New York Law Review

Tag: 1990

  • Collision Plan, Inc. v. Bank of New York, 75 N.Y.2d 862 (1990): Duty to Inquire into Apparent Authority

    Collision Plan, Inc. v. Bank of New York, 75 N.Y.2d 862 (1990)

    When a bank relies on the apparent authority of a corporate officer in a transaction that is extraordinary, such as a corporation guaranteeing the debt of an unrelated entity, the bank has a duty to make a reasonable inquiry into the officer’s actual authority.

    Summary

    Collision Plan, Inc. sued Bank of New York, alleging the bank failed to properly investigate the authority of Nicholas Neu to execute a mortgage and guarantee on behalf of Collision. The Court of Appeals held that while the bank could rely on apparent authority, the unusual nature of the transaction—a corporation guaranteeing the debt of an unrelated corporation—triggered a duty of reasonable inquiry. The court found the bank’s internal memoranda evinced an understanding of the peculiarity of the mortgage. The Court reinstated most of the complaint, except for causes of action related to slander of title, attorney’s fees, and punitive damages, which were properly dismissed.

    Facts

    Richard Albert sought a loan from the Bank of New York. As collateral, a mortgage and guarantee were provided by Collision Plan, Inc., a corporation seemingly unrelated to Albert’s business. Nicholas Neu, purportedly acting on behalf of Collision, executed the agreement, mortgage, and guarantee. Albert also signed the secretary’s certificate of resolution, which authorized the mortgage on behalf of Collision. The bank’s internal documents suggested awareness of the unusual nature of the arrangement.

    Procedural History

    Collision Plan, Inc. sued the Bank of New York. The trial court granted the bank’s motion to dismiss the complaint. The Appellate Division affirmed. The Court of Appeals modified the Appellate Division’s order, reinstating the complaint except for the sixth, seventh, and eighth causes of action, which were dismissed.

    Issue(s)

    Whether the Bank of New York had a duty to investigate the circumstances surrounding the mortgage transaction involving Nicholas Neu and Richard Albert, given that the transaction involved a corporation guaranteeing the debt of an unrelated corporation.

    Holding

    Yes, because when a bank invokes the doctrine of apparent authority to justify its actions in an extraordinary transaction, it concomitantly assumes a duty of reasonable inquiry as to the agent’s actual authority.

    Court’s Reasoning

    The Court reasoned that while reliance on apparent authority may be justified in many situations, the nature of the transaction in this case was so unusual that it should have prompted the bank to investigate Neu’s actual authority. Specifically, the court stated, “The mortgage arrangement should have triggered the duty of reasonable inquiry since a gratuitous guarantee by a corporation of a debt of an unrelated corporation is extraordinary.” The court pointed to Business Corporation Law § 908, which requires express shareholder authority for contracts of guarantee and suretyship not in the regular line of corporate business. Furthermore, the court noted that the bank’s internal memoranda indicated an understanding of the peculiarity of the mortgage, and Albert’s signature on the secretary’s certificate of resolution was inconsistent with his position as the loan’s prime beneficiary. The court cited Ford v Unity Hosp., 32 NY2d 464, 472-473 stating that invoking the doctrine of apparent authority assumed a duty of reasonable inquiry as to Neu’s actual perimeter of authority. Regarding the dismissed causes of action, the court noted the slander of title claim lacked an allegation of special damages, the claim for attorneys’ fees lacked an allegation of malice, and punitive damages cannot be a separate cause of action and require an allegation of malice or wanton and reckless conduct. The court referenced Drug Research Corp. v Curtis Pub. Co., 7 NY2d 435, 441 and City of Buffalo v Clement Co., 28 NY2d 241, 263.

  • People v. Legister, 75 N.Y.2d 832 (1990): Juror’s Independent Investigation and Prejudice

    People v. Legister, 75 N.Y.2d 832 (1990)

    A jury verdict should be set aside when a juror conducts an independent investigation into a fact in issue and shares the results with other jurors, creating a substantial risk of prejudice to the defendant.

    Summary

    The New York Court of Appeals reversed a conviction due to juror misconduct. During deliberations in a robbery case involving the issue of visibility from a vehicle, a juror conducted an independent investigation by observing the scene from her own car and shared her findings with the other jurors. The court held that this unauthorized investigation and communication of its results created a substantial risk of prejudice, thus warranting a new trial. The concurring opinion emphasized the importance of jurors using their background experience but distinguished it from actively seeking new evidence outside the trial.

    Facts

    The defendant was convicted of robbery. A key issue at trial was whether a witness could have clearly seen the events from a certain vantage point inside a vehicle. During jury deliberations, one of the jurors, without authorization, drove her own vehicle to the location in question to assess the visibility. She then reported her observations to the other jurors.

    Procedural History

    The trial court convicted the defendant. The Appellate Division affirmed the conviction, finding no prejudice resulting from the juror’s actions. The case was then appealed to the New York Court of Appeals.

    Issue(s)

    Whether a juror’s unauthorized independent investigation into a material fact and communication of the findings to other jurors warrants setting aside the jury verdict.

    Holding

    Yes, because the juror’s independent investigation and communication of her findings created a substantial risk of prejudice to the defendant.

    Court’s Reasoning

    The Court of Appeals determined that the juror’s conduct constituted improper and prejudicial behavior. The court emphasized that jurors must base their verdicts solely on the evidence presented at trial. An independent investigation by a juror introduces evidence that the defendant has no opportunity to confront or cross-examine. The court reasoned that “[t]o allow a jury to consider evidence which was not introduced at trial is a violation of a defendant’s fundamental right to confront and cross-examine witnesses.” The court found that the juror’s experiment, which involved specific observations about visibility from a car, was directly related to a central issue in the case. Because the juror shared her findings with the other jurors, the court concluded that there was a substantial risk of prejudice to the defendant. The concurring opinion argued that jurors inevitably draw upon their own experiences, but distinguished that from actively seeking new evidence related to the specific facts of the case. Judge Fuchsberg stated, “In persuading one another to their respective viewpoints, and indeed in resolving their own doubts, jurors, like other people, employ the products of their education and experience…That is essentially all that happened in this case.” However, the majority found the juror’s actions exceeded the permissible use of background experience and created a prejudicial situation requiring a new trial.