Decided: December 17, 1962.
ROBERT J. NEILLEY, T/A GRIFFITH CHEMICAL COMPANY, PLAINTIFF-APPELLANT,
JOSEPH P. WINBERRY, DEFENDANT-RESPONDENT, AND KIEVITT BEVERAGE CO., INC., AND NICHOLAS MANDAK, ESQ., RECEIVER OF KIEVITT BEVERAGE CO., INC., DEFENDANTS-RESPONDENTS
For affirmance -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. For reversal -- None.
The judgment is affirmed for the reasons expressed in the opinion of Judge Sullivan in the Appellate Division.
On appeal from a judgment of the Superior Court, Appellate Division, where Judge Sullivan filed the following opinion.
"Defendant Nicholas Mandak, Esq., Receiver of Kievitt Beverage Co., Inc., appeals from a judgment granting plaintiff specific performance of an option to purchase contained in a lease and dismissing defendant's cross-claim.
In 1958 Kievitt Beverage Co., Inc., was the owner of premises 186-188 Ninth Street, Passaic, N.J., on which were two $5,000 mortgages held by Bessie Donohue, and one $5,000 mortgage held by Margaret Donohue. Joseph P. Winberry, defendant-respondent herein, was the attorney for the Donohues. In 1958 Kievitt Beverage Co., Inc.'s, financial affairs were at a low ebb. It was down and out and had no money. The Donohue mortgages were in default, taxes were unpaid as were the insurance premiums on the policies covering the property. Julius Kievitt, the president of the beverage company and the owner of 740 of the 2000 shares of corporate stock, had died in October 1957, and his brothers Frank and Zigmund Kievitt had been attempting to run the business.
The story, as told by Joseph P. Winberry who appeared as a witness for plaintiff, was that in 1958 he had gone to the Kievitt plant to try to resolve the situation arising out of the arrearages on the mortgages. He met Frank and Zigmund Kievitt, and after some discussion, Frank Kievitt offered to turn the plant over to Winberry. Accordingly, in May 1958 a corporate deed signed by Frank Kievitt as President and attested by Zigmund Kievitt as Secretary was delivered to Winberry. Winberry testified that his understanding of the transaction was that he was to collect the rent and apply it to the mortgage interest, taxes and insurance premiums. Although the deed was absolute on its face, Winberry characterized his status as receiver or trustee for the purpose of collecting rent, a silent receivership.
At the time of said conveyance the second floor of the premises was occupied by a partnership, consisting of Nick E. Griffith and Robert J. Neilley, trading as Griffith Chemical Company, as tenant under an oral month to month lease with Kievitt Beverage Co., Inc. Winberry described the circumstances under which the lease containing the option was executed as follows:
The first floor of the premises was vacant and the second floor was occupied by Griffith Chemical Company. I was endeavoring to get a tenant or even to get a purchaser of the building, and I was not having very much success. So I spoke to Mr. Frank Kievitt and Zigmund Kievitt and also to Mr. Neilley, the then present tenant, and to his associate Mr. Griffith. And I was able to arrange a new lease whereby the Griffith Chemical Company would take over the entire premises; that they would be willing to pay $200 per month rent, and they were willing to make certain improvements in the premises if they could get a written lease with an option to buy at a stated price.
By written lease dated September 23, 1958, the premises were leased by Winberry as landlord to Robert J. Neilley, t/a Griffith Chemical Company (plaintiff herein), for a period of five years at a rental of $200 per month. The lease gave the tenant the option to purchase the premises for $22,000, which option was exercisable at any time before October 1, 1960.
Winberry said that Frank and Zigmund Kievitt knew all the details of the lease including the option; that they were present with Mr. Neilley in Winberry's office and all concurred in the terms of the lease. Winberry also said that he had known Julius Kievitt and would assume the three Kievitt boys, Frank, Zigmund, and Julius were the stockholders in the company at the time of the execution of the May 1958 deed. (Apparently he was unaware that Julius had died in October 1957.)
Winberry admitted that he never knew of a corporate resolution of Kievitt Beverage Co., Inc., authorizing the transfer of the property to him or of a resolution allowing the leasing of the premises to Griffith Chemical Company with an option to purchase.
On April 15, 1959, Winberry reconveyed title to the premises to Kievitt Beverage Co., Inc., subject to the lease. On or about June 20, 1960, the tenant gave written notice of its intention to exercise the option contained in the lease and, when Kievitt refused to convey, the instant suit against Winberry and Kievitt Beverage Co., Inc., was commenced. A cross-claim was filed by Kievitt Beverage Co., Inc., against Winberry for damages in the event that specific performance was granted.
In the meantime, Mary Kievitt, widow of Julius and administratrix of his estate, brought suit against Kievitt Beverage Co., Inc., and Frank and Zigmund Kievitt, charging numerous acts of wrongdoing in the operation of corporate affairs. As a result of said suit, on April 11, 1961 the corporation was declared insolvent and Nicholas Mandak appointed its receiver. The complaint herein was then amended to add the receiver as a party defendant.
Nick E. Griffith also appeared as a witness for plaintiff. He testified that after Griffith Chemical Company had rented a part of the premises, he spoke to Frank Kievitt about a written lease and was told that Mr. Winberry is the lawyer who will be handling the building and that all future checks should go to Mr. Winberry who will negotiate a lease for you. Griffith was also asked whether he knew who was the owner of the property at the time and answered, Kievitt Beverage Company. I assumed they owned it. I did not know.
Mary Kievitt appeared as a witness for the receiver and testified that she was the owner of 740 shares of corporate stock of Kievitt Beverage Co., Inc., and that she was never consulted about the lease and option to Griffith Chemical Company and knew nothing about it until her attorney, after an investigation, found that the premises had been leased and told her about it. She also said that after she found out about the lease she spoke to Frank Kievitt who told her We leased it.
Robert J. Neilley was called as a witness by the receiver. He testified that, at the time the lease was signed, he thought Mrs. Donohue was the owner, but he admitted speaking to Frank Kievitt about a lease ten or twelve times, and said that he had gone to see Winberry about the lease at Frank Kievitt's suggestion.
From the foregoing, it is clear that the judgment granting specific performance was improvidently entered for the following reasons: (1) The conveyance to Winberry by the corporation was legally ineffective; (2) Winberry in his status as receiver or trustee had no authority to grant an option to plaintiff; (3) the corporate owner did not authorize, approve of or ratify the grant of the option; (4) plaintiff had knowledge of sufficient facts to put it on actual or constructive notice of Winberry's lack of authority.
Winberry himself characterized his status as receiver or trustee, and testified that his understanding of the transaction was that he was to collect the rent and apply it to the mortgage interest, taxes and insurance premiums. It is clear that he was holding the property to secure the mortgages. He had no right or authority, without more, to grant a purchase option for the property.
However, as heretofore stated, Winberry claimed that Frank and Zigmund Kievitt knew all about the option and approved its terms. Even so, this did not amount to legal approval or ratification by the corporate owner. Winberry knew the premises were owned by a corporation; he knew the corporation was in extreme financial difficulty, unable to pay taxes, interest on mortgages and insurance premiums. He had known Julius Kievitt and his connection with the company. Under these circumstances as an attorney he should have known that the oral approval of the option by Frank and Zigmund Kievitt was legally insufficient.
Plaintiff claims that at the time he negotiated the lease and option he had no knowledge of any reason why Winberry could not effect this transaction. The proofs, however, indicate otherwise. Plaintiff had originally gone into possession of a part of the premises as tenant of the corporate owner. Griffith, who was a partner in Griffith Chemical Company, testified that he had gone to Winberry to discuss the lease at Frank Kievitt's suggestion and that he assumed that Kievitt Beverage Co. was the owner of the premises at the time. Neilley, the other partner, testified that he thought Mrs. Donohue owned the property at the time the lease was signed. However, he conceded that he had discussed the matter of the lease with Frank Kievitt a number of times and had gone to see Winberry at Frank Kievitt's suggestion. Winberry testified that Frank and Zigmund Kievitt were both present in his office with Neilley when the details of the lease were worked out and they all concurred in the terms of the lease. Under the circumstances, the tenant, in negotiating as important a matter as the option to purchase, could not ignore matters sufficient to put it on notice.
The conclusion is that Winberry lacked power and authority to grant the option to purchase; there was no authorization, approval or ratification of his act by the corporate owner, and plaintiff had knowledge that Winberry was not acting on his own behalf sufficient to put plaintiff on inquiry.
The judgment in favor of plaintiff is reversed and the matter remanded for the entry of a judgment in favor of defendants. No costs."