In Goldston v. Bandwidth Tech. Corp. , Jonathan Star, president of Bandwidth Tech. Corp., entered into an agreement with Alan Goldston to provide "legal services" in exchange for 4 shares of Bandwidth stock (representing a 2% interest in the company).
Two months after the agreement was reached, when a Goldston & Schwab partner -- Alan Schwab -- left the firm, Bandwidth decided to relieve Goldston of his duties and refused to honor the retainer agreement's terms. (Bandwidth contended that the person who signed the agreement had no authority to bind the corporation, and that Goldston performed "little or no work for them.")
The New York County Supreme Court found the retainer agreement unenforceable because Star failed to get approval from Bandwidth's board of directors. On appeal, the Appellate Division, First Department, reversed and awarded Goldston "2% of Bandwidth Technology Corp.'s authorized and outstanding shares."
The AD1 noted "the true test" of an individual's authority to bind a corporate entity is whether the "signor is engaged in the discharge of the general duties of his office, and in the business of the corporation." Since the individual acted with "apparent authority," and because Bandwidth accepted the law firm's services, it was of no consequence that Star acted without board approval.
The AD1 also determined that because the agreement was retroactive, the argument Goldston performed little work after the agreement's execution was unpersuasive. (Schwab's resignation from the firm also didn't impede a recovery in this instance.)
We sign off on that!
For a copy of the Appellate Division's decision, please use this link: Goldston v. Bandwidth Tech. Corp.