Were Two Real Estate Deeds Authorized/Prohibited Under the POA?
In October 2016, Mustafa Choudari executed a deed purporting to convey title to property located at 1474 Broadway in Brooklyn from Mohammad Choudari, his brother, to Mohammad and Mustafa, jointly. In February 2017, Mohammad commenced an action, pursuant to RPAPL article 15 against Mustafa to quiet title to that property, alleging that Mustafa forged his name on the October 2016 deed.
In March 2017, Mustafa executed a second deed purporting to convey title to property located at 1472 Broadway in Brooklyn from Mohammad to Mohammad and Mustafa, jointly. In June 2017, Mohammad commenced another action to quiet title to that second property, alleging that the March 2017 deed was also forged. Mustafa asserted counterclaims, alleging, in effect, that the properties were purchased as part of a joint venture agreement between the brothers. The actions were subsequently consolidated.
In June 2018, Mustafa moved for leave to amend his answer to assert a counterclaim sounding in constructive trust based upon the alleged joint venture agreement. Mohammad opposed the motion and cross-moved for summary judgment on his causes of action to declare the deeds null and void. In opposition to the cross-motion, Mustafa asserted that he validly executed the deeds as attorney-in-fact for Mohammad pursuant to a power of attorney granted to Mustafa by Mohammad in 2006.
In an order dated October 21, 2020, Supreme Court denied Mustafa’s motion for leave to amend his answer and granted Mohammad’s cross-motion for summary judgment, determining that the two deeds were deeds were null and void. In an order and interlocutory judgment dated December 10, 2020, the court granted Mohammad’s cross-motion for summary judgment on his causes of action to declare the deeds null and void, declared and adjudged the deeds null and void, and directed the County Clerk to remove them from its records. Mustafa appealed.
Contrary to Mohammad’s contention, the record did not establish, as a matter of law, that the deeds were forgeries, given that the power of attorney authorized Mustafa to execute real estate transactions on his behalf.
However, Supreme Court properly concluded that Mohammad was entitled to summary judgment declaring and adjudging the deeds null and void. A power of attorney is clearly given with the intent that the attorney-in-fact will utilize that power for the benefit of the principal. Because the relationship of an attorney-in-fact to his principal is that of agent and principal, the attorney-in-fact must act in the utmost good faith and undivided loyalty toward the principal, and must act in accordance with the highest principles of morality, fidelity, loyalty and fair dealing.
Absent a specific provision in the power of attorney document authorizing gifts, an attorney-in-fact, in exercising his or her fiduciary responsibilities to the principal, may not make a gift to himself or a third party of the money or property which is the subject of the agency relationship. Such a gift carries with it a presumption of impropriety and self-dealing, a presumption which can be overcome only with the clearest showing of intent on the part of the principal to make the gift. Further, gifts of the principal’s assets must be in the best interest of the principal.
Here, the evidence in the record demonstrated, as a matter of law, that Mustafa transferred a 50% interest in the properties to himself for nominal consideration, and that the power of attorney did not contain a provision authorizing him, as the attorney-in-fact, to make gifts of the principal’s property to himself. Accordingly, the transfers carried a presumption of impropriety and self dealing. Moreover, the evidence submitted by Mustafa failed to rebut that presumption by raising a triable issue of fact as to whether Mohammed intended the transfers to occur or whether the transfers were in Mohammed’s best interest.
In the absence of prejudice or surprise to the opposing party, leave to amend a pleading should be freely granted unless the proposed amendment is palpably insufficient or patently devoid of merit. The burden of demonstrating prejudice or surprise, or that a proposed amendment is palpably insufficient or patently devoid of merit, falls upon the party opposing the motion.
Here, the proposed counterclaim sounding in constructive trust was not palpably insufficient or patently devoid of merit. Moreover, no evidentiary showing of merit was required. Accordingly, Supreme Court should have granted Mustafa’s motion for leave to amend his answer.