Opinion
CIVIL ACTION NO. 02-CV-10029-GAO
December 8, 2003
MEMORANDUM AND ORDER
The plaintiff, Rezendes Family Limited Partnership No. 1 ("Rezendes"), brought this suit against the Trustees of D.I. Trust II ("Trust") for breach of a Purchase and Sale Agreement ("Agreement"). The Trust has moved for summary judgment arguing that the Agreement is not enforceable because it was neither executed, authorized, nor ratified by the Trustees. For the reasons set forth below, the Trust's motion for summary judgment is GRANTED.
I. Summary of Undisputed Facts of Record
Rezendes is a limited partnership that purchases and develops real property. Its general partner is Rezendes Associates, Inc. Marianne Rezendes and Kenneth R. Rezendes, Jr. are principals of Rezendes Associates and act on its behalf.
The Trust was formed to facilitate the disposition of property that had been owned by Dighton Industries Company. The Trust's Declaration of Trust, which is publicly recorded in the Bristol County Registry of Deeds, appoints three Trustees and provides that "all three Trustees shall act together in any matter or thing concerning the Trust, except any Trustee may delegate his rights hereunder to any other Trustee." Declaration of Trust at ¶ 5. Throughout 2001, the defendants, Lawrence S. Gates, Andrew A. Gates, and Ellis S. Waldman, were the three Trustees of the Trust.
Lawrence Gates resigned as Trustee in December 2001.
In early 2001, Joseph Coelho, who was not a Trustee, contacted Marianno Rezendes and offered to sell a parcel of the Trust's property in Freetown, Massachusetts. Marianno Rezendes expressed interest in the property, and during subsequent conversations, he and Coelho negotiated and agreed upon a price. On May 16, 2001, Kenneth Rezendes executed the Agreement for the Freetown property on behalf of the Rezendes partnership; Coelho also executed the Agreement, purportedly on behalf of the Trust. Trustees Waldman and Andrew Gates had no knowledge of the negotiation or execution of the Agreement and had not authorized Coelho to act on behalf of the Trust to conclude such agreements. On May 21, 2001, Rezendes forwarded the Agreement and a $5,000 deposit to its attorney, Mark L. Levin, who in turn forwarded the $5,000 deposit to the Trust. Pursuant to the Agreement, the Trust was to convey the property to Rezendes on July 10, 2001.
As the closing date approached, Trustee Lawrence Gates contacted Attorney Levin, indicated that one of the other Trustees was not available to execute the deed, and asked for an extension of the closing date. On July 9, 2001, Attorney Levin and Lawrence Gates executed an Extension of Purchase and Sale Agreement ("Extension"), which set a new closing date of July 25, 2001. In July, Lawrence gates and Attorney Levin exchanged draft deeds and draft Trustee's Certificates. On July 24, 2001, Lawrence Gates again informed Attorney Levin that one of the other Trustees was not available to execute the deed. Lawrence Gates and Attorney Levin then agreed on a new closing date of August 1, 2001.
Throughout his dealings with Attorney Levin, Lawrence Gates acted without the consent or knowledge of the other Trustees, Andrew Gates and Waldman. When Andrew Gates and Waldman first learned of the Agreement and the Extension at the end of July 2001, they informed Lawrence Gates that they would not authorize the sale of the property. Neither Andrew Gates nor Waldman communicated directly with Rezendes or Attorney Levin concerning the proposed purchase and sale.
Around August 1, 2001, Lawrence Gates informed Attorney Levin that one of the other Trustees refused to execute the deed. Attorney Levin indicated that Rezendes was prepared to close the transaction. Lawrence Gates told Attorney Levin that he would meet with the other two Trustees within the next two weeks and would update Attorney Levin on their position. Lawrence Gates contacted Attorney Levin later in August and indicated that he had met with the other two Trustees and that although the matter was not resolved he hoped to resolve it by the end of August. On September 5, 2001, Lawrence Gates informed Attorney Levin that he still had not resolved the dispute with the other Trustees but that he anticipated that he would eventually resolve it. Attorney Levin sent a letter to Lawrence Gates on October 22, 2001, making a final plea. Lawrence Gates did not reply, and the Trust never conveyed the property to Rezendes. During the time that Lawrence Gates and Attorney Levin negotiated extensions of the closing dates, Rezendes paid two property tax bills for the subject property.
In December 2001, Rezendes filed a complaint in the Bristol County Probate and Family Court seeking to compel the Trust to convey the property and seeking damages resulting from the Trust's failure to perform. The Trustees removed the action to this Court and moved to dismiss the action. This Court denied the motion to dismiss, and after discovery, the Trust moved for summary judgment.
II. Discussion A. The Agreement.
The Agreement is not enforceable against the Trust. The Declaration of Trust at ¶ 5 provides that "all three Trustees shall act together" to bind the Trust. It is undisputed that none of the Trustees signed the Agreement. It is also undisputed that two of the Trustees, Andrew Gates and Waldman, did not authorize Coelho to act on their behalf in executing the Agreement. On the undisputed facts, Coelho's execution of the Agreement cannot be said to have been an act of the Trustees sufficient to create a contract enforceable against the Trust.
Rezendes' argument that it reasonably believed that Coelho was acting on behalf of the Trust is unavailing. Rezendes knew throughout its dealings with Coelho that it was trying to purchase property from a Trust. In fact, Coelho's signature appears on the Agreement above the words "D.I. Trust II." Under Massachusetts law, Rezendes had a duty to inquire into the extent of Coelho's authority to act on behalf of the Trust as its purported agent. See Downey v. Whistler, 188 N.E. 243, 244 (Mass. 1933); Horowitz v. State St. Trust Co., 186 N.E. 74, 75-76 (Mass. 1933). Examination of the declaration of Trust, recorded at the Registry of Deeds, would have revealed (1) that Coelho was not a Trustee and (2) that all three Trustees must act together in order to bind the Trust. Rezendes remained ignorant of Coelho's lack of authority at its own peril. See Cauman v. American Credit Indem. Co. of New York, 118 N.E. 259, 261 (Mass. 1918).
B. Ratification.
Rezendes has argued that even if the Agreement is not binding it should be enforced because the Trust ratified the contract by its conduct after Coelho signed it. The argument fails as a matter of law because the undisputed evidence reveals that the Trust did not ratify the Agreement, and no reasonable fact-finder could conclude differently.
"Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act . . . is given effect as if originally authorized by him." Restatement (Second) of Agency § 82. "Affirmance is either (a) a manifestation of an election by one on whose account an unauthorized act has been done to treat the act as authorized, or (b) conduct by him justifiable only if there were such an election."Id. at § 83. "Under Massachusetts law, ratification of an agent's acts may be expressed or implied and, as a general proposition, the principal must have full knowledge of all material facts." Inn Foods. Inc. v. Equitable Co-operative Bank, 45 F.3d 594, 597 (1st Cir. 1995).
There is no evidence that Andrew Gates and Waldman ratified the Agreement. In particular, the plaintiff offers no evidence that these two Trustees were aware in May that Coelho had entered into the Agreement with Rezendes. From the undisputed facts, it appears that they first learned of the proposed transaction in late July 2001 when Lawrence Gates asked them to execute the deed, and they promptly repudiated the proposed sale. Lawrence Gates then notified Attorney Levin that at least one of the Trustees would not accept the transaction. There is no basis for finding ratification on these facts.
Notwithstanding the other Trustees' prompt repudiation of the transaction when they learned of it, Rezendes argues that Lawrence Gates alone could ratify the Agreement because he acted as the Trust's attorney in his dealings with Attorney Levin, and Rezendes reasonably believed that as the Trust's attorney he could bind the Trust. In support, Rezendes has offered evidence that Lawrence Gates, an attorney with his own private practice, communicated with Attorney Levin on law firm stationary and that he drafted legal documents concerning the transaction, such as the deed and Trustee's Certificate. It also argues that Lawrence Gates never disavowed the Agreement and that he continued to keep the deal alive by extending the closing date and promising to work with the Trustees to consummate the transaction.
Rezendes could not have reasonably believed that Lawrence Gates had the authority to bind the Trust. As explained above, Rezendes is deemed to have had constructive notice of the terms of the Trust. Further, Lawrence Gates himself gave Rezendes actual notice that he could not act alone to bind the Trust when he notified Rezendes twice in July 2001 that the closing had to be delayed because one of the other Trustees was not available. Rezendes proceeded at is own peril when it ignored the obvious and continued to believe that it had a binding contract.
III. Conclusion
The Purchase and Sale Agreement is not a valid contract and the Trust never ratified it. Accordingly, the Trust's motion for summary judgment is GRANTED. Judgment shall enter in favor of the Trust on all of Rezendes' claims. The lis pendens approved by the state court and on file in the Registry of Deeds in DISSOLVED.
It is SO ORDERED.