The opinion of the court was delivered by: SOFAER
In this action, plaintiff General Overseas Films, Ltd. ("GOF") seeks to collect on a loan guarantee that it alleges was provided on behalf of The Anaconda Company ("Anaconda") by Charles H. Kraft, Anaconda's Vice President and Treasurer. Plaintiff GOF claims that Anaconda promised through Kraft to guarantee the repayment of loans made by GOF to Robin International, Inc. ("Robin"). Plaintiff also claims that Anaconda, acting through Kraft, guaranteed Robin's obligations and liabilities in connection with certain related transactions.
In 1976, Nicholas Reisini approached Robert Haggiag, whom he had known since 1955, for a loan of $ 500,000 to Robin, a company that Reisini owned and controlled. Haggiag, an international film producer, was and is "solely empowered and responsible for the operations and transactions of GOF." (Haggiag Aff. at 1) Reisini told Haggiag that Robin was building the Soviet Union's United Nations Mission in Riverdale, New York. (Haggiag Dep. at 21) Haggiag's brother, Ever Haggiag, was interested in acquiring the rights to a building process used in constructing the mission. Reisini told Haggiag that there were claims of approximately $ 1,000,000 against the project, but that he believed the claims could be settled for about one-half that amount.
Haggiag agreed on behalf of GOF to lend Robin and Reisini $ 500,000 for the purpose of settling the claims against Robin. Reisini promised to repay the loan at six percent interest and, in addition, to pay GOF fifty percent of whatever savings could be achieved through the settlement of claims pending against the project. (Haggiag Aff. at 5) Defendant explains in its memorandum that "(although) the purpose of the initial loan was allegedly a step in the acquiring of (the) rights (to the construction process) by Ever Haggiag, the initial transaction and documentation ... only pertained to assisting Reisini in alleviating the debts ... (that) had (been) incurred in the construction of the mission." (Def.Mem. at 6) The agreement was executed on May 28, 1976, and the money was placed in escrow with a law firm.
Several months later, Haggiag was advised that a portion of the $ 500,000 had been used to settle claims but that the remainder of the money had been transferred to Reisini with Ever Haggiag's approval. Reisini told Haggiag that he had transferred the funds to Robin, and was attempting to settle the pending claims himself. He requested that Haggiag postpone demanding payment, and promised that he would pay the full amount by January 15, 1977, the second payment date under the original loan agreement. In November 1976, Haggiag asked Reisini about payment on the note. Reisini assured Haggiag that the money due him would be paid, but that presently he was short of cash. (Haggiag Aff. at 7) Thereafter, Reisini asked Haggiag to consider whether he would extend the January 15 due date if Reisini could provide a guarantee from a large public company. Reisini mentioned the name Anaconda and said that the company had some involvement in constructing the mission in Riverdale. (Id. at 7)
Reisini introduced Haggiag to Charles Kraft, who was then Vice-President and Treasurer of Anaconda. Kraft told Haggiag that Anaconda would guarantee Robin's debt to GOF for up to $ 1,000,000. Reisini agreed to give GOF a $ 1,000,000 note, and Kraft agreed to provide Anaconda's guarantee for the same amount. Reisini also asked Haggiag to advance more funds to Robin so that the loan would conform with the principal amount of the note Robin would issue to GOF. Haggiag declined to do so; but on or about December 1, 1976 he did advance on behalf of GOF an additional $ 60,000. Haggiag met with Kraft and Reisini on December 13, 1976 and received the note and guarantee, which specified September 13, 1977 as the due date.
Shortly before September 13, 1977, Reisini again told Haggiag that he did not have the cash to pay the note. He assured Haggiag that the money would be forthcoming and asked Haggiag to extend the due date. Haggiag agreed, and also exchanged the $ 1,000,000 note for an $ 800,000 note. The parties agreed upon the $ 800,000 figure after taking into consideration the advances made by Haggiag, interest on the advances, and the savings effected through settlement of claims on the Riverdale construction project. In addition, Haggiag received a letter from Kraft purporting to confirm the continuation of Anaconda's guarantee, but only to the extent of $ 800,000.
Just before December 15, 1977, the due date of the $ 800,000 note, Reisini asked Haggiag for yet another extension. Haggiag agreed to return the $ 800,000 note in exchange for two notes, one in the amount of $ 500,000, payable January 31, 1978, and the other for $ 300,000, payable March 13, 1978.
Reisini paid Haggiag $ 500,000, satisfying the first note. Before the $ 300,000 note became due, however, Reisini once again asked for Haggiag's forbearance. Haggiag agreed to accept a $ 300,000 demand note in exchange for the $ 300,000 note due March 13. Soon after, Haggiag learned that Reisini and Kraft had been implicated in a number of fraudulent transactions.
Haggiag demanded payment, but Reisini and Robin have not paid. Robin apparently has no defense, but is insolvent. See Letter from Chester B. Salomon to Robert Wang (June 1, 1982). GOF is therefore seeking to recover from Anaconda on the basis of the guarantee extended by Kraft in Anaconda's name.
Soon after this case was filed the parties were informed that the Court would deny any motion for summary judgment, as it had in a related case that was later settled. The parties nevertheless wished to avoid a trial, and have stipulated to submit the case for judgment by the Court, in lieu of trial, upon an agreed record. They have agreed with the Court's approval to waive any right to call witnesses or to cross-examine them, beyond the examinations contained in the depositions and trial transcripts submitted. Accordingly, the Court has examined all materials and memoranda of law submitted by the parties in support of judgment. The facts necessary to dispose of this case appear undisputed on close examination of the record. In any event, if disputes as to material facts exist, they are resolved in accordance with the findings and conclusions in this opinion.
Anaconda asserts as its primary defense to the action that the guarantee extended by Kraft does not bind Anaconda, since Kraft lacked actual or apparent authority to engage in the transaction. Plaintiff concedes that Kraft had no actual authority to bind Anaconda to this undertaking; it relies solely on Kraft's apparent authority to do so. Since on this record it is clear that Kraft lacked apparent authority to engage in the transactions considered, Anaconda's other defenses need not be addressed.
The general rule in New York is that "(o)ne who deals with an agent does so at his peril, and must make the necessary effort to discover the actual scope of authority." Ford v. Unity Hospital, 32 N.Y.2d 464, 472, 346 N.Y.S.2d 238, 244, 299 N.E.2d 659, 664 (1973). The doctrine of apparent authority delineates the grounds for imposing on the principal losses caused by its agent's unauthorized acts. The law recognizes that an agent, such as Kraft, may engage in a fraudulent transaction entirely without his principal's approval but nevertheless under circumstances that warrant holding his principal accountable. As the Court of Appeals for this Circuit explained:
Apparent authority is based on the principle of estoppel. It arises when a principal places an agent in a position where it appears that the agent has certain powers which he may or may not possess. If a third person holds the reasonable belief that the agent was acting within the scope of his authority and changes his position in reliance on the agent's act, the principal is estopped to deny that the agent's act was not authorized.
Masuda v. Kawasaki Dockyard Co., 328 F.2d 662, 665 (2d Cir. 1964). The doctrine rests not upon the agent's acts or statements but upon the acts or omissions of the principal. It is invoked when the principal's own misleading conduct is responsible for the agent's ability to mislead. Ford v. Unity Hospital, supra, 32 N.Y.2d at 473, 346 N.Y.S.2d at 244, 299 N.E.2d ...