Kanavos v. Hancock Bank & Trust Co.

• Decision Date: 23 August 1982
• Parties: Harold J. KANAVOS v. HANCOCK BANK & TRUST COMPANY.
• Court: Appeals Court of Massachusetts

Page 311

439 N.E.2d 311

14 Mass.App.Ct. 326

Harold J. KANAVOS v. HANCOCK BANK & TRUST COMPANY.

Appeals Court of Massachusetts,

Suffolk.

Argued May 12, 1982.

Decided Aug. 23, 1982.

Nicholas A. Abraham, Boston, for plaintiff.

James R. DeGiacomo, Boston, for defendant.

Before DREBEN, ROSE and KASS, JJ.

KASS, Justice.

At the close of the plaintiff's evidence, the defendant moved for a directed verdict, which the trial judge allowed. The judge's reason for so doing was that the plaintiff, in his contract action, ¹ failed to introduce sufficient evidence tending to prove that the bank officer who made the agreement with which the plaintiff sought to charge the bank had any authority to make it. Upon review of the record we are of opinion that there was evidence which, if believed, warranted a finding that the bank officer had the requisite authority or that the bank officer had apparent authority to make the agreement in controversy. We, therefore, reverse the judgment.

On appeal from a judgment based on a directed verdict for the defendant, the test is whether the evidence, taken in a light most favorable to the plaintiff, was sufficient to support an inference of facts imposing liability on the defendant. Gelinas v. New England Power Co., 359 Mass. 119, 123, 269 N.E.2d 275 (1971); Poirier v. Plymouth, 374 Mass. 206, 212, 372 N.E.2d 212 (1978); Graci v. Massachusetts Gas & Elec. Light Supply Co., 7 Mass.App. 221, 222-223, 386 N.E.2d 1292 (1979). We review the facts which the jury could have found.

For approximately ten years prior to 1975, Harold Kanavos and his brother borrowed money on at least twenty occasions from the Hancock Bank & Trust Company (the Bank), and, during that period, the loan officer with whom Kanavos always dealt was James M. Brown. The aggregate loans made by the Bank to Kanavos at any given time went as high as $800,000.

Over that same decade, Brown's responsibilities at the Bank grew, and he had become executive vice-president. Brown was also the chief loan officer for the Bank, which had fourteen or fifteen branches in addition to its head office. Physically, Brown's office was at the head office, toward the rear of the main banking floor, opposite the office of the president--whose name was Kelley. Often Brown would tell Kanavos that he had to check an aspect of a loan transaction with Kelley, but Kelley always backed Brown up on those occasions.

In 1974 there was a real estate recession, and the Kanavos brothers suffered reverses. The Bank, through Brown, explored means by which the Kanavos brothers might liquidate $300,000 in unsecured loans with the Bank. One of the more valuable assets in the Kanavos portfolio was a relatively new apartment building at 1025 Hancock Street in Quincy called Executive House. Title to that property was held by 1025 Hancock Street, Inc. (1025, Inc.), in which the Kanavos brothers had owned all the stock. They had, however, pledged that stock and, at the time of the discussions with Brown, the pledged stock had been foreclosed, subject to the right of the Kanavos brothers to redeem it.

Brown had loan workout responsibilities for the Bank, and the deal Brown and Kanavos devised was that the Bank would lend Kanavos an additional $265,000 so that he might buy back the foreclosed shares of 1025, Inc. and those shares would, in turn, be sold to the Bank in consideration of $522,322.21, and so liquidate the Kanavos indebtedness to the Bank. Kanavos was to have the option to buy back the shares of 1025, Inc. for the same price, plus a daily charge. ² If the Bank were to sustain operating losses during the option period, those would be added to the repurchase price; operating profits would be a credit against the purchase price, but not in excess of the daily charge. It could be inferred that the daily charge was in lieu of interest which the Bank would have earned on its $522,322.21.

The details of this moderately sophisticated transaction ³ were negotiated on behalf of the Bank by Brown. The transaction was submitted to the Bank's board of directors and approved. Kelley, not Brown, was present at the execution of the agreement for the sale and purchase of the shares of 1025, Inc., and signed the agreement on behalf of the Bank. On March 5, 1975, shortly after the transaction involving the shares of 1025, Inc. had been concluded, Kanavos and the Bank amended the agreement so as to: increase the purchase price by $53,000; increase the optional repurchase price by the same amount to $575,322.21; and increase the daily charge to be added to the repurchase price to $157.62. This amendment was negotiated for the Bank entirely by Brown; Brown signed it; Kelley played no part in connection with the amendment; and neither the board of directors of the Bank, nor any committee of the board, were in any way involved with the amendment.

Upon transfer of the 1025, Inc. stock to the Bank, Brown was elected president and treasurer of 1025, Inc. and assumed responsibility for operation of its asset, the Executive House. From time to time Kanavos inquired with Brown about details of operation of the Executive House, especially financial statements. These were subjects in which Kanavos maintained a lively concern because he hoped to buy back the shares of 1025, Inc. For a seventeen-month period following the closing in February, 1975, Kanavos met with Brown about once a month to discuss the Executive House property.

In the course of trying to arrange financing for the repurchase of the 1025, Inc. shares, Kanavos sought to introduce potential financing sources to Kelley. Kelley told Kanavos to deal with Brown. There were other occasions when Kelley told Kanavos that he should deal with Brown and, indeed, Kelley thereafter never dealt with Kanavos. Two secretaries at the Bank gave testimony from which the jury could conclude that Kelley concerned himself largely with internal administration of the Bank and the Bank's relationship to the community (e.g., Chamber of Commerce activity), while Brown administered the Bank's loans. Kelley was aware that Brown was meeting with Kanavos about his repurchase option.

When Kanavos asked Brown for operating statements of 1025, Inc. the latter made excuses for not producing them. A cat and mouse game concerning financial information went on for some months and, as Kanavos became more insistent, Brown said to Kanavos that he preferred that Kanavos not exercise the repurchase option at all and that he would make it worth his while not to. Brown said he would go back to Kelley to see what offer he could make.

Kanavos was never permitted to introduce in evidence the terms of the offer Brown made. That offer was contained in a writing, dated July 16, 1976, on bank letterhead, which read as follows: "This letter is to confirm our conversation regarding your option to re-purchase the subject property. In lieu of your not exercising your option, we agree to pay you $40,000 representing a commission upon our sale of the subject property, and in addition, will give you the option to match the price of sale of said property to extend for a 60 day period from the time our offer is received." Brown signed the letter as executive vice-president. The basis of exclusion was that the plaintiff had not established the authority of Brown to make with Kanavos the arrangement memorialized in the July 16, 1976, letter.

Among the exhibits introduced was a document which Brown identified as his job description. ⁴ In broad terms he was to manage the commercial and consumer loan division. In furtherance of a duty to develop and maintain "a profitable loan portfolio," he, "personally, or through subordinates," was to "direct the resolution of particularly complex and/or unusual credit, lending or collection problems related to important customers." He was also to "[m]aintain a continuous review of the loan portfolio and oversee the resolution of significant delinquent and workout loans." That language sketches an authority to alter a subsidiary aspect of a loan or workout agreement. Restatement (Second) of Agency § 33 (1957) ("An agent is authorized to do, and to do only, what it is reasonable for him to infer that the principal desires him to do in the light of the principal's manifestations and the facts as he knows or should know them at the time he acts"). See also §§ 34 and 35 relating to circumstances considered in interpreting authority and when incidental authority...