arises out of an agreement between plaintiff and the late Frank Silverman in which Silverman agreed to transfer 10 of his 100 shares in defendant Hampton Affiliates, Inc., a predecessor of defendant Hampton Sales, Inc., to plaintiff. At the time of the agreement the shares had been pledged and delivery was not to occur until they were released from the pledge. Although the shares subsequently became available, the agreement was never completed. Instead, Silverman and his estate transferred all of the shares of Sales to the individual and corporate defendants. Defendants now contend that because they purchased the shares for value, in good faith and without notice of any adverse claim that they have a complete defense, as bona fide purchasers, to plaintiff's claim (see, Uniform Commercial Code § 8-302[1][a]; [2] ). Plaintiff concedes that the individual defendants took delivery of their shares of stock without notice of his rights. Accordingly, summary judgment was properly granted as to them. There are triable issues of fact, however, on whether the corporate defendant had imputed knowledge of plaintiff's adverse claim at the time it took delivery because its agent, defendant Gross, an attorney and director of the corporation, had knowledge of Silverman's obligation to plaintiff.

The general rule is that knowledge acquired by an agent acting within the scope of his agency is imputed to his principal and the latter is bound by such knowledge although the information is never actually communicated to it (Farr v. Newman, 14 N.Y.2d 183, 187, 250 N.Y.S.2d 272, 199 N.E.2d 369; Henry v. Allen, 151 N.Y. 1, 9, 45 N.E. 355; see, Restatement [Second] of Agency § 272, at 591). Underlying the rule is the presumption that an agent has discharged his duty to disclose to his principal "all the material facts coming to his knowledge with reference to the subject of his agency" (Henry v. Allen, supra, at p. 9, 45 N.E. 355; Marine Midland Bank v. Russo Produce Co., 50 N.Y.2d 31, 43, 427 N.Y.S.2d 961, 405 N.E.2d 205). Defendants do not dispute that the rule applies to the facts of this case but for the "adverse interest" exception.

This exception provides that when an agent is engaged in a scheme to defraud his principal, either for his own benefit or that of a third person, the presumption that knowledge held by the agent was disclosed to the principal fails because he cannot be presumed to have disclosed that which would expose and defeat his fraudulent purpose (People v. Kirkup, 4 N.Y.2d 209, 213-214, 173 N.Y.S.2d 574, 149 N.E.2d 866; Benedict v. Arnoux, 154 N.Y. 715, 729, 49 N.E. 326; Henry v. Allen, supra, 151 N.Y. at pp. 9-10, 45 N.E. 355; see, Marine Midland Bank v. Russo Produce Co., supra, 50 N.Y.2d at pp. 43-44, 427 N.Y.S.2d 961, 405 N.E.2d 205; Restatement [Second] of Agency § 282[1], at 611; 2 Mechem, Agency § 815, at 1399-1402 ([2d ed.]; 2 Pomeroy's Equity Jurisprudence § 675, at 923-925 [5th ed.] ). To come within the exception, the agent must have totally abandoned his principal's interests and be acting entirely for his own or another's purposes. It cannot be invoked merely because he has a conflict of interest or because he is not acting primarily for his principal (see, Farr v. Newman, 14 N.Y.2d 183, 190-191, 250 N.Y.S.2d 272, 199 N.E.2d 369, supra; Henry v. Allen, supra, 151 N.Y. at p. 11, 45 N.E. 355; Restatement [Second] of Agency § 282[1] comment c). Defendants' moving papers contain only conclusory allegations that Gross was seriously conflicted throughout these transactions and that he and Silverman tried to defraud the corporation. These allegations do not establish sufficient adversity as a matter of law to negate imputed knowledge to the corporation at the time it took delivery of the shares.

We agree with the corporate defendant, however, that plaintiff has failed to raise a triable issue of fact on its actual knowledge of his adverse claim prior to delivery of the stock on December 8, 1975, the critical date under the Code for...