## Facts

- William A. Coleman originally owned New Technology Electrical Contractors, Inc. (New Tech) and later sold New Tech to Integrated Electrical Services, Inc. (IES), but Coleman remained New Tech’s president.
- New Tech decided to relocate its operations to a Hillsboro, Oregon property owned by Milestone Investment Co., L.L.C. (Milestone), another Coleman entity.
- A written lease for the property was executed in 2001 and signed by C.D. Crouser, New Tech’s vice president of finance, for New Tech, and by Coleman for Milestone.
- Summit Properties, Inc. (Summit) intended to purchase the property from Milestone. During due diligence, Summit asked about the tenant’s identity and its relationship to IES.
- IES’s senior counsel told Summit that New Tech was IES’s wholly owned subsidiary; Summit also knew IES was not identified in the lease as a guarantor.
- After the lease was executed and Summit bought the property, New Tech moved into the premises and used the space for about two years, paying rent and operating from the location.
- IES personnel also used the premises. IES’s chief operating officer attended an event at the location, IES announced New Tech’s move in a company newsletter, and signage identifying IES and New Tech appeared at or near the property.
- New Tech’s finances later deteriorated. IES terminated Coleman. Although IES’s COO received a copy of the lease in August 2002, IES later investigated and concluded in 2003 that the lease had not been approved through proper corporate authority.
- New Tech and IES sued in Texas state court, contending that misconduct by Coleman and Crouser rendered the lease void. That case was removed, transferred to Oregon, and consolidated with Summit’s Oregon action.
- Summit sought declaratory relief that the lease was valid and enforceable and asserted breach claims; New Tech and IES asserted defenses including lack of authority, Statute of Frauds, a “nonexistent entity” theory, and fraudulent inducement, and sought declarations that the lease was invalid and that they were not liable.

## Issues

1. Whether New Tech was bound by the lease despite claimed internal failures of corporate authorization for Crouser to sign it.
2. Whether New Tech’s occupancy, rent payments, and continued use of the premises constituted ratification of the lease even if the initial execution lacked proper authority.
3. Whether the lease failed under the Statute of Frauds or because the tenant was allegedly misidentified or “nonexistent.”
4. Whether Summit could hold IES (the parent company) liable as a tenant or obligor on the lease based on IES’s communications and conduct, even though IES did not sign the lease and was not named as guarantor.

## Decision

- The magistrate judge issued Findings and Recommendations concluding that the lease was valid and enforceable against New Tech and recommending declaratory relief in Summit’s favor on that point.
- The court rejected New Tech and IES’s attempt to treat internal authorization problems as making the lease void where New Tech accepted the lease’s benefits by moving in, operating from the site, and performing under the lease for a substantial period.
- The court rejected arguments that the lease was unenforceable as a matter of law due to the Statute of Frauds or minor irregularities in how the tenant was described, given New Tech’s performance under the lease.
- As to IES, the court did not treat IES as a co-tenant merely because it owned New Tech, approved the move, or publicly associated itself with the facility; the absence of a signed writing by IES limited Summit’s ability to impose direct tenant liability on IES for a multi-year real-property lease.
- The recommendations therefore supported enforcement of the lease against New Tech while limiting Summit’s effort to impose direct lease liability on IES on a co-tenant theory.

## Legal Principles

- A corporation may be bound by a contract executed by an officer who appears authorized, particularly where the corporation’s conduct would cause a reasonable counterparty to believe the officer had authority.
- Ratification can bind a principal to an initially unauthorized agreement when, with knowledge of the material terms, the principal accepts the agreement’s benefits or fails to promptly repudiate after learning of it.
- Internal corporate limits on authority do not necessarily defeat enforcement against an outside party when the corporation’s outward actions and subsequent performance indicate acceptance of the deal.
- The Statute of Frauds generally requires a signed writing to impose direct tenant obligations under a multi-year lease of real property; a non-signatory parent company is not automatically a lessee based only on ownership, shared use, or public association with the premises.
- Minor naming or identity irregularities generally do not void a lease where the parties’ performance shows which entity occupied and paid under the agreement.

## Conclusion

Summit Properties enforced the Campus Way lease against New Tech because New Tech’s officer signed the lease and New Tech then performed under it for an extended period, which supported authority and ratification theories despite claims of flawed internal approval; however, the court did not treat IES as a co-tenant in the absence of a signed writing by IES, limiting parent-company liability based solely on corporate relationship and conduct.


Summit Properties, Inc. v. New Technology Electrical Contractors, Inc., 2004 WL 1490327 (2004)