Linden Homes, Inc. v. Larkin

Horney, J., delivered the opinion of the Court. Linden Homes, Inc., and Cloverdale Construction, Inc., were organized at the same time and had the same stockholders, directors and officers. The boards of directors of each corporation had authority to borrow money and to make and issue notes and other evidences of indebtedness, but Linden Homes had never borrowed money without the express approval of its board and the entry of such approval in the minutes of the corporation, and it had not authorized its president to execute the promissory note sued on in this action. Cloverdale Construction erected houses on land owned by Linden Homes.

Linden Homes sold the houses and received the proceeds of sale. And both corporations shared in the profits from the sales. M. Robert Gimbel, who was the president of both, signed the note in the name of both corporations. Richard A. Larkin, who had made a $5000 loan to Clover-dale Construction, was the holder of the note sued on.

The twofold question presented on appeal is whether the president of the corporations had authority to bind Linden Homes for a loan made to Cloverdale Construction by executing a promissory note to the lender in the name of both corporations, and, if not, what effect did the indirect receipt by Linden Homes of benefits from the proceeds of the loan have on its responsibility to repay all or part of the note. The loan was made by way of a cashier’s check payable to Richard A. Larkin. The check was endorsed by him “to the order of” Cloverdale, Inc. The only other endorsement of the check was “for deposit only” to the credit of “Cloverdale, Inc.” The check was delivered to Gimbel and he, in turn, delivered the note (payable in monthly installments) to Larkin. The proceeds of the note were used by Cloverdale Construe ⁵⁶⁹ tion to pay its corporate bills for labor and materials used in constructing the houses and other corporate obligations.

When the first monthly payment was not made, Larkin filed this action against both corporations and also a motion for summary judgment supported by affidavit. Linden Homes filed a plea to the declaration and an answer to the motion supported by an opposing affidavit. The trial court having summarily determined that there was a genuine dispute as to a material fact, entered an order denying the motion for summary judgment and the case came on for trial before a jury. At the close of the plaintiff’s case, Linden Homes moved for a directed verdict in its favor and renewed the motion at the conclusion of the entire case.

Both motions were denied. The plaintiff then moved a second time for a summary judgment. The motion was granted and judgment was entered against both corporations in favor of the plaintiff for the full amount of the note and accrued interest. Linden Homes appealed, but Cloverdale Construction did not. [Since the parties as well as the trial court seem to have treated the second motion for a summary judgment as if it were a motion for a directed verdict in favor of the plaintiff (which in effect it was), we shall do likewise.]