A company can’t void real estate contracts where there is conflicting evidence about whether the property sales were informally or formally approved by the corporate seller’s leaders, a state appeals court ruled Tuesday.
In an opinion examining state business corporation law and the circumstances in which informal decisions may replace corporate formalities, an Appellate Division, First Department panel decided that St. Marks Assets’ motion to win summary judgment declaring void two contracts of sale with buyer Elliot Sohayegh must be denied.
The unanimous panel’s decision affirmed Manhattan Supreme Court Justice Lynn Kotler’s June ruling denying St. Marks Assets’ summary judgment motion. The panel also affirmed Kotler’s denial of St. Marks Assets’ motion to dismiss Sohayegh’s counterclaim for specific performance of the sales.
The panel wrote that two contracts were at issue, both executed by St Marks Assets’ president, for the sale of two unnamed Manhattan properties to Sohayegh.
Summary judgment rescinding the sales was precluded, the panel said, because there were triable issues regarding whether state Business Corporation Law §909(a) applied to the circumstances surrounding the sales.
Business Corporation Law §909(a) sets out a procedure under which a sale or other disposition of all or substantially all of a corporation’s assets can be executed if the transaction was not made in the company’s usual or regular course of business.
The panel, composed of Justices John Sweeny, Dianne Renwick, Angela Mazzarelli, Jeffrey Oing and Peter Moulton, wrote that in the case of the St. Marks Assets’ sales of the two properties, there is “conflicting evidence” about whether the sale of real property is outside the regular course of business and whether the properties’ sales would dispose of substantially all of the company’s assets.
In addition, the justices wrote in St. Marks Assets v. Sohayegh that “while there is no dispute that the sale was not formally approved by shareholder vote, there is evidence that all shareholders informally approved of the properties’ sale, and that [St. Marks Assets’] directors regularly dispensed with corporate formalities, such as shareholder meetings.”
“If corporate formalities are customarily dispensed with and the affairs of a close corporation are carried on through informal conferences, decisions reached by all the directors and shareholders at informal conferences bind the corporation,” the justices explained, quoting Leslie, Semple & Garrison v. Gavit & Co.
The panel also wrote—citing DeSario v. SL Green Mgt.—that “a credibility determination, which is not appropriate on summary judgment” was needed to assess St. Marks Assets’ argument that Sohayegh was putting forward “fabrications” when he claimed that the property sales were approved by all of St. Marks Assets’ shareholders.
Joshua Price of The Price Law Firm in Manhattan, who represented Sohayegh, said that “it is very pleasing to my client that a closely held corporation is to not going to be able to exult technical form over the reality that there was a complete agreement between all shareholders and my client for the sale of these properties.”
Howard Wintner, an attorney at the Abramson Law Group in Manhattan, represented St. Marks Assets. He could not be reached for comment.