Matter of August Investors, Inc. v. Hampton Sales, Inc., 68 N.Y.2d 776 (1986)
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An agent’s knowledge is generally imputed to the principal, but this rule does not apply when the agent is acting adversely to the principal’s interests; however, a mere conflict of interest is insufficient to invoke the adverse interest exception; the agent must have totally abandoned the principal’s interests.
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Summary
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August Investors sued Hampton Sales, alleging a breach of an agreement to transfer stock. The core issue revolved around whether Hampton Sales had notice of August Investors’ claim when it acquired the stock. The court held that while an agent’s knowledge is typically imputed to the principal, the “adverse interest” exception may apply if the agent acts against the principal’s interests. The court found that there were triable issues of fact as to whether Hampton Sales, Inc. had imputed knowledge of August Investors’ claim at the time it took delivery of the shares because its agent, attorney Gross, had knowledge of the obligation to August Investors. However, the court also held that the plaintiff failed to raise a triable issue of fact as to the corporate defendant’s actual knowledge prior to delivery of the stock.
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Facts
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Frank Silverman agreed to transfer 10 shares of Hampton Affiliates, Inc. (later Hampton Sales, Inc.) to August Investors. At the time, the shares were pledged and not immediately deliverable. Silverman later transferred all shares to individual and corporate defendants without fulfilling the agreement with August Investors. The individual defendants took delivery of their shares without notice of August Investors’ rights. Defendant Gross, an attorney and director of Hampton Sales, Inc., knew of Silverman’s obligation to August Investors.
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Procedural History
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August Investors brought an action against Hampton Sales, Inc. and other defendants. The trial court granted summary judgment in favor of some defendants. The Appellate Division modified the trial court’s decision. The case then reached the New York Court of Appeals.
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Issue(s)
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1. Whether the knowledge of an agent (Gross) should be imputed to the principal (Hampton Sales, Inc.), thereby negating the corporation’s claim of being a bona fide purchaser without notice.
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2. Whether the